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President Biden hit some speed bumps in his fifth week in office. A key policy goal may be dead, for now. A top Cabinet appointee seems sunk. And financial markets are getting woozy as a firehose of stimulus money pours into the economy.
Congress seems likely to pass Biden’s huge stimulus bill in March, but without the $15 minimum-wage Biden hoped for. A Senate ruling found that changing the minimum wage does not qualify for passage under the arcane “reconciliation” rules that would allow Democrats to pass the bill with a simple majority vote in the Senate, bypassing the filibuster rules requiring 60 votes.
Sen. Bernie Sanders and some other Democrats are outraged, but boosting the wage from $7.25 to $15 was always a long shot. There aren’t even 51 Democrats willing to push the wage that high, which means there would have been a big intraparty fight over the matter if the Senate rules did allow it under reconciliation. If the minimum wage battle moves to another venue, the relief bill might even pass sooner, with less negotiation needed.
There’s another effort to raise some wages indirectly, by imposing a new tax on companies above a certain size that pay workers less than $15 per hour. Democratic Sen. Ron Wyden of Oregon may try to shoehorn that into the relief bill. As a tax, it would fulfill the reconciliation rules. It seems convoluted, however, and it’s not clear how many Democrats would support it. If Democrats push for a wage hike through normal legislation, it would require at least 10 Republican senators to join all Democrats in support. Raising the wage to $10 or $11, phased in over time, might be plausible, with the right horse-trading.
Biden saw this coming and said so in recent days. He seems unperturbed. Biden backs some policy goals of the most liberal Democrats, but it doesn’t hurt him politically if Congress can’t muster the votes to pass them. Biden won the presidency in 2020 by appealing to moderate Independents, and they’re likely to stick with Biden if his agenda doesn’t veer too far left. So vocally supporting liberal policies unlikely to pass Congress is shrewd, if cynical, politics.
Biden also seems likely to suffer his first Cabinet defeat with the imminent withdrawal of Neera Tanden as his nominee for Budget Director. Tanden is a sharp-tongued acolyte of the Clinton dynasty who trolled Republicans during the Trump administration from her perch at a Democratic think tank. That burned any Republican votes for her nomination. But the real problem was losing the support of Democratic Sen. Joe Manchin, a West Virginia conservative who dissed Tanden’s partisan taunts and said she was too “toxic” for the job.
In 2016, Tanden published one tweet that was modestly critical of the pay package for Manchin’s daughter, Heather Bresch, CEO of drugmaker Mylan. The firm faced controversy at the time for a 400% increase in the price of the EpiPen used to counteract severe allergic reactions. If Manchin is punishing Tanden for that, he’s extremely thin-skinned, since Bresch endured far-worse criticism from elsewhere. Biden will need Manchin’s vote on other key bills, so he’s not likely to wage a Trump-style smackdown against his former Senate colleague. Tanden may end up in another administration job that doesn’t require Senate confirmation. Biden Pragmatism.
A more curious development is the pullback in stocks and the surprise march upward of the 10-year Treasury rate, which seems to signal a warming, and perhaps an overheating, economy. The 10-year Treasury note (^TNX) has risen a full point since August, with an accelerated run-up since late January. That’s not unprecedented, but it’s abrupt and unexpected, and it comes amid warnings by some economists that too much fiscal stimulus will cause uncomfortably high levels of inflation later this year and next.
Markets have generally applauded aggressive fiscal stimulus, since it boosts consumer spending and growth and could speed the needed recovery in the job market. Treasury rates hit record lows in 2020, so a return to a more normal range shouldn’t be something to worry about. But investors like to see a gradual rise in rates, not the barnstorming of late, with the 10-year popping by 35 basis points in barely two weeks, to around 1.5%.
With a lot of unusual moves going on, nervous investors have been selling, buying and selling some more. Since Feb. 12, the 10-year Treasury has risen by 23%, while the S&P 500 index has fallen by nearly 2%, and the tech-heavy NASDAQ (^IXIC) is down almost 5%. Rising rates might be telling the market that inflation is coming, for real, as consumers flush with stimulus cash bid up prices. The Federal Reserve might not be able to stop it. Uncle Sam might be borrowing too much money to finance all that stimulus. Rising rates might be luring stock investors out of equities and back into bonds.
Or, it could be an anomaly. “We still find the recent surge in real yields hard to fathom and don’t expect it to last,” Capital Economics explained in a Feb. 26 research note. That would be a relief for Biden, allowing the 11-month rally in stocks to resume and reinstating the narrative that stimulus spending is good for markets. Biden has certainly faced bigger setbacks.
Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips, and click here to get Rick’s stories by email