Happy Thursday! Federal Reserve Chairman Jerome Powell is set to give a closely watched speech tomorrow at the central bank’s conference in Jackson Hole, Wyoming.
How committed is the Fed to raising interest rates and aggressively fighting inflation given some mixed signals about the economy? “Powell needs to convince markets he means business when he addresses the landmark conference of economists on Friday,” Politico’s Victoria Guida writes. “If he can’t, it could undermine the Fed’s effort to curb the price spikes, which have rocked the economy, dragged consumer sentiment to record lows, and damaged President Joe Biden’s approval ratings.”
As we await Powell’s remarks, here's what else is going on.
Recession? The Economy May Actually Have Been Growing Early This Year
Did the U.S. economy enter a recession this past spring or not?
The question has been the subject of much partisan political debate, though economists have mostly said they doubt the economy is in a recession. New data released by the Commerce Department Thursday confirmed that the economy is in a weird place — though the recession question remains a confusing one bedeviled by contradictory evidence.
The Commerce Department on Thursday revised its second quarter GDP growth figure, which now stands at an annualized rate of -0.6%, less lousy than the -0.9% reported initially, but still negative. Combined with the 1.6% contraction in the first three months of the year, the economy has officially shrunk for two straight quarters, consistent with one unofficial definition of recession.
And yet …
The Commerce Department also said Thursday that inflation-adjusted gross domestic income rose 0.3% in the second quarter of 2022, equal to a 1.4% annual rate. GDI, which sums all personal and business income in the economy, rose the quarter before, as well, suggesting that the economy has been and still is growing at a modest clip.
In theory, the GDP and GDI figures should be equal, since they are two sides of a nationwide balance sheet. They often vary a bit, but now they are far apart, making it hard to determine which way the economy is moving. The two sets of figures are “telling completely different stories about the economy,” Michael Pearce, senior U.S. economist at Capital Economics, said in a research note.
Like we said, weird.
“The conflicting signals are a mystery because the two measures, in theory, should be identical,” explains Ben Casselman of The New York Times. “They measure the same thing, economic output, from opposite sides of the ledger: One person’s spending is someone else’s income. In practice, the two indicators don’t always match because the government can’t measure the economy perfectly, but they have rarely diverged this much for this long.”
Some economists believe the income data gives a better sense of what’s really going on. Jason Furman, who led President Obama's Council of Economic Advisers, said Thursday that the average of the GDP and GDI numbers — a measure that is used by both the Bureau of Economic Analysis and the National Bureau of Economic Research — shows that the economy grew at an 0.4% rate in the second quarter.
“Overall GDP in Q2 was 2.2% below CBO's pre-pandemic forecast,” Furman wrote. “That could indicate lingering effects of the pandemic. Or it could just be mismeasurement: using the average of GDP and GDI the economy is right where CBO expected it to be.”
Quote of the Day: IRS Chief Pushes Back on GOP Audit Claims
“As the nation’s tax administrator, the IRS plays a unique role in our nation. It can be a difficult job. After all, does anyone really like paying taxes? Of course not. But they’re essential to fund the roads we drive on, the schools our children attend, support our military and so much more. Unfortunately, given the nature of this work and historical stereotypes, the IRS is often perceived as an easy target for mischaracterizations of what IRS employees do — and that’s exactly what’s happened in recent weeks.”
—IRS Commissioner Charles P. Rettig, in an op-ed published Thursday defending the tax agency against charges that it plans to use $80 billion in new funding to go after average citizens. “The bottom line is this: These resources are absolutely not about increasing audit scrutiny on small business or middle-income Americans,” Rettig wrote. “The investment of these important resources is designed to support honest, compliant taxpayers. Our investment is designed around a Treasury directive that audit rates do not rise relative to recent years for households making under $400,000.”
Number of the Day: $500 Billion
The White House isn’t putting a price tag on President Joe Biden’s plan, announced Wednesday, to cancel up to $20,000 in student loan debt for millions of Americans. “White House officials have spent the 24 hours since the forgiveness plan was announced skirting questions about its costs,” The Hill’s Brett Samuels reported Thursday afternoon. But the Committee for a Responsible Federal Budget — a non-partisan group that advocates for deficit reduction and has come out against the Biden plan — estimates that the new plan will cost between $440 billion and $600 billion over the next 10 years, with a central estimate of $500 billion.
“Combined with today’s announcement, the federal government’s actions on student loans since the start of the COVID-19 pandemic have cost roughly $800 billion,” CRFB says in its analysis. “Of that amount, roughly $750 billion is due to executive action and regulatory changes made by the Biden Administration.”
A Nearly $400 Million Veteran Retraining Program Led to Fewer Than 400 New Jobs: Report
A $386 million Veterans Affairs program enacted as part of the $1.9 trillion American Rescue Plan has been plagued by problems and underperformance, The Washington Post’s Lisa Rein and Yeganeh Torbati report.
The Veteran Rapid Retraining Assistance Program promised to train former servicemembers who had lost their jobs due to the pandemic for “high-demand” new jobs. But Rein and Torbati write that the program ran into a slew of problems — problems that were “achingly predictable” based on the results of a similar program introduced in 2012:
- White House Won’t Give Price Tag for Student Loan Plan – The Hill
- Jerome Powell’s Dilemma: What if the Drivers of Inflation Are Here to Stay? – Wall Street Journal
- A Beginner's Guide to the Fed's Big Jackson Hole Conference – Axios
- Democrats' Student Loan Backlash – Axios
- Biden’s Student-Loan Relief Adds New Wrinkle to Inflation Debate – Bloomberg
- Biden's Student Loan Relief Won't Fuel Inflation, Wall Street Says – CBS News
- Government Funding Talks Clouded by Manchin's Energy Permitting Demands – Politico
- Reconciliation Language Shores Up EPA Clean Air Authority – Roll Call
- Earmarks’ Future Unclear as Republicans Split Ahead of Midterms – Roll Call
- Western Drought Funding Pushes Feds and States to Cooperate – Roll Call
- Biden Sees Highest Approval in a Year in Latest Gallup Poll – The Hill
Views and Analysis
- Biden Student Loan Plan Squarely Targets the Middle Class – Jim Tankersley, New York Times
- Thirteen States May Tax Student Loan Debt Cancelation – Jared Walczak, Tax Foundation
- Liberals Now Have a Path, Still Narrow, to Enacting Expansive Agenda – Paul Kane, Washington Post
- Who Will Win the Battle Over Framing the Inflation Reduction Act? – Howard Gleckman, Tax Policy Center
- Powell's Inflation Miscalculation Raises Stakes on Rate Shift – Victoria Guida, Politico
- Another Republican Lie Is Born – Dana Milbank, Washington Post
- Can the C.D.C. Save Itself? – Spencer Bokat-Lindell, New York Times
- Taxing Tech Companies for the Failure of the News Industry Is Just Unfair – Jack Shafer, Politico