Michael Zezas, Head of Public Policy Research and Municipal Strategy for Morgan Stanley, explains why two D.C. policy items – the bipartisan infrastructure framework and debt ceiling deliberations – could add one more complication for equities markets.
The planned vote on the bipartisan infrastructure framework (BIF)
“This vote is a key test for whether or not the Democrats will be able to 'go big' on fiscal policy. At the moment, it's far from clear that the BIF can get enough votes to pass on its own, meaning the 'all or nothing' dynamic on fiscal policy remains intact. But if the BIF succeeds, that would suggest a smaller fiscal package, smaller deficit impact, and a key challenge to our view that bond yields will rise meaningfully into year-end.”
Deliberations around raising the debt ceiling and avoiding a government shutdown
“While we ultimately expect these issues to be resolved in a manner that doesn't materially impact the US growth outlook, the path to resolution on these issues likely requires escalated uncertainty in the near-term. Since Democrats have paired the continuing resolution with a debt ceiling hike, which Republicans flatly oppose on the idea that Democrats should go it alone using reconciliation, there's no clear path forward at the moment. So, headlines around a government shutdown should pick up, and with it the takes that the situation increases the risk that the debt ceiling can't be raised in a timely manner.”
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