ANALYSIS: Focus is shifting onto whether Biden’s fiscal plan can clear Congress, and on the next part of his fiscal agenda

President-elect Joe Biden’s fiscal package announcement (being dubbed the ‘rescue’ plan) was met with a ‘sell the fact’ reaction, with many of the proposals being flagged in advance. Focus is now shifting on the chances of getting these measures through Congress – which might prove tricky and accordingly may see that USD 1.9trln price tag reduced – as well as on Biden’s next round of fiscal measures (dubbed the ‘recovery’ plan), which will include infrastructure spending.

‘RESCUE MEASURES’: Biden announced a USD 1.9trln stimulus plan, with many of the details flagged in advance. The proposal includes: USD 1,400 direct payments for most Americans, which follows the USD 600 granted in the recent Republican relief plan; raising the weekly federal unemployment benefit to USD 400 and extending it through September; increasing the minimum wage from USD 7.25 to USD 15.00/hr; USD 350bln support for State and Local governments; USD 170bln for schools and higher education; USD 50bln support for COVID testing; USD 20bln contribution towards a national vaccine programme; the eviction and foreclosure moratoriums have been extended through September; raising the child tax credit to USD 3,000-3,600 per child.

WILL IT CLEAR CONGRESS: The focus has shifted onto whether this package will be able to clear Congress in its current form given that some of the headline measures – bigger direct payments for Americans, for instance – have faced resistance from both Republicans and at least one moderate Democrat. The President-elect has aimed to secure bipartisan support for the Bill, of which many elements would require 60 votes in the Senate; after the Georgia run-off, Senate is split 50/50 with Vice President-elect Harris having a tie-breaking vote – that means the Democrats would still need to secure the support of at least 10 Republicans in the Senate to avoid going down the ‘reconciliation process’, which would only require a simple majority of 51, but would exclude certain items (see here for more details on this process); this process has not been used to pass discretionary spending measures before, and some suggest that around half of the proposal (state aid, education, public health spending) will fall into this category. All of this in a polarised political environment, where Democrats are spending a lot of political capital in an attempt to impeach the President, all while polling suggests that the President still has a significant amount of support within his party (according to this poll by Axios). Markets have been looking through much of the theatre in Washington of late, regarding efforts to remove President Trump from office early; however, traders will become more cognizant of the political tone in trying to assess the probability these measures can be implemented. Much of the timeline will hinge on the level of support the plan can generate and how the impeachment proceedings proceed; analysts seem to be shooting for between February/March.

‘RECOVERY MEASURES’: The next tranche of his fiscal plan will likely be unveiled in February, after Biden has taken control of the White House; that plan will have a focus on infrastructure and climate measures, and will aim to boost job creation. There has been some intimation that this plan could also have a price tag of around USD 2trln.

15 Jan 2021 - 08:08- Research Sheet- Source: Newsquawk