Developed Markets August 25, 2021 / 08:29 am UTC

U.S. Infrastructure Drama Delayed to end September

By Mike Gallagher

Bottom Line: The U.S. House passed a framework on the $3.5trn infrastructure bill, which delays the drama until end September. We look for the bill to be reduced to $2.0-2.5trn, with a $550bln bi partisan bill also passing. 

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. 

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I, Mike Gallagher, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.