- NY is seeking $15B in aid from President Joe Biden. Governor Cuomo presented a state budget for fiscal 2022. He indicated that if NY does not receive substantial help from the government, it will force him to raise revenue, cut expenses and turn to significant borrowing from the primary markets. He spoke optimistically, but he also warned that he would "sue" the government if he does not get his "fair share" of the money. Along with other governors, Cuomo asks the Biden administration to repeal SALT, which was passed in 2017 and impacted high tax states like NY. This idea is bothersome from a municipal bond perspective; betting on borrowing or getting grants is never a prudent way to operate; I expect the market to dislike this news.
- MTA indicated it would delay the planned fare increases for several months as the system anticipates Biden to "give them money" to help operate. The fare increase, set to go into effect next month, raising fares 4%; with this "newfound way of financing your debt" by asking the FED's to give money, I suspect many other transit authorities will do the same. Biden specifically mentioned systems like this, and I expect these funds will become available.
- Goldman has raised their growth forecast for the US this year and beyond after Biden unveiled a large revival plan of $1.9T. Their economist predicted that the US economy should expand 6.6% this year, faster than the 6.40% previously expected. The unemployment rate for the end of 2021 is now seen as 4.50%, down from the prior estimate of 4.80%. This plan should help all securities as we move through the year; however, this will bring up inflation concerns as we move into 2022. I suspect that Yellen will push to get this deal done while rates are low and "worry about inflation" later should it arise.
- Visible supply began the week at $11.5B, which has been the highest since 12/10/20. I suspect this will continue to climb; however, I do not foresee this number getting to the average of $13.9B in 2020 until the spring. With the supply tight, this will put pricing pressure (up) on the current market as investors look for paper.
- Biden’s new plan calls for $350B for municipalities that have been hurt by the virus. These funds will be directly injected into state and local governments to cover the immediate shortfalls caused by the shutdowns. It would also extend $20B to public transit agencies like MTA; this will be a considerable boost to munis. This move will be a sharp turn from the Trump organization, which characterized such efforts as bailing out the Democratic-run states. The prospect of more aid coming from the Biden administration will be welcomed in our markets and should continue to add confidence to buyers of this paper.
- Powell confirmed that the Fed intends to keep interest rate low for the foreseeable future as long as inflation stays low, even if unemployment gets to historical lows. Now core inflation is around 1.4%, below the Fed's 2% target. The Fed is prepared to use its tools if inflation rises. He is confident our economy is on its way to recovery.
David Loesch
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