Huge News Week Ahead: Virginia, Infrastructure Deal, FOMC, Glasgow

LET’S START WITH VIRGINIA: Democrats are in danger of losing tomorrow in a major upset, as challenger Glenn Youngkin rides the education issue to a likely victory over former Gov. Terry McAuliffe. Control of what kids are taught is a huge issue, and McAuliffe didn’t see it coming.

AS DEMOCRATS FOUGHT ENDLESSLY over an infrastructure deal, their polls plummeted on issues such as inflation, crime and immigration. Joe Biden’s polls crashed after the inept Afghanistan pullout; they may inch higher after his Europe trip, but the damage has been done. The Virginia results will speak volumes.

EVEN A CLOSE WIN in Virginia should scare the Democrats, who are likely to lose the House — and perhaps the Senate as well — next fall. Time to pass legislation is dwindling, which puts enormous pressure on party leaders to wrap up the two infrastructure bills quickly.

A DEAL IS CLOSE: After all the drama in October, we now think an agreement on infrastructure taxes and spending is possible within a week. There are still unresolved issues — drug pricing, paid leave and immigration — but the Democrats’ warring factions are out of gas. They want a deal.

ONCE THE HUGE INFRASTRUCTURE AND SOCIAL SPENDING BILLS ARE PASSED, there will be a re-assessment of how much stimulus the economy will enjoy in 2022. It will be plenty to fund a solid recovery. What about a withering battle on the debt ceiling a month from now? We’re hearing that the deadline may slip until early 2022.

THE BIGGEST STORY FOR THE MARKETS this week is the Tuesday-Wednesday FOMC meeting, where officials are expected to announce details of their tapering of asset purchases; terrible inflation data last Friday sealed the deal. We expect Chairman Jerome Powell to agree to a fast pace of tapering, which will be completed by summer, opening the door for rate hikes to begin by next fall.

POWELL IS THE SHAKY FAVORITE to retain his job; we expect an announcement in the next week. Nonfarm payrolls are expected to surge on Friday and higher prices are scaring consumers, so Biden might need an inflation scapegoat. Firing Powell is still an option but we put odds at 60-40 that he will be retained.

OFF TO A GOOD START: Exceeding low expectations, Biden gets good grades thus far for his European visit, at least on style points. World leaders obviously are more comfortable with him than Donald Trump, and a lifting of steel and aluminum tariffs were a relief. Biden’s visit with the Pope might raise his shaky poll numbers by a point or two.

BUT MEETING LOW EXPECTATIONS in Glasgow will be difficult. The anti-coal sentiment will persist, but it will be hard to enforce policies to keep global temperatures from rising by only 1.5 degrees Celsius by the end of this century. The key will be pledges of money for less developed countries; Biden can offer assurances of billions in the infrastructure bill that should pass soon.

PROGRESS ON CLIMATE CHANGE will come gradually — the private sector will be crucial — but this meeting hardly will be a panacea, not with the indifference from Russia and China. Changes will come incrementally and slowly — with a sense of urgency growing after more horrific fires and floods.

Related: What’s Wrong With a Billionaires Tax? Here Are Seven Reasons

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