Forget About a Recession?

Forget About a Recession?

President Biden returns to the White House
By Yuval Rosenberg and Michael Rainey
Monday, February 6, 2023

A tragic day in Turkey and Syria, as thousands of people were killed by a magnitude 7.8 earthquake.

Today is also the first Monday in February, the date by which the president is required to submit a budget, kicking off the annual process. President Joe Biden has missed the statutory deadline and is expected to issue his budget blueprint next month. For now, Biden is preparing for his State of the Union address Tuesday night, which could set the stage for the launch of his re-election campaign soon after — and for the next two years of clashes with Republicans.

Ahead of that address, House Speaker Kevin McCarthy (R-CA) gave his own 10-minute speech Monday warning about the threat from the rising national debt. “Of all the dangers we face, the greatest threat to our future is the national debt,” he said before laying out a defense of the Republican demand that any debt limit increase be paired with spending cuts: “Now we must return Washington to a basic truth: debt matters. The debt limit is one of the most important opportunities Congress has to change course.”

Rep. Brendan Boyle (D-PA), the ranking member of the House Budget Committee, responded: “Let’s be crystal clear: refusing to pay the bills is never fiscally responsible. Threatening to unleash economic catastrophe if you don’t get what you want is never fiscally responsible.”

Here’s what else we’re watching.

Biden’s Big State of the Union Challenge

The Covid pandemic has been quieted, the labor market is soaring and predictions of a recession are gradually giving way to optimism about a soft landing for the economy. So the state of our union is … gloomy?

Here's the challenge President Biden faces as he prepares to give what may be his most-watched speech of the year before a divided Congress — and, potentially, to launch his re-election bid before a divided public: Only 42% of Americans approve of the way he is handling his job, compared with 53% who disapprove, according to the latest Washington Post-ABC News poll. Just 37% approve of the way Biden is handling the economy. And a new Pew Research Center survey finds that only 21% of Americans rate economic conditions as excellent or good.

If Americans aren’t feeling upbeat about the economy, they also don’t see Biden as doing much to improve their lives. A sizable majority of Americans in the Post-ABC News poll say that Biden has not achieved much since taking office. Nearly four in 10 respondents (39%) told pollsters that Biden has done little or nothing on the job, while another 23% said he’s done “not much.” Just 36% say he’s done a “good amount” or a “great deal.”

While the administration might expect 93% of Republicans to say that Biden has not accomplished much, two-thirds of independents agree with the sentiment, which is bound to be more troubling for 2024 campaign prospects.

What about all those big bills Biden signed into law — the $1.9 trillion American Rescue Plan Act, the $1.2 trillion bipartisan infrastructure law, the Inflation Reduction Act and the $1.7 trillion omnibus year-end package from last year? “On many of Biden’s signature initiatives — from improving the country’s infrastructure to making electric vehicles more affordable to creating jobs — majorities of Americans say they do not believe he has made progress,” the Post’s Toluse Olorunnipa, Scott Clement and Emily Guskin say, citing the new poll data.

They add that Biden has said that one of his main goals for this year is to make sure that Americans feel the effects of the legislation enacted during the first two years of his term.

The new poll does offer a bit of good news for Biden: On the issue of raising the debt limit, 82% of Americans say they are somewhat or very concerned that a government default could hurt the economy. And 65% of those polled say that the debt ceiling and federal spending should be handled separately, as the Biden administration has argued. Just 26% say that Congress should allow the federal government to pay its debts only if Biden agrees to cut spending — essentially the position that House Republicans have taken.

The poll of 1,003 adults was conducted from January 27 through February 1 and has an overall margin of sampling error of plus or minus 3.5 percentage points.

Deficit Concerns Are On the Rise: Pew

Deficit concerns have returned to Capitol Hill in a big way — and they are on the rise in the American public’s consciousness, the Pew Research Center finds.

Unsurprisingly, the latest Pew survey finds that the economy remains a top concern for Americans, with 75% of poll respondents saying that it should be a main priority for the president and Congress this year — the third straight year the economy has topped the list.

Reducing health care costs and defending against terrorism are also near the top of the 2023 list, as is “making Medicare financially sound.”

But Pew notes that the budget deficit has become a higher priority that it was in recent years, with 57% now calling it a priority compared to 45% a year ago and 42% in January 2021. “The change has come among members of both parties, though Republicans and those who lean to the Republican Party (71%) are far more likely than Democrats and Democratic leaners (44%) to view cutting the deficit as a leading priority,” Pew reports. “The share saying deficit reduction should be a top priority has increased 8 percentage points among Republicans and 13 points among Democrats since last year.”

The context: President Biden has routinely touted the deficit reduction that has occurred during his time in office, and Republicans have rediscovered debt and deficit concerns that had largely disappeared throughout the Trump presidency, when article after article questioned whether deficit hawks had gone extinct — or simply declared that they had.

Then, of course, the coronavirus struck and Congress responded aggressively, authorizing some $6 trillion in Covid relief measures — actions that, for the most part, budget watchers said were necessary and appropriate to deal with the pandemic and its economic impact. Now, Pew finds that dealing with the coronavirus is among the lowest priorities for Americans, with just 26% calling it a top issue for the president and Congress.

The Pew Research Center survey was conducted January 18 to 24 among 5,152 U.S. adults.


Republicans Plan Their Debt Ceiling Showdown Strategy

As Republicans use the need to raise the nation’s $31.4 trillion debt limit as leverage to force spending cuts, they have not been able to say exactly what it is they want to cut.

Former House Speaker Newt Gingrich says Republicans are planning their strategy now. “They’re in the middle of a conversation that is very healthy — lots of members have lots of ideas, and they’re in the process of sorting through them now,” Gingrich told The Washington Post’s Jeff Stein. “They are trying to find serious, real changes that move the pattern of the debt by significantly reducing wasteful government spending, put it together in a form the country understands, and then offer a package that has so many good ideas the president can’t reject all of them.”

According to Stein, the proposals currently under discussion include:

* Slash discretionary spending: The discretionary part of the budget now totals $1.6 trillion, or roughly 30% of the federal budget, and some Republicans are considering across-the-board cuts that would impose spending levels from 2022, while holding that level of funding in place for several years. Some lawmakers are calling for exceptions to the rule, however, and want to protect defense and veterans funding from any cuts, reducing the potential impact of the move. Cutting funding for programs such as Pell Grants and the National Institutes of Health could also prove to be politically unpopular.

* Cut Social Security and Medicare: While Speaker McCarthy has said mandatory programs like Social Security and Medicare will not be part of the negotiations, other Republicans have long pushed for substantial changes to reduce outlays. Potential modifications include raising the retirement age for Social Security and altering the way payments are made in Medicare.

* Cut IRS funding: Republicans are still furious about the $80 billion in additional funding over 10 years provided to IRS in the Inflation Reduction Act and are reportedly interested in demanding that most of it be taken back.

* Recover Covid funds: Congress spent several trillion dollars on the federal response to Covid-19, and GOP lawmakers are talking about using any unspent funds to reduce the national debt. Only about $157 billion of that total remains, however, according to the nation’s comptroller general, which would amount to less than 1% of the national debt.

* New work requirements: Stricter work requirements usually translate into less participation in social welfare programs, and Rep. Matt Gaetz (R-FL) is reportedly trying to convince his colleagues to tighten the rules for a variety of federal programs in order to cut spending. The problem, though, is that most programs already have work requirements. “There aren’t that many places to go with work requirements that we have not gone already,” Brian Riedl, a conservative analyst at the right-wing Manhattan Institute analyst, told Stein.

* Crackdown at the border: This issue has little to do with cutting spending, but some lawmakers want to use a showdown over the debt ceiling to force a crackdown at the border with Mexico — perhaps as a consolation prize if Republicans are unable to win any substantial spending cuts. Policy changes could include blocking virtually all border crossings and tightening asylum laws.

* Drive right off the cliff: Some Republicans say they don’t believe defaulting on U.S. obligations would really be all that bad, and would teach an important lesson in any case. “We cannot raise the debt ceiling,” Rep. Andy Biggs (R-AZ) said in January. “Democrats have carelessly spent our taxpayer money and devalued our currency. They've made their bed, so they must lie in it.”

GOP leadership has not embraced this position, but the influential Republican Study Committee has called for the Treasury to plan to prioritize payments in the event that the debt ceiling is breached — an untested strategy that many believe is tantamount to default.

Forget About That Recession? Yellen Says Economy Remains Strong

Treasury Secretary Janet Yellen on Monday pushed back against widespread concerns that a recession is unavoidable this year. The economy is “strong and resilient,” Yellen said, and capable of sustaining a robust labor market even as inflation cools.

“You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years,” Yellen told ABC’s Good Morning America, referring to Friday’s startlingly vigorous jobs report.

Yellen said she thinks inflation will continue to fall “significantly,” thanks both to the Federal Reserve’s anti-inflation campaign and to initiatives undertaken by the Biden administration, including efforts to lower to prices of fuel and prescription drugs.

"With the COVID pandemic and all the stress that placed on the economy, and then Russia's war in Ukraine that boosted food and energy prices, Americans are concerned about inflation and it's been President Biden's top priority to bring it down," she said.

Yellen also called on Congress to increase the debt ceiling without delay, warning once again about the dire consequences of failing to act in time. “America has paid all of its bills on time since 1789, and not to do so would produce an economic and financial catastrophe,” Yellen said. “Every responsible member of Congress must agree to raise the debt ceiling.”

Recession risk falling: Analysts at Goldman Sachs echoed Yellen’s sentiment on the economy as they tweaked their outlook for the coming year. “We have cut our subjective probability that the US economy will enter a recession in the next 12 months from 35% to 25%,” the analysts wrote in a research note Monday. “Continued strength in the labor market and early signs of improvement in the business surveys suggest that the risk of a near-term slump has diminished notably.”

Still, the Goldman analysts are more optimistic than most, and many prognosticators think that a recession is more likely than not this year. At the median, analysts surveyed by The Wall Street Journal put the odds of a recession at 65%.

Embracing the more bearish outlook, former Treasury Secretary and noted inflation hawk Larry Summers warned this past weekend that the U.S. economy is not “out of the woods” yet, despite the exceptionally strong jobs report for January. While Summers said the odds of a soft landing for the economy appear to be improving, he also thinks the Fed still has its work cut out for it as it attempts to get inflation back to its target rate.

Inflation indicators are “still unimaginably high from the perspective of two or three years ago, and that getting the rest of the way back to target inflation may still prove to be quite difficult,” Summers told CNN. If policymakers fail and pricing instability becomes entrenched, “we’re going to live with that inflation for a long time,” Summers said.


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