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The Missile – March 2

Democratic leaders have given up on including the minimum wage hike to $15 per hour in President Biden’s $1.9 trillion pandemic aid bill that the House passed last week.

The Senate parliamentarian ruled last week that the minimum wage cannot be included in the pandemic aid bill because it doesn’t qualify under the budget reconciliation rules.  While many Democrats were disappointed with that ruling, the removal of that measure will make the bill much easier to pass in the Senate since there was opposition among some Democratic Senators to a minimum wage hike to as high as $15 per hour.

Democrats could overrule the parliamentarian on the minimum wage decision with a majority vote, but the Biden administration recently said it does not want Vice President Harris voting in favor of that idea and defying the Senate parliamentarian.

There was some talk among Democrats about devising a tax related to the minimum wage that could help it qualify for the budget reconciliation bill by giving it larger budget impact.  However, the No. 2 Senate Democrat, Dick Durbin, said yesterday that the tax idea would not work.  He said, “I hope that we think very seriously about dealing with the minimum wage in a different venue.”

The Senate today is expected to continue yesterday’s work of voting on nominations of Biden cabinet officials.  However, the Senate is then expected to turn to the pandemic aid bill starting Wednesday.  If the Senate revises the House bill, then the House will have to pass the revised version.

T-note prices on Monday remained relatively stable for a second session after last Thursday’s extraordinary upward spike in the 10-year T-note yield to a 1-year high of 1.61%.  The T-note yield on Monday closed at 1.42%, which was 19 bp below last Thursday’s 1-year high.  The more stable T-note market seen in the past two sessions suggests that last Thursday’s spike was overdone since the Fed is still not expected to raise interest rates or curb its QE program for at least a year.  The Eurodollar futures market is not expecting the Fed’s first +25 bp rate hike until late 2022.

However, the markets will remain on edge during the remainder of this week due to appearances by various Fed officials.  Last week’s plunge in T-note prices was mainly due to comments by Fed Chair Powell and other Fed officials suggesting that they are ok with the recent surge in T-note yields because it simply indicates that the pandemic is fading and the markets are expecting a full economic recovery.

T-note prices have also fallen sharply due to sharp upward revisions in GDP forecasts tied to past and upcoming fiscal stimulus.  President Biden’s $1.9 trillion pandemic aid bill is expected to pass Congress by next Friday.  Democratic leaders are already working on the next stimulus package that is expected to include massive spending on infrastructure, clean energy, and other areas.

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