Senate Returns to Work on Stimulus 3.0

After a one week hiatus, or vacations to Cancun, the Senate will take full aim at the Biden Administration’s proposed $1.9 trillion Stimulus 3.0 package.  With memories of the trimmed down Obama 2009 stimulus package still fresh in many Democrats’ minds, expect them to go it alone and not cut the size or scope of the package in hopes of garnering a smattering of Republican votes. While some tweaking may be necessary to keep all 50 Democratic senators on board, they should be able to do that and pass the measure via reconciliation.  Once it’s out of the Senate it will go to conference committee to iron out any differences between House and Senate bills. That will still take some time, so while the work begins in earnest this week expect a finished bill ready for President Biden’s signature sometime in mid-March, just as Stimulus 2.0 unemployment benefits expire. Also on Capitol Hill this week, Fed Chair Powell will deliver his semi-annual testimony tomorrow and Wednesday. While we are not too far removed from the January 27 FOMC meeting, Powell’s testimony will be analyzed for any signs he is altering his outlook.  In addition, he’ll certainly be asked about the recent increase in rates and whether the Fed is getting concerned but it’s too early to expect any change in Fed policy.

Treasuries
Treasury Curve Today Week Change
3 Month 0.03% -0.01%
6 Month 0.03% -0.02%
1 Year 0.05% -0.01%
2 Year 0.11% -0.01%
3 Year 0.22% +0.01%
5 Year 0.61% +0.09%
10 Year 1.38% +0.12%
30 Year 2.17% +0.10%

 

Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.18%
6 Mo LIBOR 0.20%
12 Mo LIBOR 0.29%
Swap Rates
3 Year 0.334%
5 Year 0.743%
10 Year 1.464%

 

Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Feb 22 Leading Index Jan 0.3% 0.4% 0.3%
Feb 23 S&P CoreLogic CS 20-City (YoY) Dec 9.90% 9.90% 9.08%
Feb 23 Conf. Board Consumer Confidence Feb 90.0 90.0 89.3
Feb 24 New Home Sales (MoM) Jan 2.0% 1.5% 1.6%
Feb 24 Durable Goods Orders (MoM) Jan P 1.2% 1.0% 0.5%
Feb 26 Advance Goods Trade Balance Jan -$83.0B -$83.1B -$82.5B
Feb 26 Personal Income Jan 10.0% 9.5% 0.6%
Feb 26 Personal Spending Jan 1.3% 2.5% -0.2%
Feb 26 U. of Mich. Sentiment Feb F 76.4 76.5 76.2

 Top 5 Events for the Week

Feb. 22 — 26, 2021

1. Biden Stimulus 3.0 Outlook — All Week
2. Fed Chair Powell’s Congressional Testimony — Tuesday/Wednesday
3. January Personal Income & Spending — Friday
4. January Preliminary Durable Goods Orders — Wednesday
5. February Consumer Confidence — Tuesday

 

1.  Biden Stimulus 3.0 Outlook — All Week

After a one week hiatus, the Senate will take full aim at the Biden Administration’s proposed $1.9 trillion Stimulus 3.0 package.  With memories of the Obama 2009 stimulus package still fresh in many Democrats’ minds, expect them to go it alone and not cut the size or scope of the package in hopes of garnering a smattering of Republican votes. While some tweaking may be necessary to keep all 50 Democratic senators on board, it appears they will be able to do that and pass the measure via the reconciliation route.  Once it’s passed in the Senate it will go to conference committee to iron out any differences between the House and Senate bills. That will still take some time, so while the work begins in earnest this week expect a finished bill ready for President Biden’s signature sometime in mid-March which coincides with Stimulus 2.0 unemployment benefits expiring.

 

2.  Fed Chair Powell Semi-Annual Congressional Testimony — Tuesday/Wednesday

Federal Reserve Chairman Jerome Powell will travel to Capitol Hill on Tuesday and Wednesday to deliver his semi-annual Humphrey-Hawkins address to both houses of Congress. He’ll start on Tuesday with the Senate Banking Committee which tends to offer the more relevant questioning versus the more bombastic House Financial Services Committee. While we are not too far removed from the January 27 FOMC meeting, Powell’s testimony will be scoured for any signs he is lifting his outlook. Since the FOMC meeting, vaccination rates and virus cases have improved, but employment gains in January were disappointing. Because of the softening in labor market gains, we foresee a steady-as-she-goes message with aggressive accommodation remaining in place for the foreseeable future. He’ll surely be asked about the increasing market rates but it’s too early yet to expect any change in policy.

 

3.  January Personal Income & Spending — Friday

Personal income in January is expected to provide the perfect storm as it were with annual salary increases meeting year-end bonuses combined with Stimulus 2.0 checks. For the month, income is expected to be up a whopping 9.5%, the largest month-over-month increase since last April’s 12.4% increase when CARES Act checks hit bank accounts. Personal spending, however, is expected to increase a more modest 2.5% as consumers remain hesitant to spend while building a savings war chest. Meanwhile, core PCE, the Fed’s favorite inflation indicator, is expected to drop a tenth to 1.4% year-over-year versus 1.5% in December.  It hit a multi-year low of  0.9% in April but had been in modest rebound mode since, peaking at 1.6% in September.  If the expectation comes to pass core inflation will still be well below the Fed’s target of 2.0% and is another reason to expect the Fed to remain ultra-accommodative for the next year or two.

 

4.  January Preliminary Durable Goods Orders — Wednesday

While the services side of the economy has taken the brunt of job losses and soft sales, the goods and manufacturing side has faired much better without having to contend as much with customer-facing COVID restrictions. We should see that again in the January durable goods orders which are expected to increase 1.0% versus a 0.5% gain in December. Orders less the volatile transportation sector are expected to be up 0.7% versus a 1.1% gain the prior month. Thus, while January orders are expected to be slightly better than December that increase is mainly from the volatile aircraft sector. Nevertheless, January orders are likely to show once again the  goods side of the economy continues to do well.

 

5.  February Consumer Confidence — Tuesday

With two-thirds of the economy consumption-based it’s always important to look at the confidence of said consumer for tells on future spending and hence GDP. While there was a predictable dip at the early stages of the pandemic it never fell to levels of the Great Recession as shown below, perhaps due to stimulus benefits and furloughed workers hopes for a quick return to work.  For February, confidence is expected to be up a touch at 90 versus 89.3 in January.  Confidence levels are obviously well off pre-pandemic highs in the  130’s but also off the 102 reading in September which speaks to the impact that the fourth quarter increase in virus cases and lockdowns had  on confidence readings.

 


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Published: 02/22/21 Author: Thomas R. Fitzgerald