Goldman Slashes US Growth Outlook On Manchin Bombshell

“A failure to pass Build Back Better has negative growth implications,” Goldman said, in a note out just hours after Joe Manchin effectively torpedoed The White House’s social spending plan on national television.

Manchin’s revelation, delivered during an interview with Fox News, left Democrats reeling.

Jen Psaki said the administration will continue to press Manchin on his position, but his remarks had an air of finality. “I just can’t,” he said, feigning disappointment. “I’ve tried everything humanly possible. I can’t get there.”

Read more: Joe Manchin Kills Build Back Better

Goldman on Sunday wrote that enactment of the legislation “already looked like a close call.” After Manchin’s comments, the bank “removed the assumption that BBB will become law” from their forecast.

“With headline CPI reaching as high as 7% in the next few months in our forecast before it begins to fall, the inflation concerns that Sen. Manchin and others have already expressed are likely to persist, making passage more difficult,” Jan Hatzius and colleagues remarked, before suggesting that Omicron headlines will likely overshadow debate about long run economic and social reforms over the next several weeks.

That’s tragically ironic. It was the pandemic which laid bare the scope of the nation’s overlapping economic and social crises, thereby increasing the sense of urgency around solving endemic problems. Now, the pandemic is standing in the way of the very same progressive agenda the crisis brought to the fore.

The biggest concern is the expiration of the expanded child tax credit. Although Goldman sees some chance that lawmakers find a way to preserve it, the bank cautioned that negotiations will take time. “The urgency to extend it is likely to fade [and] it is also unclear whether progressive Democrats would accept legislation that drops most of their other priorities,” the bank said.

Ultimately, the bill’s failure means an already waning fiscal impulse will be that much weaker. Taking into account the expiration of the child tax credit and the absence of additional new spending, Goldman cut its US GDP forecast for 2022 to 2% in Q1 from 3% prior, 3% in Q2 from 3.5% and 2.75% in Q3 from 3%.

As a reminder, it was just 10 days ago when Goldman slashed their US outlook on Omicron concerns. The apparent demise of BBB is just insult to injury.

Additionally, Goldman indicated they may revisit their (freshly-minted) call for Fed liftoff in March in light of Manchin’s bombshell. “Most Fed officials likely expected the BBB Act or something like it to become law,” Goldman said. The Fed’s newfound zeal to tighten policy could fade if it becomes apparent that assumptions about additional fiscal measures were misguided.

On the bright side, Goldman said, “the odds of corporate tax increases have now declined… which our equity strategists had estimated would reduce S&P profits by 3%.”