Welcome to the weekend! Here's what happening on
the fiscal front as we head into the final days of August.
Powell Says Fed May Soon Scale Back Its Stimulus
Federal Reserve Chairman Jerome Powell indicated Friday that he
expects the central bank to start pulling back its emergency
support for the economy this year as the recovery from the Covid-19
crisis continues.
In prepared remarks released before a virtual version of the
annual gathering of bankers and academics at Jackson Hole, Wyoming,
Powell said the economic recovery from the pandemic has been
remarkably robust, with employment gains coming faster than
expected.
“The outlook for the labor market has brightened considerably in
recent months,” he said. “The pace of total hiring is faster than
at any time in the recorded data before the pandemic. The levels of
job openings and quits are at record highs, and employers report
that they cannot fill jobs fast enough to meet returning
demand.”
At the same time, however, with 6 million people still out of
work compared to pre-pandemic levels, the recovery is far from
complete, Powell said, so it is too early to tighten monetary
policy by raising interest rates. “Today, with substantial slack
remaining in the labor market and the pandemic continuing, such a
mistake could be particularly harmful,” he warned.
Since the crisis began, the Fed has been spending as much as
$120 billion per month to purchase U.S. government debt and
mortgage-backed securities. Fed officials will look for signs of
continued improvement in the labor market before “tapering” those
purchases, Powell added, paying particular attention to any damage
caused by the rapid spread of the delta variant.
Inflation still seen as transitory: Powell stuck with his
previously stated view that the increase in prices seen in some
sectors of the economy in recent months is temporary.
“The rapid reopening of the economy has brought a sharp run-up
in inflation,” he said. “Businesses and consumers widely report
upward pressure on prices and wages. Inflation at these levels is,
of course, a cause for concern. But that concern is tempered by a
number of factors that suggest that these elevated readings are
likely to prove temporary.”
Powell cited several factors he says bolder his view that
inflation is transitory, including an easing of pricing pressure on
a handful of key commodities such as used cars; the lack of
evidence for the formation of a “wage-price spiral” throughout the
economy; and the continued presence of long-term deflationary
trends that have pushed prices lower over the last few decades.
“To sum up, the baseline outlook is for continued progress
toward maximum employment, with inflation returning to levels
consistent with our goal of inflation averaging 2 percent over
time,” Powell said.
Still, not all economists are so sure that inflation will ease
so rapidly or completely.
CNBC’s Jeff Cox reports that some officials at the
Fed are more worried than their chairman about the severity of the
current burst of inflation. Ahead of Powell’s appearance at the
Jackson Hole conference, Philadelphia Fed President Patrick Harker
told Cox that, “There’s also some evidence that they may not be so
transitory, and that’s a risk I’m worried about.”
White House Doubles Its Inflation Forecast, Slashes Deficit
Estimate
The Office of Management and Budget on Friday revised its
inflation outlook for the fourth quarter upward to 4.8%, more than
twice the 2% level forecast in May.
That increase brings the White House in line with the Federal
Reserve forecast. Both see inflationary pressure easing rapidly
next year, dropping to 2.5% by the fourth quarter of 2022 and 2.3%
by 2023.
As part of its
mid-session budget review, the administration also
boosted its estimate of annual economic growth to 7.2% this year,
up from 5% projected in May. And it estimated that the deficit for
fiscal year 2021 will be $3.1 trillion, a reduction of $555 billion
from the earlier estimate of nearly $3.7 trillion. It noted that
the actual year-end deficit is likely to be even lower given
monthly trends. Projections for the deficit as a share of the
economy also fell, dropping to an estimated 13.9%, down from a
previous forecast of 16.7%.
The White House still projects deficits topping $1
trillion a year for the next decade, but it now says that the
cumulative total of those deficits will be $684 billion lower than
it previously projected.
Quote of the Day
“You’re asking Democrats only to vote for a really big tax
increase. And that’s really hard to do.”
— Howard Gleckman, a senior fellow at the Urban-Brookings
Tax Policy Center, talking with
The Hill about the upcoming battles among
Democrats over spending and taxes in the reconciliation bill.
Gleckman said it would be “pretty remarkable” if Democrats were
able to agree on $1 trillion in new revenue sources, despite the
goal among some lawmakers of covering the full cost of a spending
package that could total $3.5 trillion.
Supreme Court Strikes Down Biden’s Eviction Moratorium
The Supreme Court on Thursday struck down the Biden
administration’s eviction moratorium, ruling 6-3 that the Centers
for Disease Control and Prevention exceeded its authority.
“The CDC has imposed a nationwide moratorium on evictions in
reliance on a decades-old statute that authorizes it to implement
measures like fumigation and pest extermination,” the court’s
majority said in an unsigned opinion.
“It strains credulity to believe that this statute grants the CDC
the sweeping authority that it asserts.”
The court’s three liberal justices dissented. “The public
interest strongly favors respecting the CDC’s judgment at this
moment, when over 90% of counties are experiencing high
transmission rates,” Justice Stephen Breyer wrote in a dissent
joined by Justices Sonia Sotomayor and Elena Kagan.
But the majority, ruling in favor of a challenge brought by a
coalition of landlords and real estate trade groups in Alabama and
Georgia, argued that the legal issue was clear. “It is
indisputable that the public has a strong interest in combating the
spread of the COVID–19 Delta variant. But our system does not
permit agencies to act unlawfully even in pursuit of desirable
ends,” the ruling said, adding, “If a federally imposed eviction
moratorium is to continue, Congress must specifically authorize
it.”
Landlords and realtors hailed the decision.
White House Press Secretary Jen Psaki said in a statement
Thursday night that the administration was disappointed. “As a
result of this ruling, families will face the painful impact of
evictions, and communities across the country will face greater
risk of exposure to Covid-19.” She said the president is calling on
all entities that can prevent evictions, from cabinet agencies to
local courts and landlords, to act with urgency.
The decision wasn’t a surprise: The Biden administration
initially said it did not have the authority to extend the
moratorium. But facing political pressure to act after lawmakers
did not, the CDC announced the new 60-day moratorium on August 3.
At the time, Biden himself acknowledged that the move might not be
legal, based on a prior Supreme Court ruling. “The bulk of the
constitutional scholarship says that it’s not likely to pass
constitutional muster,” he told reporters. “But there are several
key scholars who think that it may and it’s worth the effort.”
Biden added that part of his strategy was to buy more time for
billions in federal aid money to flow to renters.
Why it matters: The court’s ruling may leave millions of
renters at risk of eviction as bureaucratic delays have slowed the
delivery of the aid money to a trickle. As of the end of July, just
over $5 billion of the $46.5 billion in total aid approved by
Congress — about 11% — had been distributed to tenants through
state and local programs, according to data released this week by
the Treasury
Department. About $1.7 billion in aid was disbursed last
month, up from $1.5 billion in June.
About 3.5 million people told Census Bureau survey takers this
month that they were “very likely” or “somewhat likely” to face
eviction in the next two months, and some 6 million people are
estimated to be behind on their rent, though some tenants may still
be protected by state or local eviction bans.
What’s next: The Biden administration
and Congress will face renewed pressure to avoid a flood of
evictions. The administration announced some
new steps to do that this week, and The New York
Times
reports that “Biden’s team has been mapping out
strategies to deal with the likely loss of the moratorium, with a
plan to focus its efforts on a handful of states — including South
Carolina, Tennessee, Georgia and Ohio — that have large backlogs of
unpaid rent and few statewide protections for tenants.”
Programming note: The
Fiscal Times newsletter will be back in your inboxes after Labor
Day. See you in
Stress-tember! Email us at yrosenberg@thefiscaltimes.com.
News
Democrats Brace for New Spending Fights Over Biden
Agenda – The Hill
US Projects Nearly $3.12 Trillion Budget Deficit for This
Year, Down $555 Billion – The Hill
Dentists, Insurers Aim to Pare Down Dems’ Medicare
Expansion – Politico
Powell Walks High Wire as Fed Plans to Ease Support for
Biden's Economy – Politico
Biden Announces Pay Raises for Federal Employees –
Washington Post
US Coronavirus Hospitalizations Hit Eight-Month High Over
100,000 – Reuters
Biogen’s New Alzheimer’s Drug Beyond Reach for Many
Patients – Wall Street Journal
Biden Has Approved $9.5 Billion in Student Loan Cancellations
This Year for Defrauded and Disabled Students –
CNN
Calls Grow to Discipline Doctors Spreading Virus
Misinformation – New York Times
Views and Analysis
The Coming Health-Care Lobbying Frenzy Over the
Reconciliation Bill – Paul Waldman, Washington
Post
Congress Will Have an Extremely Busy September. Here's What
Happens Next – Tobi Raji, Washington Post
We’re Burying Our Kids in Debt (Just Not the Way You
Think) – Eleni Schirmer, New York Times
The Swamp’s Favorite Tax Break – James Freeman,
Wall Street Journal
Even Now, It’s Not Too Late to Avoid a Tsunami of
Evictions – Washington Post Editorial Board
Why Would an Economist Ever Look on the Bright
Side? – Jeanna Smialek, New York Times
The Confusion Surrounding Booster Shots Could Paralyze
Vaccination Efforts. The Government Must Step Up –
Kavita Patel, Washington Post
Make the Unvaccinated Pay Out for Their Deadly
Decisions – John Banzhaf III, CNN
Arizona’s Great Tax Upheaval – Wall Street Journal
Editorial Board