Biden To McConnell
Senate minority leader Mitch McConnell will meet later today with President Biden and chief congressional leaders Kevin McCarthy, Chuck Schumer and Nancy Pelosi to discuss the president’s proposal for a $2.3 trillion infrastructure package. So far, there has been a great deal of dispute over how large such a package should be and what such a package should contain, with Biden looking to introduce new categories under the umbrella of infrastructure. Such a spending increase would no doubt be a boon for growth, though there are deep reservations around the deficit such a package would incur, as well as Biden proposal to fund the package through an increase in corporate tax.
McConnell Pushing For Reduced Spending
Ahead of today’s meeting, McConnell has outlined his view that such a package should not exceed $800 billion, far below the price tag the President is looking for. There is a great deal of pressure on the president to take a more bi-partisan approach this time around after Biden was seen abandoning his pledge to work with the opposition over the introduction of his $1.9 trillion fiscal package earlier in the year. However, time is running short for Biden. The president is aware that there is a short window to deliver the package before senators become engaged with the build-up to mid-term elections. If the Democrats lose control of one of the Houses in those elections it will become a far greater challenge to pass such a package.
Clashes Over Infrastructure Content
However, on the back of the president’s huge $1.9 trillion fiscal package, gaining backing for such a large expenditure looks increasingly difficult. The contents of the package are once again a key part of the dispute. Biden is looking to include $400 billion in care for the elderly and disabled while also making provisions for better internet, investment in housing projects and increased electric vehicle production. However, the republicans have shot these ideas down claiming that they do not fall into the bracket of infrastructure. Furthermore, Biden’s plan to fund the package through a 4% increase in corporate tax from 21% - 25% has also come under scrutiny from Republicans.
If any breakthrough is made at today’s meeting, this could help fuel a fresh wave of demand for equities markets. However, given the division between the two parties, it seems more likely that today’s meeting will confirm the gap between the two proposals, likely weighing on equities in the near term.
The Sell-off in the S&P has seen the market falling back from the highs posted above the 4200 level, with the market now testing support at the 4115.75 level. While this level holds, there is room for a continued push higher. However, should price slip below here, the next support to watch is the rising wedge low ahead of the 3964.25 level.
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