How was your Wednesday? Congress had a busy one, as the House passed legislation to avert a national rail strike, sending a pair of bills to the Senate. House Democrats also formally elected a new generation of leaders, choosing 52-year-old Rep. Hakeem Jeffries of New York to step into the top post being vacated by 82-year-old Speaker Nancy Pelosi. Jeffries, as expected, will become the first Black member of Congress to lead either party in the House or Senate.
Meanwhile, House Republicans voted to keep earmarks for annual spending bills when they take control of the chamber next year. And Fed Chair Jerome Powell gave a market-rallying speech signaling a likely slowdown in interest rate hikes.
Also, Argentina (and Poland) advanced in the World Cup and Fleetwood Mac’s Christine McVie died at age 79. She wrote “Don’t Stop” and some of the band’s other top hits.
House Passes Bill to Avert Rail Strike
The House voted in bipartisan fashion Wednesday to avoid a nationwide strike by freight railworkers.
The 290-137 vote saw 79 Republicans join with 211 Democrats in support of the bill, which President Joe Biden also supported, warning that a rail shutdown would devastate the economy and put some 765,000 Americans out of work in just a matter of two weeks.
“As a proud pro-labor President, I am reluctant to override the ratification procedures and the views of those who voted against the agreement,” Biden said in a statement Monday. “But in this case – where the economic impact of a shutdown would hurt millions of other working people and families – I believe Congress must use its powers to adopt this deal.”
Eight Democrats voted against the bill.
The House also passed a separate bill to increase the number of paid sick days rail workers get from one to seven, but that measure has little chance of getting through the narrowly divided Senate.
The bottom line: Senate leaders are looking to pass the rail bill quickly, and the White House wants it buttoned up by Saturday at the latest.
Smaller Rate Hikes Ahead, but ‘Long Way to Go’ in Battle Against Inflation, Powell Says
Federal Reserve Chair Jerome Powell said Wednesday that less aggressive interest rate hikes are on the horizon, with a smaller increase coming as soon as next month. At the same time, Powell told attendees at an event held by the Brookings Institution that “inflation remains much too high” in the U.S., and indicated that Fed plans to maintain tight monetary conditions for longer than previously expected. “Despite some promising developments, we have a long way to go in restoring price stability,” he said.
Powell’s comments bolster analysts’ expectations that the Fed will raise its key interest rate by 50 basis points at its final 2022 meeting in two weeks, a step down from the historic 75-basis-point hikes enacted at each of the last four meetings. But Powell also made it clear that rates could hit a relatively high peak and stay there for longer.
The Fed’s view: Powell said that there are some encouraging signs in the Fed’s battle against inflation, including an easing of price increases for core goods. But housing inflation remains high, even as it shows signs of easing, and core service prices — which include wages — remain uncomfortably hot.
“In the labor market, demand for workers far exceeds the supply of available workers, and nominal wages have been growing at a pace well above what would be consistent with 2% inflation over time,” Powell said, adding that there are only “tentative signs” that the market is “rebalancing.”
The labor market continues to feel the effects of the Covid-19 pandemic, Powell said, with a shortfall of about 3.5 million workers, including more than 2 million people who retired early. “Participation dropped sharply at the onset of the pandemic because of many factors, including sickness, caregiving, and fear of infection,” he said. “Many forecasters expected that participation would move back up fairly quickly as the pandemic faded. And for workers in their prime working years, it mostly has. Overall participation, however, remains well below pre-pandemic trends.”
A soft landing? Powell said he still thinks the Fed can bring inflation under control without causing a recession. “I do continue to believe that there’s a path to a soft or softish landing,” he said. “I think it’s still achievable.”
Economic data released Wednesday provide some support for Powell’s optimism. Third-quarter economic growth has been revised to 2.9%, the Bureau of Economic Analysis said, up from the 2.6% initial estimate.
Estimates for fourth-quarter growth vary widely, from 1% to more than 4%, but most analysts expect the economy to keep growing, bolstering hopes that it can avoid a downturn any time soon.
“The Federal Reserve’s rate hikes to date have mostly just sent the housing sector into a recession where the rest of the economy continues to run fairly smoothly,” Christopher Rupkey, chief economist at research firm Fwdbonds, said. “If the Fed is trying to slow the economy by hitting the brakes, they haven’t done enough yet.”
The bottom line: Analysts expect to see a 50-basis-point rate hike by the Fed in December, with additional — though perhaps smaller — rate hikes after that. Wherever rates end up, though, Powell warned that the Fed may feel the need to keep them relatively high for a significant period. “It is likely that restoring price stability will require holding policy at a restrictive level for some time,” he said. “History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”
Op-Ed of the Day: Former Treasury Chiefs Call for IRS Funding
Two Democratic former Treasury secretaries are urging Congress to provide some $14 billion in base annual funding for the Internal Revenue Service, in line with what the Biden administration has requested.
In a Washington Post op-ed, Robert Rubin and Jack Lew —who led the Treasury Department under Presidents Clinton and Obama, respectively — defend the Inflation Reduction Act passed by Democrats this year and the $80 billion in additional IRS funding it provides over 10 years. Republicans have claimed misleadingly that the funding will be used to create an army of auditors targeting the middle class. House Republican Leader Kevin McCarthy of California has said that reversing the IRS funding will be a top priority for his party as it takes control of the chamber in January.
Rubin and Lew look beyond that threat, noting that President Joe Biden and Senate Democrats can block any Republican effort to cut the $80 billion. But, they warn, “House Republicans have a fallback option: targeting the agency’s base appropriation in must-pass legislation to keep the government operating.”
In other words, Republicans may target the IRS’s annual budget, forcing the agency to use its new supplemental funding to cover basic operations. That’s why they urge Congress to provide the IRS with annual funding “as close as possible” to the $14 billion requested by the Biden administration.
“Congressional appropriators are currently negotiating a year-end package to fund the government. They should vigorously oppose any attempts to derail the ongoing effort to rebuild the IRS by reducing regular annual funding,” Rubin and Lew write.
Read the full piece at The Washington Post.
Quote of the Day
“You thought you lived in the country with the finest health care in the world. You don’t. You live in the country with the world’s most expensive health care. A country where, 12 years after an enormous legislative effort to extend affordable coverage to the entire population, 8% still lack health insurance. Where half of adults are worried about medical costs that sometimes force them to delay or forgo care. Where life expectancy ranks 40th among all nations — that’s just better than Ecuador but behind Turkey, for those of you scoring at home — and newborn mortality ranks 33rd worldwide.
The only category in which the US hold the undisputed lead is in measures of health spending — gross, per capita, and as a percentage of GDP.”
— Bloomberg’s John Lauerman, writing Wednesday about shortcomings in the U.S. health care system relative to other countries. If you think the U.S. has “the world’s finest health-care system, you’re living in a dream world,” Lauerman says.
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News
- House Passes Bill to Avert Rail Strike, Provide Workers Paid Sick Leave – The Hill
- In a Show of Unity, House Democrats Elect Hakeem Jeffries Minority Leader – New York Times
- Powell Signals Downshift Likely Next Month, More Hikes to Come – Bloomberg
- White House Knocks Thune’s Bid to Tie Debt Limit to Entitlements – Bloomberg
- Republicans Vote to Continue Spending Earmarks Next Year – Bloomberg
- U.S. Grew 2.9% in Third Quarter, GDP Shows, and There’s Little Sign of Recession for Now – MarketWatch
- Manchin and Klobuchar: Omnibus Likely Place for Electoral Count Overhaul – Roll Call
- An Arizona County’s Refusal to Certify Election Results Could Cost GOP a House Seat – Bloomberg
- ‘A Complete About Face’: Some Republicans Change Tune on Obamacare’s Medicaid Expansion – Politico
- Corporate Profits Hit Record High in Third Quarter Amid 40-Year-High Inflation – The Hill
- Alzheimer’s Drug Shows Promise but Needs More Study for Safety, Researchers Say – Washington Post
- Biden, Macron Dinner to Feature Batiste, World’s Best Cheese – Bloomberg
Views and Analysis
- The GOP Wants to Cut Funding to the IRS. We Can’t Let That Happen – Robert E. Rubin and Jacob J. Lew, Washington Post
- Stagflation Is Just What the Economy Needs – Narayana Kocherlakota, Bloomberg
- Why America’s Railroads Refuse to Give Their Workers Paid Leave – Eric Levitz, New York
- Next Steps on the Child Tax Credit – Robert Greenstein, Brookings Institution
- The Best Tax System on Earth – Ryan Cooper, American Prospect
- That Blockbuster Alzheimer’s Drug? It’s Not a Cure – Lisa Jarvis, Bloomberg
- How the Likely New Leaders of House Democrats Have Acted on Health Care – Rachel Roubein, Washington Post
- Measles Anywhere Is Trouble Everywhere. Close the Vaccine Gap Now – Washington Post Editorial Board