Democratic Senators Agree to a $3.5tn Spending Plan

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Principal Points

• Senate Democrats have pressed ahead with their own $3.5tn spending on social programs
• Stocks decline in response to a surge in consumer-price inflation data

Senate Democrats have reached a $3.5tn deal on new government spending that would circumvent Republicans. The legislation, if enacted, would be a big step for President Joe Biden toward accomplishing his economic agenda for the year.

The deal between Democrats was concluded on Tuesday and would be discussed by Joe Biden and his party’s lawmakers later today. The agreement would include spending on childcare, education, climate change, and healthcare.

“We are very proud of this plan. We know we have a long road to go. We’re going to get this done for the sake of making average Americans’ lives a whole lot better,” Chuck Schumer, Democratic Senate majority leader, said yesterday.

The big-ticket agreement would be considered only by Democrats and would move separately from last month’s bipartisan deal to fund $1.2tn in investments in infrastructure. The intraparty agreement would most likely be paid for with tax increases, a measure that was fiercely opposed by Republicans when it was proposed for the infrastructure deal.

Still, if the $1.2tn deal on infrastructure were to get abandoned or failed to receive support in Congress, its provisions could be added to the spending plan that Democrats are seeking to pursue alone.

The $3.5tn package, although short of progressives’ earlier calls, would be in line with President Biden’s roughly $5tn economic agenda that aims to vastly improve the American economy.

Prices Continue to Increase in the US

Meanwhile, the US stock market declined on Tuesday as investors were surprised to see the latest inflation report come in hotter than expected. Consumer prices surged 5.4% in June as the economy continued to expand, boosted by increased spending for goods and services across sectors.

As confidence in the high valuations of stocks waned, investors began questioning whether the Federal Reserve’s judgment can accurately grasp the current economic developments. Jay Powell, Fed’s Chair, has so far succeeded in assuaging investors saying that inflation pressures are only transitory. The latest report, however, shows that higher prices continue to surge while the US central bank is keeping its monetary policy unchanged, despite the economy running hotter.

Some officials participating in the Federal Open Market Committee believe the Fed should start reducing its asset purchases to some degree to allow the economy to cool from the constant cash injections that have supported the stock market for over a year. Mr. Powell, on the other hand, has stated he would need more months of higher-prices data before the central bank could consider winding down its stimulus.

In corporate news, Goldman Sachs and JPMorgan yesterday were among the first to disclose their financial results for the second quarter. Both investment banking giants reported higher than expected profits on the back of the reopening economy and the revival of business deals and consumer spending.

There are looming concerns, however, that the Delta strain could roll back a substantial part of the progress in recent months. New Covid-19 cases are sharply rising across the states in recent days. Over 23,000 new cases on average are being recorded a day, double the seven-day average of a little over 11,000.