Debt Limit/Spending Confab Tuesday as Both Sides Quietly Look for Options

CPI | PPI | WASDE | Another climate summit | CBO forecasts May 12 | EPA Regan to testify

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May 07, 2023 12:13 PM

Washington Focus

Top of the agenda: President Joe Biden meets with congressional leaders Tuesday on the debt-limit/budget issues, while inflation and USDA monthly updates are the report focus this week. On Friday, May 12, the Congressional Budget Office (CBO) releases updated forecasts which will be used to score any new farm bill this year.

President Biden on Tuesday will meet with House Speaker Kevin McCarthy (R-Calif.) and other congressional leaders to discuss raising or suspending the debt ceiling, setting the stage for a current standoff between the president and House Republicans. Biden’s invitation came after Treasury Secretary Janet Yellen notified lawmakers last week that the U.S. could default on its debt as early as June 1 if Congress does not raise or suspend the debt limit before that time. Biden has not met with McCarthy since Feb. 1.

Advice from a Washington Post editorial: “The best course of action is a short-term debt limit hike. This averts an immediate crisis and gives Republicans and Democrats time to negotiate. Link for more. House Minority Leader Hakeem Jeffries (D-N.Y.) during an interview on Sunday didn’t rule out agreeing to a short-term move to temporarily raise the debt ceiling and make the debt ceiling and budget deadlines match up as lawmakers and the White House work against the threat of default.

A warning: Rep. Jim Himes (D-Conn.), the top Democrat on the House Intelligence Committee, warned on Sunday that China and Russia could “exploit” a possible U.S. default, which the Treasury Department warns could hit as soon as next month. “Of course, the Russians and the Chinese would seek to exploit it,” Himes said of the debt crisis on CNN’s State of the Union.

Treasury Secretary Janet Yellen on Sunday called the possibility of invoking the 14th Amendment a “constitutional crisis” after President Biden left open such an option amid stalled debt ceiling talks. During an appearance on ABC’s This Week, anchor George Stephanopoulos repeatedly asked Yellen about whether Biden invoking the 14th Amendment — in which he could continue issuing debt without raising the limit on borrowing — was on the table. She largely sidestepped the questions and laid the responsibility on Congress, but alluded to the option as a dire choice. When asked to respond to Biden saying he was not yet ready to invoke the 14th Amendment, Yellen said: “Our priority is to make sure that Congress does its job… There is no way to protect our financial system in our economy, other than Congress doing its job and raising the debt ceiling and enabling us to pay our bills and we should not get to the point where we need to consider whether the president can go on issuing debt. This would be a constitutional crisis,” she said. Stephanopoulos continued to press Yellen on the issue, asking if invoking the amendment was on the table if an agreement between Biden and Congress isn’t reached. Yellen responded there was nothing the president could do to avoid an “economic catastrophe” using the mechanism even though invoking the 14th Amendment would be a choice for Biden. “I’m still not exactly clear on whether it’s on the table or off the table,” Stephanopoulos asked. “Is it a break glass in case of emergency option?” Yellen then said: “Look, I don’t I don’t want to consider emergency options. What’s important is that members of Congress recognize what their responsibility is, and avert what will surely be, regardless of how it’s handled, what option is used to handle it….an economic and financial catastrophe.” “It sounds like you’re saying you don’t want to but you may have to,” Stephanopoulos asked. “Well… what to do if Congress fails to meet its responsibility, there is simply no good options. And the ones that you’ve listed are among the not good options,” Yellen replied.

Of note: There are ag spending issues involved. “I have serious concerns about the potential of default that’s hanging over our heads for all of us who care about this farm bill and agriculture, because I was here in 2011,” Senate Ag Chair Debbie Stabenow (D-Mich.) said during a hearing last week. The sequestration cuts, she said, “will continue for another eight years, regardless of the current debate, a 5.7% cut every year, right now.”

Background: The sequestration cuts were part of the Budget Control Act of 2011 (BCA), which was enacted on Aug. 2, 2011. The BCA was a response to the debt ceiling crisis, aiming to reduce the federal deficit by at least $2.1 trillion over a decade. The Act contained a provision for automatic spending cuts, known as “sequestration,” to achieve the desired deficit reduction. The sequestration was initially set to begin in January 2013 but was delayed by the American Taxpayer Relief Act of 2012 until March 1, 2013. These automatic cuts were split evenly between defense and non-defense discretionary spending. They were designed to be blunt and indiscriminate, affecting a wide range of federal programs and services, to motivate Congress to come up with a more targeted and bipartisan solution. Sequestration cuts were not intended to be a long-term solution but rather a mechanism to push lawmakers to reach a bipartisan agreement on deficit reduction. Over the years, some of the sequestration cuts have been partially mitigated through bipartisan budget deals, but the overall impact of sequestration has led to reduced federal spending in several key areas.

On Thursday, Title 42, the Trump-era policy that allowed the government to quickly turn away certain migrants at the border during the Covid-19 pandemic, is set to expire. Encounters between U.S. border agents and undocumented immigrants had fallen early this year, but have recently increased to around 7,000 per day. That number is expected to rise dramatically this week as border towns in northern Mexico are already bursting with an estimated 36,000 migrants waiting for the end of Title 42.

The federal government plans to restrict asylum eligibility and ramp up speedy deportations once the pandemic policy goes away. “Our model is as follows: Build lawful pathways, give individuals an opportunity to reach the United States, safely, in an orderly way,” Department of Homeland Security Secretary Alejandro N. Mayorkas said last month. “And then deliver a consequence for those who do not avail themselves.”

Last Tuesday, the Department of Defense announced that it would send 1,500 active-duty troops to help border agents fill “capability gaps.” In 2018, former President Donald Trump sent 5,800 troops to the border amid the arrival of a caravan of thousands of migrants from Central America.

U.S. officials are also establishing refugee processing centers in Guatemala and Colombia, but officials noted last month that it would be “weeks” before the first two centers open.

Of note: Also on Thursday, the House will vote on a sweeping, hardline border security package Thursday.

Ag-related hearings and events of note include:

Monday: AIM for Climate summit, through Wednesday. USDA Secretary Tom Vilsack will host the summit. The summit will hear from former Vice President Al Gore and agriculture ministers from Canada, Brazil and other countries. Vilsack said he expects the AIM for Climate initiative to ensure agriculture gets a major focus at COP28, which will be held in the UAE capital, Dubai. Link for details.
Monday: National Anti-Hunger Policy Conference, through Tuesday.
Wednesday: Subcommittee on Commodity Markets, Digital Assets, and Rural Development of the Committee on Agriculture and the Subcommittee on Digital Assets, Financial Technology, and Inclusion of the Committee on Financial Services joint hearing on “The Future of Digital Assets: Measuring the Regulatory Gaps in the Digital Asset Markets.”
Wednesday: Senate Ag Committee nomination hearing: Xochitl Torres Small
Wednesday: House Energy and Commerce subcommittee hearing with EPA Administrator Michael Regan.
Wednesday: House Oversight and Government Reform subcommittee hearing with state attorneys general on ESG practices.
Wednesday: Senate Budget Committee hearing, “Lessons Learned: Leadership Perspectives and Experience on the National Costs of Climate Change.”
Thursday: House Agriculture Subcommittee on Nutrition, Foreign Agriculture, and Horticulture hearing on “Stakeholder Perspectives on Agricultural Trade.”
Thursday: House Oversight and Government Reform subcommittee hearing on the infant formula shortage.
Friday: Congressional Budget Office releases updated forecasts which will be used to score any new farm bill.

Covid-19 national and public health emergencies end Thursday in the U.S., which means many Americans could have to start paying for Covid-19 testing and treatment after the declarations cease.

Commissioner Hester Peirce of the Securities and Exchange Commission will speak at the Financial Times’ Crypto and Digital Assets Summit on Wednesday and will also participate on a panel at the Digital Monetary Institute Symposium on Thursday.

Bank failures: The House Financial Services Subcommittee on Financial Institutions and Monetary Policy will hold a hearing Wednesday titled, “Federal Responses to Recent Bank Failures,” and the Subcommittee on Oversight and Investigations will hold a hearing Thursday to address the Government Accountability Office’s preliminary review of the oversight of Silicon Valley Bank and Signature Bank.

Other nominations: A Senate Banking Committee executive session will vote on the nominations of Jared Bernstein as chairman of the Council of Economic Advisers, Ron Borzekowski as the Treasury Department’s director of financial research, and Solomon Jeffrey Greene and David Uejio as assistant secretaries of Housing and Urban Development.

On the political front, former President Trump leads President Biden by 7 points — 49% to 42% — in a general-election matchup in a Washington Post-ABC News poll out Sunday. 44% of U.S. adults polled said they’d definitely or probably vote for Trump vs. 38% for Biden. 12% were undecided.

Biden’s approval hit a new low — 36%, down from 42% in February.

On mental acuity, 94%of Republicans, 69% of independents and even 21% of Democrats said Biden lacks the sharpness to be president. “Just 32% overall think Biden has the mental sharpness it takes to serve effectively as president, down steeply from 51% when he was running for president three years ago,” ABC’s Gary Langer notes. 54% think Trump has the needed mental sharpness.

On physical health needed to govern, just 33% think Biden, age 80, has it — vs. 64% for Trump, who’s 76.

58% of Democratic-leaning adults want to nominate someone besides Biden.

Upshot: Democrats need to “wake up,” strategist Donna Brazile warned on Sunday following the poll results.

Economic Reports for the Week

Most attention will be on inflation reports on Wednesday (CPI) and Thursday (PPI). Meanwhile, several Fed officials have speaking engagements.

Monday, May 8

Wholesale inventories (preliminary): The second estimate for March wholesale inventories is a 0.1% build, unchanged from the first estimate.
With renewed scrutiny of the banking industry, the Federal Reserve will release a key survey of lending activity in the first quarter — a snapshot of both the demand from businesses and households for loans, and the changes in terms and standards by the banks that make those loans. A letter from an advisory group at the Treasury Department said the survey showed “lending conditions were tightening before the banking stress emerged.”
A Minneapolis Fed event on Monday titled “Minimum Wage Increases: Recent Evidence and Policy Trade-Offs” will feature a panel discussion that includes Laura Feiveson, the Treasury Department’s deputy assistant secretary for economic policy, and Rajesh Nayak, the Labor Department’s assistant secretary for policy.
Earnings: Devon Energy, KKR, McKesson, PayPal Holdings, and Tyson Foods release earnings.

Tuesday, May 9

National Federation of Independent Business (NFIB) releases its Small Business Optimism Index for April. Consensus estimate is for a 90 reading, roughly even with the March figure. The index has had 15 consecutive readings below the 49-year average of 98 as inflation and a tight labor market remain top of mind for small-business owners.
New York Fed President John Williams will give a keynote at the Economic Club of New York.
Fed Governor Philip Jefferson speaks.
Earnings: Airbnb, Air Products & Chemicals, Apollo Global Management, Duke Energy, Electronic Arts, Occidental Petroleum, and TransDigm Group report quarterly results.

Wednesday, May 10

MBA Mortgage Applications
Bureau of Labor Statistics (BLS) releases the Consumer Price Index for April. Economists forecast a 5% year-over-year increase, matching the March data. The core CPI, which excludes volatile food and energy prices, is expected to rise 5.4%, two-tenths of a percentage point less than previously. Both indexes are well below their peaks from last year but also much higher than the Federal Reserve’s 2% target.
Treasury Statement: Forecasters see a $410.0 billion surplus in April that would compare with a $308.2 billion surplus in April a year-ago and a deficit in March this year of $378.1 billion. April, a tax month, is the seventh month of the government’s fiscal year.
Earnings: Walt Disney, Brookfield Asset Management, Roblox, Toyota Motor, and Trade Desk release earnings.

Thursday, May 11

Department of Labor reports initial jobless claims for the week ending on May 6. Claims averaged 239,250 in April, returning to historical averages after a prolonged period of being below trend, signaling a loosening of a very tight labor market.
BLS releases the producer price index for April. The consensus call is for the PPI to increase 2.4% and the core PPI to rise 3.3%. This compares with gains of 2.7% and 3.4%, respectively, in March. The PPI and core PPI are at their lowest levels in about two years.
Fed Balance Sheet
Money Supply
Fed Governor Christopher Waller will speak about financial stability and climate change at the Current Challenges in Economics & Finance conference in Madrid.
Earnings: Honda Motor, JD.com, PerkinElmer, and Tapestry hold conference calls to discuss quarterly results. Honeywell International hosts an investor day.
Bank of England announces its monetary-policy decision. The central bank is widely expected to raise its bank rate by a quarter of a percentage point, to 4.5%. The United Kingdom’s CPI rose 10.1% in March from the year prior, making it the only Western European country with a double-digit rate of inflation.

Friday, May 12

University of Michigan releases its Consumer Sentiment Index for May. Economists forecast a dour 62.6 reading, about one point lower than in April. Consumers’ year-ahead inflation expectations surprisingly jumped by a percentage point in April to 4.6%.
Import and Export Prices: Import prices are expected to rise 0.3% on the month in April which would end nine straight declines. Export prices are expected to rise 0.2%.
Fed Governor Philip Jefferson, St. Louis Fed President James Bullard and former Fed officials Richard Clarida and Randal Quarles will speak at the Hoover Institution’s “How to Get Back on Track” policy conference.

Key USDA & international Ag & Energy Reports and Events

USDA’s monthly tranche of reports comes Friday with the focus on Brazil and Argentina crop estimates and trade. Also: USDA’s first official balance sheets for the 2023-24 marketing year.

Monday, May 8

Ag reports and events:

Export Inspections
Crop Progress
U.S. Agricultural Trade Data Update
County Estimates (CE): Cattle & Sheep
Noncitrus Fruits and Nuts, Annual
Holiday: U.K., France, Kazakhstan