Negotiations between the US president Joe Biden and Republicans on part of the president’s infrastructure spending proposal are ongoing.
”We expect failure, with Democrats moving on and using the reconciliation process to try to enact the president’s entire Build Back Better/tax hike plan. Even with a deal, reconciliation will be used for the rest plan,” analysts at TD Securities wrote in a note.
Meanwhile, a group of six senators from both parties plans to discuss ideas for an infrastructure package with 20 members later today.
A senator in the group says they’re still working on a topline dollar amount and many details are in flux.
Biden has proposed more than $4tn in new spending and tax credits, equivalent to around of 18% of annual GDP.
Analysts at TD Securities explained that a) The $4tn is spread over 8-10 years, so less than 2% of GDP per year, b) the package includes tax hikes equivalent to about 1% of GDP per year, implying less than a 1%-of-GDP-per-year deficit boost and c) COVID-related stimulus was front-loaded, and the deficit is likely to drop sharply in FY22, even if Congress adds more to spending initially than implied by the administration’s proposals.
However, the theme in the markets is one of inflation and the environment for the US dollar is weaker when considering a central bank that is prepared to do little about it.
