McCarthy/Biden Reach Bipartisan Debt-Limit Framework Agreement

Briefings ongoing as both sides seek enough votes to clear Congress this week

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May 28, 2023 10:50 AM

Briefings ongoing as both sides seek enough votes to clear Congress this week

Washington Focus

Debt-limit talks: Bipartisan framework agreement reached between President Joe Biden and his negotiators and House Speaker Kevin McCarthy (R-Calif.) and his negotiators. The accord, which will must pass both chambers, includes raising the debt ceiling for two years beyond 2024 elections, setting temporary spending caps on nondiscretionary funding for two years, keeping non-defense spending levels flat next year and raising it by 1% in 2025, implementing work requirements for some food stamp and welfare recipients, clawing back some Covid-19 funds, regulating IRS funding, reforming environmental permits to speed up energy and gas projects, and establishing new legislation/reforms for government funding. Link to White House talking points about the plan. Link to House GOP talking points.

Debt Ceiling: The debt limit will be raised for two years until early 2025 (though the exact date is unclear) instead of by a monetary amount, separating it from the spending agreement and moves any future debt limit fight to after the 2024 elections. This is a response to Treasury Secretary Janet Yellen’s warning of a potential default if the limit was not raised Yellen said the United States could run out of money to pay its bills on time by June 5 — a slight extension from the previous forecast of as early as June 1.
Spending Caps: The agreement sets spending to fiscal year (FY) 2022 levels and limits annual federal spending growth to 1% for six years. However, there are no budget caps beyond 2025. Defense spending is set in line with President Biden’s FY 2024 budget proposal (which would amount to about a 3% increase), and medical care for veterans is fully funded. Analysis: Many Republicans wanted steeper cuts, and many Democrats wanted no cuts. The deal landed in between. The caps would not actually reduce spending, but aim to make it grow more slowly than inflation and the economy. Bottom line: Republicans can call it a spending cut, since spending will grow more slowly than it might have otherwise. And Democrats can say they prevented actual cuts.
Work Requirements: The agreement introduces tougher work requirements, increasing the age limit for food stamp recipients who must seek work from 49 to 54. However, provisions are included to protect vulnerable groups like veterans and homeless individuals. There are also changes to the Temporary Assistance for Needy Families (TANF) program, but no changes to work requirements for Medicaid recipients. The changes sunset in 2030.
Covid-19 Funds Clawback: The deal plans to reclaim billions of dollars in unspent funds that were initially allocated to combat Covid-19, which Biden had agreed to discuss during spending talks. One GOP lawmaker said the amount was estimated to be about $29 billion.
IRS Funding: The deal includes cuts to IRS funding without entirely eliminating the funding boost approved by Democrats. This has been a long-standing GOP priority. It rolls back $10 billion of $80 billion in IRS funding approved in Biden’s Inflation Reduction Act last year that was designed to crack down on wealthy Americans and corporations that evade taxes. Some of the IRS funds could be used to mitigate other spending cuts. Impact: Republicans get to claim they successfully cut IRS funding, and Democrats get to use the money to soften other cuts they never wanted.
Permitting Reform and Environmental Provisions: The agreement includes energy permitting reform, preserving climate provisions (including several biofuel tax incentives) from Biden’s Inflation Reduction Act. The deal seeks to streamline federal agency decision-making for environmental reviews. Upshot: The permitting reforms could enable more clean energy projects, a Democratic priority, but also more oil and gas projects, which Republicans favor. But the debt-ceiling deal doesn’t impose restrictions on lawsuits from project opponents, something that Republican lawmakers have sought.
No New Taxes: The agreement does not include new taxes or government programs, despite President Biden’s previous suggestions of closing loopholes and taxing the wealthy.
Incentive to Pass Government Funding Bills: The deal encourages Congress to pass appropriations bills on time by capping continuing resolutions to fund the government at 99% of current levels until all appropriations bills are enacted.
Administrative Pay-Go: The deal includes the first-ever statutory Administrative Pay-Go language, which means that any discretionary spending increases proposed by agencies must be accompanied by spending reductions.
Preserving Key Domestic Programs: The agreement keeps intact key pieces of legislation like the Inflation Reduction Act and Biden’s student loan forgiveness program. However, borrowers who have received payment deferrals during the pandemic will need to start repaying their loans, aligning with Biden’s plan to restart payments after the Supreme Court considers his loan forgiveness program. McCarthy said on Sunday that the student loan payment pause is “gone” in the debt ceiling deal announced. “The pause is gone within 60 days of this being signed. So that is another victory because that brings in $5 billion each month to the American public,” McCarthy told anchor Shannon Bream on Fox News Sunday. “The Supreme Court is taking up that case. But if the Supreme Court came back and said that was unconstitutional, the president could still say he’s pausing, not waiving it. But now that this is in law, the Supreme Court decision will have to be upheld, that they would have to pay,” he added.
Vote timeline. Biden said that the deal protects his signature legislative accomplishments, but conceded that it “represents a compromise, which means not everyone gets what they want.” He urged Congress to approve it quickly to avoid “catastrophic default.” McCarthy said he expected that the bill would be written and posted by Sunday, with a House vote on Wednesday. House Republican leaders pledge to hold firm to a rule requiring 72 hours from release of bill text to a floor vote. McCarthy has only a nine-vote majority. Key will be how many House Democrats will vote for it as some hard right conservatives will not. Some hardline conservative Republicans in the House have signaled they won’t vote for a negotiated deal on the debt ceiling regardless of the details, while others made new 11th-hour for border-security measures that aren’t in the deal. McCarthy held a conference call with House members late Saturday night to sell them on the deal. The White House plans to brief House Democrats on Sunday around 5 p.m. ET about the contours of the agreement. McCarthy and the White House will need dozens of Democrats to back the bipartisan plan in order to pass it in the narrowly divided House. There will be two cloture votes — on a motion to proceed to the legislation and then a second to cut off debate and move toward final passage. Sen. Mike Lee (R-Utah) has vowed to use procedural tools to delay the bill in the Senate if the cuts do not, in his view, go deep enough (and most say they will not).

Key Economic Reports and Events for the Week

Key financial report comes Friday with the Employment report.

Monday, May 29

Holiday: Markets and U.S. gov’t closed in observance of Memorial Day.

Tuesday, May 30

S&P CoreLogic releases its Case-Shiller National Home Price Index for March. The consensus estimate is for a 1.5% year-over-year decline, after a 2% increase in February. Home prices slid for seven consecutive months before rising 0.2% in February. The index is 4.9% below its record high from last June.
Conference Board releases its Consumer Confidence Index for May. Expectations are for a 100 reading, about one point less than the April figure. The index is at its lowest level since last summer.
The house price index had been flat before rising a surprising 0.5% in February. March’s consensus is a monthly rise of 0.3%.
Dallas Fed Manufacturing Survey: The activity index is expected to post a 13th straight negative score, at a consensus of minus 19.5 in May versus minus 23.4 in April which was much lower than expected.
Federal Reserve: Thomas Barkin speaks at the NABE event.
Earnings: Hewlett Packard Enterprise, HP Inc., and U-Haul Holding report quarterly results.

Wednesday, May 31

MBA Mortgage Applications
Bureau of Labor Statistics releases the Job Openings and Labor Turnover Survey (JOLTS). Economists think there were 9.44 million unfilled positions on the last business day of April, 150,000 fewer than in March. Job openings fell below 10 million in February for the first time since May 2021, a sign that a historically tight labor market is loosening.
Institute for Supply Management releases the Chicago Business Barometer for May. The consensus call is for a 47 reading, almost two points lower than April’s. The index has been below the expansionary level of 50 for eight consecutive months.
Fed Beige Book
Federal Reserve speakers: Boston Fed President Susan Collins and Fed Governor Michelle Bowman will give remarks at the Boston Fed’s event, “FedListens 2023: Transitioning to the Post-Pandemic Economy.” Philadelphia Fed President Patrick Harker speaks at the Official Monetary and Financial Institutions Forum.
Earnings and meetings: Advance Auto Parts, Chewy, CrowdStrike Holdings, NetApp, Okta, and Salesforce announce earnings. Chevron, ExxonMobil, Meta Platforms, and Walmart hold their annual shareholder meetings.

Thursday, June 1

Jobless claims for the May 27 week are expected to come in at 235,000 versus 229,000 in the May 20 week which was lower than expected but followed 248,000 in the prior week.
ADP releases its National Employment Report for May. The economy is expected to add 170,000 private sector jobs, following a 296,000 increase in April. The services sector continues to account for the bulk of job gains.
ISM releases its Manufacturing Purchasing Managers’ Index for May. The consensus estimate is for a 47.1 reading, matching April’s.
Productivity and Costs: The second estimate for first-quarter nonfarm productivity is expected to remain unchanged from the first estimate, at minus 2.7%. Unit labor costs are also expected to remain unchanged, at a 6.3% spike.
Construction spending for April is expected to edge 0.2% higher following March’s 0.3% rise. Flat headlines have masked ten months of consecutive contraction in residential spending and, in sharp contrast, gains in nine of the last ten reports for nonresidential spending.
Fed Balance Sheet
Money Supply
Fed’s Harker speaks at the National Association for Business Economics Monetary Policy and Outlook webinar.
Earnings and meetings: Broadcom announces second-quarter fiscal year 2023 results. Shares of the chip maker are up 45% this year and hit a record high this past week, spurred by the announcement of a multiyear, multibillion-dollar deal to supply 5G radio-frequency components to Apple. Cooper Cos., Dell Technologies, Dollar General, Hormel Foods, Lululemon Athletica, MongoDB, and Zscaler hold conference calls to discuss quarterly results.

Friday, June 2

BLS releases the jobs report for May. Economists forecast a 200,000 gain for nonfarm payrolls, after a 253,000 increase in April. The unemployment rate is seen edging up to 3.5% from 3.4%, which was the lowest since 1969. Average hourly earnings are expected to be up 4.3%, year over year, a tenth of a percentage point less than in the previous tally.
Motor vehicle sales: At 15.3 million, unit vehicle sales in May are expected to fall from April’s much stronger-than-expected jump to a 15.9 million annualized rate.

Key USDA & international Ag & Energy Reports and Events

The United Nations’ monthly food price index will be released Friday.

Tuesday, May 30

Ag reports and events:

Agricultural Exchange Rate Data Set
Export Inspections
Crop Progress
EU weekly grain, oilseed import and export data

Energy reports and events:

North Sea July crude loading programs due
Earnings: Motor Oil

Wednesday, May 31

Ag reports and events:

Broiler Hatchery
Livestock and Meat Domestic Data
Outlook for U.S. Agricultural Trade
Agricultural Prices
Egg Products
Malaysia’s May palm oil exports

Energy reports and events:

API weekly U.S. oil inventory report
Genscape weekly crude inventory report for Europe’s ARA region
Brent July futures expire

Thursday, June 1

Ag reports and events:

Food Expenditure Series
Cotton System Consumption and Stocks
Fats & Oils: Oilseed Crushings, Production, Consumption and Stocks
Grain Crushings and Co-Products Production
Port of Rouen data on French grain exports
Holiday: Indonesia

Energy reports and events:

EIA weekly U.S. oil inventory report
U.S. weekly ethanol inventories
EIA natural gas storage change
Insights Global weekly oil product inventories in Europe’s ARA region

Friday, June 2

Ag reports and events:

CFTC Commitments of Traders report
Peanut Prices
Weekly Export Sales
FAO food price index, monthly grains report
FranceAgriMer’s weekly crop condition report
Holiday: Italy, Indonesia, Singapore

Energy reports and events:

Baker Hughes weekly U.S. oil/gas rig counts

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