Written by: Greg Valliere | Chief U.S. Policy Strategist, AGF Investments
CONGRESS RETURNS TONIGHT after a six week vacation, with another two week break scheduled for the end of this month. There’s gridlock ahead for gun control; the Oct. 1 deadline for passing a budget will have to be extended; a border wall is still contentious; and impeachment advocates will slog on, despite a lack of enthusiasm from the public.THE FINANCIAL MARKETS ARE MORE INTERESTED in next week’s FOMC meeting, which almost certainly will result in a quarter point rate cut, in the wake of last Friday’s mediocre jobs report. And investors will closely monitor U.S.-China trade talks, Brexit, and the Democrats’ debate this Thursday, which which could further advance Elizabeth Warren’s presidential ambitions.
Some quick bullet points —
USMCA: The most important congressional issue for markets and the economy is ratification of the U.S.-Mexico-Canada agreement, which has bipartisan support. But there are plenty of Democrats who have no desire to do any favors for Donald Trump, who now faces a third quarter GDP rate of only 1.5%, according to the Atlanta Fed’s “GDPNow” forecast. We think the USMCA will pass, but it’s a very close call.Budget: None of the 12 appropriations bills have been passed by both houses (the Senate hasn’t approved even one), so it’s nearly impossible to finish the budget by the Oct. 1 start of the fiscal year. It’s highly unlikely that Trump will get more funding for a border wall (so he will raid the Pentagon construction budget), and he could threaten a government shutdown over the wall. The Democrats would love a shutdown, but Republicans won’t take the bait.Congress will kick the can down the road, as usual; a final budget won’t win enactment until Thanksgiving at the earliest. The real action on the budget — an enormous spending hike tied to the debt ceiling increase — was completed this summer; Congress is just arguing over allocating the spoils.Drug prices: President Trump and most Democrats want action, but this is one of several issues — including gun control and safeguarding the 2020 election from foreign interference — that Mitch McConnell has no desire to bring up on the Senate floor; his focus is almost exclusively on confirming new judges. Trump may threaten the drug industry with regulations, but a legislative crackdown probably will stall.Impeachment: The House Judiciary Committee’s glacial path toward impeachment will resume this week; staffers will win wider latitude to interrogate witnesses. Our bottom line is that the panel may approve articles of impeachment on obstruction of justice, witness tampering, payments to women Trump wanted to silence, etc. — but there will be no impeachment proceedings in the full House or Senate, just a long list of findings for the public to examine.Democrats vs. Trump: The endless presidential campaign still has about 14 months to go, with Trump in a slump after his brawl with the weather bureau and his dysfunctional dealings with the Taliban. Wall Street analysts seem to think he’s the clear favorite to win re-election, but his poll numbers have slipped. And Mark Sanford’s quixotic protest challenge for the GOP nomination will get plenty of adoring media attention; he’s articulate and scathing about where the GOP is headed on issues like federal deficits.All eyes on Joe Biden: Democrats in Iowa and New Hampshire, who have seen all the candidates, like Biden but they want to see someone who’s more aggressive and energetic on Thursday night. They agree that Elizabeth Warren may be too polarizing — but talk with people on the ground and they’ll tell you she’s the candidate to watch.We have proclaimed all summer that a Warren presidency is not out of the question — she’s even money to win the nomination and leads Trump in head-to-head matchups. Warren is only a slight underdog in the general election — and is an enormous threat to the financial industry, which she wants to break up and tax heavily. McConnell’s Senate firewall could become crucial.Related: Globalization Hits a Brick Wall Named Trump