The news from earlier has killed Biden's program for now:
US Senator Manchin said he won’t support the Biden “Build Back Better” plan
GS:
- Manchin announced that he is a "no" on moving forward with President Biden's Build Back Better (BBB) legislation.
- BBB enactment had already looked like a close call and in light of Manchin's comments we are adjusting our forecast to remove the assumption that BBB will become law.
- While BBB in its current form looks unlikely, there is still a good chance that Congress enacts a much smaller set of fiscal proposals dealing with manufacturing incentives and supply chain issues.
- There is also still a chance that Congress retroactively extends the expanded child tax credit, with some modifications, though we think the odds of this occurring are less than even.
- In light of our changed fiscal assumptions, we are lowering our real GDP forecast for 2022: 2% in Q1 (vs. 3% prior), 3% in Q2 (vs. 3.5% prior), and 2.75% in Q3 (vs. 3% prior).
GS also have noted a potential positive:
- there are also likely to be some offsetting positive effects
- The odds of corporate tax increases have now declined, for example, which our equity strategists had estimated would reduce S&P profits by 3%.
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Less fiscal stimulus ahead should take at least some heat out of rising inflation rates in the US and thus, at the margin, slow the pace of Fed rate hikes.
