Joining me right now is Piper
Sandler's Head of U.S. policy Research,
Andy La Perriere. Andy, great to see you.
Thank you so much for being here this morning.
Well, thank you. You've done such great work on policy
and I want to get your thoughts on what the
priority is.
But first, let's talk right about this,
the economy and the impact of the policy we've seen.
How would you assess the macro story today?
Well, if you talk about inflation in terms of what
the president was just talking about,
obviously, I think supply chains are part of the story.
But we had a excessive monetary and fiscal response to
COVID.
And that's, you know, left The legacy of inflation is
it has come down,
the rate of inflation has come down,
of course, but the price level has not come down.
And that's what the political problem is for the president
is that people go to the grocery store and they
see that prices are still higher than they used to
be and and people's real purchasing power has diminished.
And and that's the political problem
for the president that he's trying to address in those
remarks.
But I think is going to be you know,
something that's, you know, the reality is that prices are
higher and people feel it and and that's going to
be very difficult for the president to change people's minds.
And yet Andy, look at these markets.
November was another huge soaring situation for stocks.
So the NASDAQ up 9%
on the month for November about to close out the
month and look at these markets in the month,
S&P 500 up 7% down,
Industrials up 6%, NASDAQ up 9%
and of course year to date markets are also strong,
certainly the NASDAQ is 30%
higher. What what are you expecting in terms of policy
and the impact on markets going into year end?
Well, I think I'm not sure much in the policy
world is going to affect the markets in going into
the year end at the supplemental that you were just
discussing with the Senators think is
is the big priority for Congress that I don't see
much of A market impact on that.
I mean I think the storyline is that Ukraine will
get more money and
and the war will continue because Ukraine won't be forced
into A1 sided ceasefire.
So I think that's the market implication there.
But the the the budget fight really has been pushed
into next year.
I think the story for markets there is that the
funding levels are basically set.
They agreed to him last summer.
Republicans in the House are going to have to
eventually agree to those levels and the risk is a
prolonged shutdown. I think the risk of a prolonged shutdown
is pretty low,
but that's that was that would be the transmission mechanism
for affecting the economy is a prolonged shutdown,
but again, possible, but not not that likely.
Well, here we go again talking about a potential shutdown.
So let's go through one
of each of those things that you mentioned,
because the Senate is set to discuss the
$106 billion Security Supplemental Package with hopes to pass it
by the end of the year.
Andy, we heard from Chuck Schumer that he's going to
bring it down for a vote.
They're talking, what about $60 billion
that will go toward Ukraine,
$20 billion to go toward
Israel and Gaza, and of course,
the remaining money perhaps going to the border.
Is that what you're expecting?
What are you expecting from this package?
Well, I'm guessing that the the price tag's going to
come down a little bit before all is said and
done.
But as your interview with the senator illustrated,
really the key sticking point here is what are we
doing,
not in terms of funding for the border,
but in terms of, you know,
the the rules for what?
What happens? How are people treated when they are apprehended
when they come across the border illegally?
And
I think the senator's right that the Republicans are determined
to to get some
real changes there. I think the,
you know, maybe underappreciated aspect of the story is that
there are a number of Democrats,
I think who realize that they don't don't really have
a sustainable position here and I think they are going
to end up compromising.
But you know, right now that that bid ask spread
is pretty wide.
So there's no no deal.
I think they'll probably get one.
And part of it is that the
the Democrats, I think are going to move
on, on the immigration side,
but with the border security side,
but also there is a really broad support including among
most Republicans for for assisting Ukraine.
So that's a priority of Democrats and Republicans.
So I think you're going to end up seeing it
get done,
but it's not going to be easy.
And anything related to the border,
as we've seen for, you know,
a couple decades here, it's almost impossible to get Congress
to agree on anything related to immigration or border security.
Yes. So let's talk about the macro story.
I was reading your colleague Nancy Lazar earlier who was
debating back and forth about
the soft landing potential. She says now a soft landing
is the consensus.
We're looking ahead to the second read of third quarter
GDP out tomorrow.
The expectations call for a revised quarterly gain of
5%. What the heck happened here?
Now we're talking about 5%
for the GDP. We'll also get the October PCE report
out on Thursday.
Andy, what are your expectations?
How did growth spiked so much
when these expectations. Yeah, well what Nancy points out that
it,
you know, she's still pessimistic on
the outlook for GDP and she's pointed out that there
have been plenty of periods where the even as the
economy was kind of sliding sliding into recession that you
had strong GDP numbers immediately prior to that.
So,
so we we don't want to be
too confident in the in the fourth,
you know fourth quarter and the next quarter based on
that.
But
you know she believes that with
the credit tightening that we've seen in the in the
banking system,
we are seeing a tick up
in the unemployment rate. So that we're starting to see
the weakness in the employment market.
That suggests that, you know,
that that we may be,
you know, slowing down here despite really strong numbers from
the third quarter.
Yeah. And I know that you and your colleagues,
Nancy, certainly pushed out her expectations for a potential recession
into
2024. But Andy, from a policy perspective,
what's the most important policy that we need to understand
for
2024? Put the supplemental package aside.
You mentioned the budget. Where should we be focused in
terms of policy in 24?
And I know that the Biden administration also wants to
raise taxes to pay for all of their spending.
Well, you know, I, you know,
we're going into an election year with divided government,
with a lot of leadership chaos in the House.
You know, this is just not an environment where there's
going to be big policy changes.
So I think you're going to see Congress doing the
bare minimum,
the bare bones. So fund the government,
which you know, is already
a few months overdue. That'll get done wrapped up,
I think, in the first quarter.
Again, we already know what the funding levels are going
to be
and
absent A prolonged shutdown that won't really matter very much
to the economy.
I just don't see
Congress really impacting the direction of the economy
over the next year. I mean one question would be
as you know if we do go into recession,
will there be a a big fiscal policy response from
Congress?
I think that's extremely unlikely.
So you're I think that the the overwhelming base case
here is
just a pretty steady fiscal policy fund the government and
and not much else is is going to get done
that's that would have a you
know broad based impact on the economy.
I mean they've got to pay for all this stuff.
We're talking about $33.7 trillion
in debt right now. Andy,
would the Biden administration actually raise taxes during an election
year?
Well, I mean the president's proposed a lot of tax
increases,
a few of which passed in in the in the
IRA.
He's got several trillion more in proposed tax increases in
his budget.
Those are obviously dead on arrival in a in a
Republican House.
There's going to be no real effort to do that.
But I think the question would be you know as
we get into
2024, right we're the we're starting to get in the
heat of the primary season.
You know what would the next president do.
And if the president were re elected he would try
to raise taxes more.
It would obviously depend on whether he had a cooperative
Congress and Republicans,
you know, I think of the favorites to to to
take the Senate given the map.
But. But but for sure,
his he's proposing them. And if he had the
Congress that majorities in both the House and the Senate,
I think he would take another run at some tax
increases.
Wow. Well, all right. Lovely.
On top of all of the other pressures with inflation,
we will get higher taxes.
Andy, thanks very much for your insights and your great
work.
We appreciate it. Thank you.
Thanks for having me.