People are exercising on the National Mall as temperatures are projected to hit nearly 100 degrees Fahrenheit on August 13, 2021 in Washington, DC.
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Major Wall Street brokers urge their clients to look past the democratic power struggles and prepare for a spate of new government spending as House spokeswoman Nancy Pelosi puts two historic measures to the vote.
Strategists say moderate Democrats hoping to convince Pelosi, D-California to vote on the bipartisan infrastructure bill before passing a $ 3.5 trillion budget decision, fearing their chances of re-election in 2022 to risk.
“Our baseline scenario was and is that Congress will approve a significant expansion of fiscal policy,” wrote Morgan Stanley’s director of public policy, Michael Zezas, in a note released Monday.
“The democratic leadership is acting like it has calculated that none of the bills have the votes to pass independently,” he added. “Our baseline assumes that this reality will ultimately convince the House of Representatives moderates group to support the budget resolution vote and continue the two-pronged process, albeit possibly not without some accompanying headlines and / or modest concessions.”
Cornerstone Macro, another Wall Street research firm, reiterated Morgan Stanley’s optimism about both democratic initiatives with some humor earlier in the week.
“Trivia question. What is one of the most important democratic presidential priorities that moderates in the House of Representatives have killed over the past four decades?” Cornerstone strategists interviewed their customers. “That’s a trick question. There aren’t any.”
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Both companies say a group of nine Democrats are unlikely to follow the middle of a threat to suspend President Joe Biden’s $ 3.5 trillion health, education and climate change package that is currently being drafted, to stop.
These bets will be tested later on Monday when Pelosi is expected to hold an important procedural vote that would move both plans forward according to a specific but undisclosed schedule. MPs are returning to Washington this week after a brief August hiatus to review both bills approved by the Senate earlier this month.
The latest stalemate between moderate and progressive Democrats comes after the nine centrists penned a letter last week informing Pelosi that they would not support the $ 3.5 trillion budget resolution plan before the Chamber did Infrastructure Act passed.
Rep. Josh Gottheimer, one of the lawmakers calling for an expedited vote on the bipartisan plan, said Monday that lawmakers shouldn’t wait weeks for House progressives to finalize the budget to vote on improvements to the country’s highways.
The New Jersey Democrat reiterated his support for a reconciliation package, but said he would rather get infrastructure repair projects off the ground before being stuck for months while the chamber haggled over a bill to fight climate change and poverty.
“We have to get the infrastructure ready. The next package, the reconciliation package … in the end we have to discuss it for months,” Gottheimer told Squawk Box on Monday morning. “I’m just saying, let’s finish, let’s shovel shovels in the ground and get people to work. And then we can move on to reconciliation.”
On the surface, the threat posed by the moderates of the house carries weight, as Pelosi cannot afford more than three defectors in the narrowly divided chamber.
The $ 1 trillion infrastructure bill garnered 19 GOP votes in the Senate, including one from minority leader Mitch McConnell, R-Ky., And could get 15-25 Republican votes in the House of Representatives. However, it is unclear whether House Republicans would support the $ 3.5 trillion plan.
Progressives say sending the infrastructure bill to Biden’s desk first could jeopardize much-needed climate and poverty measures in the larger reconciliation bill by losing the leverage of the Democrats.
House Speaker Nancy Pelosi (D-CA) holds her weekly press conference at the United States Capitol in Washington, USA on August 6, 2021.
Evelyn Hockstein | Reuters
The moderates are under considerable pressure from the unified party leadership, including President Pelosi, Majority Whip James Clyburn and other top Democrats, who are in favor of the passing of the budget equalization law in addition to the infrastructure.
Stifel’s chief Washington strategist Brian Gardner said Democrats couldn’t risk looking like a threat to their own party if they were at all concerned about their chances of reelection in 2022.
“The party knows that a loss in 2022 would ruin the president’s legislative agenda,” he wrote in a statement released last week. “Fear of losing the election is likely to keep House Democrats in check at least long enough to pass the budget decision,” and keep the process going.
“Failure with infrastructure laws (particularly the Senate bill) is not an option as it would support the current narrative of chaos,” added Gardner. “The failure in Afghanistan, the chaos on the southern border, the inability to counteract the spread of the Delta variant, as well as the possible failure of President Biden’s domestic political agenda would probably be catastrophic for the Democrats in 2022.”
– CNBC’s Michael Bloom contributed to this report.
