Democrats move ahead with pandemic aid package through budget reconciliation
U.S. Covid infections fall sharply and hopes grow that the worst might be over
U.S. deflator expected to be little changed and contradict the market’s high inflation expectations
Final-Jan U.S. consumer confidence expected to be left unrevised at -1.5 points
Democrats move ahead with pandemic aid package through budget reconciliation — Democratic leaders have indicated they are moving ahead with the budget reconciliation process next week for passing a pandemic aid bill. Both Senate Majority Leader Schumer and House Speaker Pelosi said they are planning votes next week in their respective chambers to begin the budget reconciliation process. The process is convoluted and begins with the passage of a budget resolution.
Democrats do not expect to get any significant cooperation from Republicans on a pandemic aid bill, prompting them to move ahead with the budget reconciliation process that sidesteps the Republican’s 60-vote filibuster power in the Senate. Democrats are looking to stretch the budget reconciliation rules as much as they can to get the maximum number of measures in the bill. They will be able to easily get stimulus checks and extended unemployment benefits into the bill, but it will be harder, and perhaps impossible, to include state-local aid and a hike in the minimum wage.
Democrats clearly will not be able to include increased funding for vaccine deployment in the budget reconciliation bill. On that issue, Democrats will have to get at least ten Republicans on board for a vaccine bill that can vault the 60-vote filibuster in the Senate.
The stock market is seeing support on the prospects for a larger pandemic aid bill through the budget reconciliation process than would be possible in a bipartisan bill. The pandemic aid bill will now be a practice run for the big infrastructure and clean energy bill that Democrats are already planning to pass later this year through budget reconciliation.
Goldman Sachs is forecasting a pandemic aid bill of $1.1 trillion, with the chances being skewed towards a higher-than-expected figure. Goldman is predicting the figure will be above that figure if Democrats use budget reconciliation, or if they split the package into two.
The House will be in session next week as they focus on the pandemic aid bill. The Senate next week will focus on cabinet confirmations and the pandemic aid bill. The Senate has only next week for regular business before they start Mr. Trump’s trial on February 9. Republicans have already made clear that Mr. Trump will not be convicted since there are not 17 Republican votes to convict. As a result, Democrats want to get the trial over as quickly as possible so they can focus on cabinet confirmations and their legislative imperatives.
U.S. Covid infections fall sharply and hopes grow that the worst might be over — The number of new U.S. Covid infections has fallen sharply in the past two weeks, raising hopes that the worst of the pandemic might be over. Infection rates are likely dropping due to increased restrictions and the end of the holiday surge. It is also possible that there is a flu-type seasonal effect for Covid and the seasonal Covid peak has already been passed. Flu typically peaks during the winter, with peaks varying greatly from year to year, anywhere from January to March.
The vaccinations given since December have likely had only a minor impact so far since only about 7% of the U.S. population has received at least one vaccination dose so far. However, vaccinations should have a much larger positive impact in the coming weeks as more people get their second dose and as the vaccination rate speeds up.
There are hopes that the virus can be brought down to nominal levels by late this year. However, that depends heavily on (1) how many people are willing to be vaccinated, (2) whether the new and more transmissible Covid variants spread faster than vaccinations, and (3) whether the vaccinations are fully effective against the Covid variants.
The 7-day moving average of new U.S. Covid infections on Thursday fell to a new 2-1/2 month low of 156,341, the lowest level since mid-November. The 7-day average of U.S. Covid-related deaths remains very high at 3,146, but that is a lagging figure and should drop fairly sharply in coming weeks as fewer people become sick in the first place.
U.S. deflator expected to be little changed and contradict the market’s high inflation expectations — The consensus is for today’s Dec PCE deflator to rise slightly to +1.2% y/y from Nov’s +1.1%, while the core deflator is expected to ease to +1.3% y/y from November’s +1.4%. The expected reports would both be well below the Fed’s +2% inflation target.
The inflation statistics are so far refusing to cooperate with market expectations for inflation to average near +2.11% over the next ten years. Specifically, the 10-year breakeven inflation expectations rate is currently at 2.11%, which is above the Fed’s +2.0% inflation target but at least down from the 2-3/4 year peak of 2.18% posted last week.
Final-Jan U.S. consumer confidence expected to be left unrevised at -1.5 points — The consensus is for today’s final-Jan University of Michigan U.S. consumer sentiment index to be left unrevised from early-January at 79.2, leaving the index down by -1.5 points from December.
U.S. consumer confidence remains weak and has not yet recovered to any major degree from May’s 9-year low of 71.8. The index would have to rise by a hefty +21.8 points to match the pre-pandemic level of 101.0 seen in February 2020. U.S. consumer confidence in the past several months has taken a hit from the pandemic surge that accelerated in November. The good news, however, is that the Covid infection rates are dropping and that consumer confidence should begin to recover somewhat in the coming weeks, assuming the pandemic outlook continues to improve.
