about 2 years ago • 3 mins
The US government’s plans for a nearly $2 trillion spending package were pronounced dead over the weekend.
What does this mean?
The US government’s spending plan – which invests in education, childcare, green infrastructure, and more – has been in limbo for a while, and disagreements throughout the year have already brought its price tag down from $6 trillion to $1.8 trillion. But just as it looked like it might finally get the green light, a key member of government said over the weekend that he definitely wouldn’t vote in favor of the package – a death blow given the majority party’s razor-thin margins. There are a couple of reasons why: he’s concerned about its impact on the country’s debt – which, at $29 trillion, is almost 50% bigger than its economy – and he’s worried that it’ll drive inflation even higher than the 39-year high it hit last month.
Why should I care?
The bigger picture: This wasn’t part of the plan.
The congressman isn’t wrong that the plan might impact inflation, but it might also be just what the economy needs. See, the US Federal Reserve announced last week that it’d be winding down its bond-buying program sooner than expected, at which point it will think about raising interest rates. Both measures would themselves help limit inflation by raising the cost of borrowing and discouraging spending, but they’d also risk hampering economic growth for the same reasons. And while that was arguably manageable when a near-$2 trillion plan would provide its own boost to economic growth, the plan’s collapse – just when Covid cases are surging again – could tip the scales in the wrong direction.
Zooming out: Politicians are not economists.
Goldman Sachs certainly thinks so: the investment bank slashed its US economic growth forecasts – which previously assumed more government spending was on the way – over the weekend. It’s now expecting the country’s economy to grow 2% and 3% in the first and second quarters of next year, down from 3% and 3.5% respectively.
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Pull on your Ugg boots and settle in, folks: several European countries reimposed Covid restrictions over the weekend.
What does this mean?
Covid cases were always going to rise in the indoorsy winter months, but the far more infectious Omicron variant has blown all those expectations out the water. The Netherlands has been quick to respond, announcing over the weekend that it was closing all schools and non-essential shops until at least the middle of January. France and Germany – whose central bank just warned the country’s economy might shrink this quarter – have likewise put travel restrictions in place to slow the spread, while the UK hasn’t ruled out imposing another lockdown. And even if governments don’t make good on those warnings, shoppers are still likely to stay home to avoid taking any unnecessary risks ahead of the holiday season.
Why should I care?
The bigger picture: Whisper its name.
The cold weather isn’t just sending Covid transmission sky-rocketing, but demand for natural gas too: Europe’s gas price rose by 9% on Monday alone, on top of the 600% jump this year. Throw in Omicron-driven restrictions, and Europe is now staring straight down a double-barreled shotgun of rising prices and slowing economic growth – a phenomenon better known as “stagflation”.
Zooming out: It’s going from bad to worse.
Europe’s initial public offerings (IPOs) market isn’t exactly on terra firma either: data out on Monday showed that five of the year’s 10 biggest losers in the Stoxx 600 – an index tracking Europe’s major companies – only joined the index in the last 15 months. That’s particularly tough to swallow because Europe just had its busiest year for IPOs since 2007. In other words, companies that might’ve been eyeing up a listing might now second-guess themselves, which could end up dragging on the region’s IPO market in 2022.
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