White House Considering Gas Tax Holiday: Report

White House Considering Gas Tax Holiday: Report

Fed Chair Jerome Powell
By Yuval Rosenberg and Michael Rainey
Monday, June 13, 2022

Happy Monday! We’ve got a big week ahead, with the Federal Reserve expected to raise rates again on Wednesday. The question is by how much? The House Appropriations Committee will also be starting to mark up the 12 annual spending bills on Wednesday, with the aim of advancing them all by the end of the month.

Today, the House select committee investigating the January 6 attack on the Capitol held its second public hearing, presenting testimony that former President Donald Trump was told repeatedly by aides and advisers that he lost the election and his claims of widespread voter fraud were bogus — yet Trump continued to promote his baseless conspiracy theories anyway. Rep. Zoe Lofgren (D-CA) also said that Trump used these false allegations to raise hundreds of millions of dollars from supporters — money that was supposedly to be directed toward legal challenges to the election results. Most of it went elsewhere. “The ‘big lie’ was also a big rip-off,” Lofgren said.

Two more hearings are set for Wednesday and Thursday. In the meantime, here’s what we’re watching:

Fed Set to Raise Interest Rates Again — but by How Much?

The Federal Reserve is expected to raise interest rates again this week, and Friday’s brutal consumer price index report, which showed inflation reaching a new 40-year peak of 8.6% a year, has sparked speculation that the bank’s policymakers may move aggressively, hiking their benchmark rate by more than the 0.5 percentage point they had signaled.

The Wall Street Journal’s Nick Timiraos reports that troubling recent inflation readings, including mounting consumer expectations for continued price increases, will likely lead Fed officials to consider a 0.75 percentage-point hike at their meeting this week. “Investors in interest-rate futures markets placed a nearly 30% probability on the larger 0.75-percentage-point increase on Monday afternoon, up from around 4% before last Friday’s inflation reports,” he writes.

Timiraos notes that Federal Reserve Chairman Jerome Powell, while loath to surprise markets, opened the door to such a move in an interview last month “What we need to see is clear and convincing evidence that inflation pressures are abating and inflation is coming down. And if we don’t see that, then we’ll have to consider moving more aggressively,” Powell said at the time.

Two investment banks, Barclays and Jefferies, revised their forecast for this week’s rate hike to 75 basis points after Friday’s inflation data (a basis point equals 1/100th of 1%). “We believe that risk-management considerations call for aggressive action to reinforce the Fed’s inflation-fighting credibility,” Barclays economists wrote in a Monday report cited by Timiraos. And Diane Swonk, chief economist at Grant Thornton, told the Journal that the recent data mean that Fed needs to get more aggressive: “They’ve got to go now with 75. The Fed is behind the curve, and they know it.”

Bloomberg News reports that some analysts are suggesting that a full percentage point increase is now possible. “The Fed’s trying to erase any perception that they’re behind the curve,” Steven Englander of Standard Chartered Bank told Bloomberg. “Fifty [basis points] was the big round number six months ago. Meanwhile, 75 is a very middling type of hike. So the Fed might say: ‘Look, if we want to show commitment, let’s just do 100.’” Still, Englander reportedly sees only a 10% chance of a full percentage-point increase, with his baseline forecast remaining a 0.5 point hike.

Recession fears rising: Friday’s inflation report and the outlook for interest rates fueled a stock market selloff Monday as concerns grow that the Fed’s inflation fight will tip the economy into a recession. The S&P 500 index fell 3.9% Monday and officially entered bear market territory, nearly 22% below the high set on January 3.

“When inflation is as high as it is right now and unemployment is as low as it is right now, it’s almost always been followed within two years by recession,” former Treasury Secretary Larry Summers said Sunday during an appearance on CNN’s “State of the Union.” “I think there’s certainly a risk of recession in the next year, and I think given where we’ve gotten to, it’s more likely than not that we’ll have a recession within the next two years.”

Summers said the path for inflation depends on the war in Ukraine and its effect on oil prices. He urged the Biden administration to lift some tariffs on China and called on Congress to take steps to address inflation by passing legislation that would reverse Trump-era tax cuts, raise taxes on corporations and lower prescription drug prices.

The bottom line: The Fed’s two-day policy meeting starts tomorrow and while analysts’ consensus expectation remains a 0.5 percentage point interest rate increase, a 0.75 percentage point hike on Wednesday wouldn’t be surprising and may now be likely.

White House Considering Federal Gas Tax Holiday: Report

With the average price of gas topping $5 a gallon, President Biden’s economic team is giving more serious consideration to a federal gas tax holiday, The Hill’s Amie Parnes and Morgan Chalfant report. A suspension of the tax, 18.4 cents a gallon, would require congressional legislation, but Biden could spur lawmakers to act.

Robert Wolf, the former CEO of UBS Americas who was an economic adviser to former President Obama, told The Hill he would support a gas tax holiday tied to Russia’s war in Ukraine. “I know that some may view this as somewhat gimmicky because it will revert itself at some point, but a majority of the recent gas hike since the beginning of the year has been due to the Russian invasion,” Wolf told The Hill. “I think tying it solely to the war and setting an end date makes it more strategic and smart.”

Analysts have warned that a gas tax holiday might not be passed along from energy companies to drivers and could do relatively little to help consumers’ finances. At the same time, some have cautioned that a suspension of the tax would undercut much-needed infrastructure funding.

Quote of the Day

“Inflation wasn’t transitory because COVID was not transitory. Parts of China are still locked down. We’re not even through the COVID shock.”

– Claudia Sahm, a former Federal Reserve research director, as quoted by The Hill.

States Would Get Billions Under Bipartisan Gun Deal

A bipartisan group of senators over the weekend announced an agreement on a framework for gun safety legislation, and although there’s still a lot of work to do to hammer out the details, it looks like the bill would send billions of federal dollars to the states to assist in implementing new rules and procedures.

While the framework falls well short of what many gun control advocates have called for — it does not ban AR-15 rifles or high-capacity magazines, for example, nor does it mandate universal background checks — it does provide some new limits on gun purchases and access.

“We cannot let the congressional perfect be the enemy of the good,” said Sen. Richard Durbin (D-IL), who wants to ban the sale of military-type weapons. “Though this agreement falls short in this and other respects, it can and will make our nation safer.”

Here are some of the key elements in the framework, most of which would require federal funding:

* Red flag laws: The federal government would fund efforts at the state level to pass new laws empowering officials to restrict gun access for those who have been determined to be a threat. The 19 states that already have such laws would receive additional funding to improve their effectiveness.

* Enhanced school safety: The agreement calls for new programs “to help institute safety measures in and around primary and secondary schools” and to support “school violence prevention efforts,” including training for teachers and school officials.

* Enhanced review for gun buyers under 21: Those between the ages of 18 and 21 would receive more scrutiny when purchasing some weapons, including the AR-15 rifle that has been used in so many mass shootings. The National Instant Criminal Background Check System would be required to contact state and local officials to have them search for mental health or juvenile records that would disqualify these younger buyers.

* Mental health services: The proposal calls for “major investments to increase access to mental health and suicide prevention programs; and other support services available in the community, including crisis and trauma intervention and recovery.” The deal would fund a nationwide expansion of community mental health clinics.

The framework also calls for imposing stricter rules on gun ownership for those who have been convicted of domestic violence and clarifying the definition of who qualifies as a federally licensed arms dealer, with the goal of increasing the number of background checks in the system.

What’s next: Lots of negotiating, with no guarantee of success. But the handshake agreement itself is providing some lawmakers with the hope that they can work together on important issues like gun violence. “When we put our partisan differences aside and focus on what’s best for the American people, the Senate is capable of making a substantial, positive impact in our society,” Sen. Chris Coons (D-DE) said. “This is a step forward for the Senate, and if this proposal becomes law, will be a much bigger step forward for gun violence prevention and our nation.”


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