Consolidated Appropriations Act, providing more Coronavirus emergency response and relief

This week we have the historic 2nd impeachment trial beginning. Congress and the administration are moving forward with a massive stimulus relief bill to provide funding for vaccinations, a pathway for schools to reopen, rent relief, economic impact checks to be sent to all income qualified Americans, a proposed raising of the minimum wage, and a child tax credit resulting in cash for families with children.

 

Current Events

The cost of this package will approach $2 trillion. Pushback from Republican Senators and a counter offer of a package amounting to $600 billion seems to have little hindrance on Democrats moving forward with their package through Congressional budget reconciliation, a process that allows the legislation to pass with just a majority vote. The Democrats are moving forward with their original proposal with the original income limits as of this week.

This is a huge fiscal stimulus bill that markets are counting on to push GDP growth to levels that will help employment return to pre-covid levels. The Congressional Budget office, a non-partisan arm of Congress that evaluates the economic and fiscal impact of legislation, predicts it will take years for employment levels to return to pre-covid employment in the United States.

The CBO also analyzed an increase in the minimum wage to $15 per hour. The increase would happen gradually over 5 years.  The study predicts a loss of 1.4 million jobs and 900,000 Americans would be lifted out of poverty, once again pointing out that any decision results in tradeoffs.

 

Markets

Markets have been reacting to potential fiscal stimulus since April 2020 with an unrelenting increase in stock prices, while short term interest rates stay low due the Fed funds rate. Longer term yields are rising as the yield curve steepens.

Inflation is of concern as markets create the steepening of the yield curve. Even with substantial stimulus and consistent but slow economic growth, Inflation has remained very low over the past 11 years. Most economists and market analysts predict inflation will remain under control based on the past 10 years. In other words, “this time it’s different.” We shall see.

 

February

As we celebrate Black history month we are reminded that we must always pursue racial justice and forever be vigilant to bend history's arc towards justice.

 

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