Will Manchin Force a ‘Jingle Bell Block’ for Build Back Better Proposal?

FOMC meeting conclusion Wednesday closely watched for tapering, rate timelines

Washington Focus

Both the House and Senate are in session this week, but it may be the Senate who ends up playing the “Jingle Bell Block” come Christmas relative to the Build Back Better (BBB) proposal.

Senate leadership’s timeline for the BBB proposal is just before Christmas, according to Majority Leader Chuck Schumer (D-N.Y.). But as most should know by now, the “official” timekeeper is centrist Sen. Joe Manchin (D-W.Va.), who keeps calling for a “strategic pause” for the vote, delaying it into 2022. Odds are now rising for that possibility.

President Joe Biden early this week will meet with Manchin at the White House. White House press secretary Jen Psaki said Biden would tell Manchin that “what we need to do now is think about what we’re going to do about rising costs, and what is our plan to address rising costs.” Manchin has already commented on the impact of rising inflation and potential impacts of the BBB proposals: “I don't know how you control inflation when the first year of spending is going to be quite large,” Manchin said regarding the BBB bill. “And that's an awful lot more of federal dollars going into a time when we have uncertainty and inflation now.” Manchin and Sen. Kyrsten Sinema (D-Ariz.), two key Democratic votes for the BBB, met privately last Thursday with Schumer.

Senate leaders have not yet even issued a final bill, as negotiations continue.

The Congressional Budget Office (CBO) produced another new BBB dataset for public consumption. Sens. Lindsey Graham (R-S.C.) and John Cornyn (R-Texas) asked CBO director Phillip Swagel to add up the cost of the bill that recently passed the House if all of its programs were made permanent. CBO’s new report (link) provides what many label a less misleading account of how much BBB would cost. The BBB programs, extended through the 10-year window instead of having their costs hidden with arbitrary expiration dates, would cost nearly $3 trillion more than advertised for a total price tag of nearly $5 trillion — that’s roughly three times the figure most of the media have been sharing. The previous scoring from the CBO only accounted for the legislation as it was written, sunsets included, and found it would increase federal deficits by $367 billion over the next 10 years. As the table below shows, some of the programs would be costly — even by congressional standards. For example, take the child allowance, which Democrats say will cost only $185 billion because it ends after one year. No one believes they won’t extend it next year, and later years. CBO says the real cost over 10 years is $1.597 trillion. Democrats also peg their earned-income tax credit expansion at a cost of $13 billion because it too ends after one year. CBO says the real cost is $135 billion over 10 years. Democrats phase out the child-care and pre-K entitlements after 2027 with a total cost of $381 billion. CBO says the real cost over 10 years is $752 billion if made permanent. They also underestimate the cost of expanded healthcare subsidies at $74 billion by phasing them out in 2025 or 2026. CBO says the real cost is $220 billion. Of note the Democrats’ restoration of the state and local tax (SALT) deduction to $80,000 up from $10,000. Democrats say this will raise $15 billion over 10 years because the current $10,000 limit is set to expire after 2025. CBO says the real cost of this Democratic tax deduction for the rich without that budget end around would be $245 billion.

Democratic leaders like Speaker Nancy Pelosi (D-Calif.) countered that Biden’s agenda would reduce costs for middle-class families on some of their biggest priorities. “November’s inflation numbers only add urgency to passing the Build Back Better Act to lower the costs that weigh heaviest on working families’ budgets,” she said.

CBO also last week issued a cost estimate for the Agriculture Committee’s section of BBB. The panel added more than $2 billion in funding for conservation technical assistance to the House-passed bill because of ample evidence conservation spending would be stymied without more technical funding to deliver the huge spending proposed. Additional research spending was also added. CBO noted the ag provisions would authorize $94.4 billion in spending but estimates that only $89.4 billion of that would be spent over the 10-year window allowed by the legislation (showing how the “true” costs of the package are a lot higher than stated levels).

Both chambers this week will hold final votes on a bill to increase the debt limit. The complicated process was helped last week by enough Senate Republicans to this week hold a vote that will allow just Democratic votes to clear the measure. There’s always drama in the 50-50 Senate but it appears this issue will be settled this week. Still to come is a disclosure of the actual dollar amount for the new cap on Treasury’s borrowing, which is expected to cover Washington’s expenses through the 2022 midterm elections that will determine control of Congress.

Defense authorization bill on tap in Senate. The House passed the National Defense Authorization Act last week with huge majorities, and it’s expected to clear the Senate this week.

Nominations. The Senate Health, Education, Labor and Pensions Committee will hold a confirmation hearing Tuesday for Robert Califf as commissioner of the FDA. Califf, a cardiologist, served as commissioner in the final year of the Obama administration.

International nominations: Senate Foreign Relations Committee holds a hearing Tuesday on the nominations of Enoh Ebong to be director of the Trade and Development Agency; and Oren Whyche-Shaw to be U.S. director of the African Development Bank.

CPSC: Senate Commerce, Science and Transportation Committee pm Wednesday holds a markup of various bills and votes on nominations including Mary Boyle, to be a commissioner of the Consumer Product Safety Commission (CPSC).

Transportation nominees. Senate Commerce, Science and Transportation Committee holds a hearing Thursday on the nominations of retired Navy Rear Admiral Ann Claire Phillips to be administrator of the Maritime Administration; Steven Scott Cliff to be administrator of the National Highway Traffic Safety Administration; and John Edward Putnam to be general counsel of the Transportation Department.

Trade policy is the topic on Tuesday when Rep. Jim Costa (D-Calif.) of the House Agriculture Committee joins representatives of leading agriculture groups in an online discussion of U.S. export competitiveness. The roundtable sponsored by the advocacy group Farmers for Free Trade will include University of Nebraska economist John Beghin and Manuel Sanchez, China director for the U.S. Grains Council; Erin Borror, an economist with the U.S. Meat Export Federation, and Robert Chesler, CEO of the United Dairymen of Arizona.

Economic Reports for the Week

FOMC meeting in focus this week. The Federal Reserve could decide to speed up the end of its bond-buying program and signal that it expects to start hiking interest rates in 2022. That is already widely anticipated by investors, ahead of the Fed’s 2-day meeting Tuesday and Wednesday. In the last meeting, "various participants noted that the Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee's objectives," according to the minutes. Fed Chairman Jerome Powell already hinted at a congressional hearing that it might be appropriate to speed up the pace of tapering asset purchases. Traders will be watching the dot plots for 2022 and 2023 and looking for how Omicron risk factors into the rate and tapering equations. Wharton finance professor Jeremy Siegel said the persistent inflation levels will push the Federal Reserve to act aggressively with its tapering and interest rate hikes in 2022. However, he said investors should stay bullish on stocks until closer to 2023.

Economic data this week: Bureau of Labor Statistics' Producer Price Index for November on Tuesday. Economists expect a 0.55% month-over-month rise for the headline index and a 0.4% gain for the core PPI. Those would both roughly match October's pace of producer inflation. Other data releases include the National Federation of Independent Businesses' sentiment index on Tuesday, November retail sales spending from the Census Bureau on Wednesday, and the November housing starts on Thursday.

Inflation Watch

Tuesday, Dec. 14

Bureau of Labor Statistics (BLS) releases the producer price index for November. Consensus estimate is for a 0.55% month-over-month rise, and for the core PPI, which excludes food and energy, to gain 0.4%. This compares with increases of 0.6% and 0.4%, respectively, in October.
National Federation of Independent Businesses reports its index, which surveys about 5,000 small-business owners across the country, for November. Expectations call for a reading of 98.3, compared with 98.2 in October.

Wednesday, Dec. 15

MBA Mortgage Applications
Federal Open Market Committee (FOMC) concludes its two-day meeting when policy makers will discuss accelerating the timetable for tapering monthly securities purchases. Also on tap: Fed economic projections and press conference.
BLS reports export and import price data for November. Expectations are for a 0.5% month-over-month rise in export prices, while import prices are seen increasing 0.5%. This compares with gains of 1.5% and 1.2%, respectively, in October.
National Association of Home Builders releases its NAHB/Wells Fargo Housing Market Index for December. Consensus estimate is for an 84 reading, compared with an 83 reading in November. The index peaked at 90 late last year, and home builders remain bullish on the housing market.
Census Bureau reports on retail sales spending for November. Expectations are for a seasonally adjusted 0.7% month-over-month increase in retail sales, compared with a 1.7% rise in October. Excluding autos, spending is seen rising 0.8%, compared with 1.7% in the previous period.
Dec. Empire State Manufacturing
Oct. Business Inventories
Dec. Atlanta Fed Business Inflation Expectations

Thursday, Dec. 16

Jobless Claims
Census Bureau releases its New Residential Construction report for November. The seasonally adjusted annual rate of housing starts is expected to be 1.563 million units, compared with 1.52 million in October. A housing start is counted when excavation begins on a home. Permits issued for new-home construction are expected to be 1.655 million, compared with 1.653 million in October.
Federal Reserve releases industrial production data for November. Economists are looking for a 0.6% rise, after a 1.6% increase in October. Capacity utilization is expected at 76.8, roughly in line with October’s 76.4%.
Dec. Phil. Fed Manufacturing
Dec. PMI Composite Flash
Dec. KC Fed Manufacturing
Fed Balance Sheet
Money Supply
Bank of England announces its interest-rate decision and publishes the minutes of the meeting.

Key USDA & international Ag & Energy Reports and Events

The International Energy Agency on Tuesday publishes its latest monthly oil market report, with supply and demand forecasts.

Monday, Dec. 13

Ag reports and events:

Export Inspections
Cotton and Wool Outlook
Oil Crops Outlook
Dairy Monthly Tables
Feed Outlook
Rice Outlook
Wheat Outlook
Monthly MARS bulletin on crop conditions in Europe