After dramatic negotiations the House agreed last night to a framework for the $3.5trn infrastructure bill to be progressed in tandem with the $550bln bi partisan infrastructure bill. A vote is scheduled on the later by September 27, with Pelosi and the progressives having to give ground to the moderates.
The key is now the Senate, where Democratic senators Joe Manchin and Kyrsten Sinema have made clear that the $3.5trn price tag is too large. Combined with GOP resistance against elements that cannot be passed through the reconciliation process, we see an eventual compromise bill of $2.0-2.5trn over a 10 year period.
In theory the deadline for passage through congress in September 30, with deadlines for surface transport programs and the debt ceiling. In classic Washington drama it could go to the last minute or beyond (with a temporary extension).The key is what is the economic impact?
The program over 10 years will start 2022 but accelerate 2023-25. The positive economic impact in helping to sustain the U.S. economic expansion could be amplified by private co funding in the physical infrastructure parts. This is unclear at this juncture. The positive impacts could be tempered if the tax raising measures (corporate taxes and taxes on the wealthy), kick in quickly from 2022.
For financial markets, the previous optimism on the infrastructure package has been tempered by the political realities in Washington and reaction will depend on the overall size of the bill, plus the breakdown of spending and tax measures and timings.