Progress in Debt Limit/Budget Cut Talks as Another Meeting Takes Place This Week

CBO forecasts | G7 summit | Lighthizer book | Xochitl Torres Small vote | Bank failure hearings

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May 14, 2023 03:14 PM

CBO forecasts | G7 summit | Lighthizer book | Xochitl Torres Small vote | Bank failure hearings

Washington Focus

A potential agreement between the White House and Republicans in Congress is taking shape to address the U.S. debt ceiling and avoid a national default. President Biden and congressional leaders agreed to meet this week to continue discussions on the debt ceiling. Talks are intensifying as both sides narrow their differences on key topics. “There’s real discussion about some changes we all could make,” President Joe Biden said on Saturday. “We’re not there yet.” He told reporters: “we’ll know more in the next two days.”

A deal would likely include limits on domestic spending, with Republicans pushing for deep cuts to government programs over a decade, while the White House prefers more moderate cuts over two years. Unspent Covid relief funds may be applied to any agreement to help bridge differences.

Another potential element of a deal is legislation to expedite the permit process for major investment projects, including energy, which is backed by both the White House and Republicans. The White House has rejected Republican demands to repeal clean energy tax credits and cancel student debt relief measures. Democrats also oppose applying work requirements to anti-poverty and social safety net programs, like SNAP, which could be a major sticking point.

CBO sees ‘significant risk’ of debt limit breach before June 15. The report (Link to PDF) from the nonpartisan scorekeepers will likely keep the pressure on lawmakers to strike a deal to raise or suspend the debt limit before June 1, when Treasury Secretary Janet Yellen has said her agency can’t guarantee they’ll be able to pay all the nation’s bills on time. As the CBO put it, there’s “a significant risk that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations.” Some big payments are due in early June, including pay and benefits for retired and active-duty military, veterans, federal employees and Social Security recipients. On June 15, interest payments on U.S. debt are supposed to go out.

Rep. David Joyce (R-Ohio) will speak with Washington Post Live on Thursday in a session on the debt ceiling debate.

Mark Zandi, chief economist at Moody’s Analytics, will join the Center for American Progress on Thursday to discuss “The Economic Consequences of Default.”

Key House staff change. House Speaker McCarthy (R-Calif.) announced Friday that his chief of staff, Dan Meyer, is soon retiring and will be replaced in the role by his current general counsel, Machalagh Carr. Meyer, who has been participating in debt limit negotiations with the White House and other congressional leadership staff, will continue working for McCarthy through early June.

The Congressional Budget Office (CBO) on Friday, May 12, released updated forecasts that will be used to score any new farm bill. Link to forecasts and spreadsheets. Link to PDF of full CBO report.

Keys:

The May 2023 baseline is expected to be the 2023 Farm Bill scoring baseline — meaning any proposed policy modifications and the impact on the U.S. deficit will be measured against this baseline.
CBO’s May baseline confirms that the 2023 Farm Bill, upon enactment, could potentially be the first trillion-dollar farm bill in U.S. history. Total spending is projected at $1.51 trillion, $31.5 billion higher than CBO’s February baseline (this total includes outlays from the Inflation Reduction Act).
SNAP outlays are now projected at $1.223 trillion, nearly $18 billion higher than CBO’s February projection, and represent more than 80% of total farm bill spending.
Livestock disaster aid payments total $12.170 billion from fiscal year (FY) 2023 through FY 2033, nearly double the February figure of $6.333 billion.
Dairy Margin Coverage 10-year cost: $3.849 billion, up from February $2.531 billion forecast.
Commodity program payouts show corn at $24.755 billion would be an increase of around $600 million from Feb. forecasts — $14.435 bil in PLC payouts and $10.320 bil. in ARC payments. Soybean payments are now seen totaling $6.148 billion versus $5.82 billion in February. Cotton growers are forecast to receive $5.394 billion over the 10-year timeline, up from February’s $3.6 billion projection. Wheat payments are now seen at $5.7 billion versus $5.4 billion in February.
Commodity Credit Corporation (CCC) Charter Act authority payments are pegged at $1 billion annually, with no details on what funding will be used for.

There were some shifts in the balance sheets for crops in May compared with February, as CBO now pegs corn planted area for 2023 at 92.5 million acres versus 93 million in February. CBO puts the 2023 yield at 179.5 bushels per acre, up from 178.5 bushels per acre in February, with carryover now put at 1.945 billion bushels compared with 1.797 billion bushels in February. The season average corn price forecast is now $5.25 per bushel versus $4.80 per bushel in February. CBO forecasts no PLC or ARC payments in FY 2024 as they did in February. Given the minimal or no payments in FY 2024 and small payments in FY 2025, the bigger payments compared with February for corn are focused in FY 2027-2030.

For soybeans, CBO made minimal changes as they only adjusted their price forecast, now putting it at $12.50 per bushel versus $12 per bushel in February. The price adjustment kept ARC and PLC payments forecast at zero for FY 2024.

For wheat, CBO trimmed forecast carryover for 2023 to 664 million bushels from 667 million bushels in February on a cut to beginning stocks. CBO’s price outlook is now $7.30 per bushel for 2023 wheat versus $6.95 per bushel in February. The price outlook also has CBO expecting $7 million in ARC payments in FY 2024 versus zero in February.

Ag-related hearings of note this week include:

Tuesday: House Agriculture Subcommittee on Forestry hearing: “To Review the National Forest System: Supporting Forest Health and Confronting the Wildfire Crisis.”
Tuesday: House Natural Resources subcommittee hearing on the Bureau of Reclamation and Office of Surface Mining, Reclamation and Enforcement.
Tuesday: Senate Environment and Public Works Committee hearing on the Fish and Wildlife Service.
Tuesday: Senate Appropriations Committee hearing, “A Review of the President’s Fiscal Year 24 Budget Request: Investing in U.S. Security, Competitiveness, and the Path Ahead for the U.S./China Relationship.” Witnesses include Secretary of state Antony Blinken, Defense Secretary Lloyd Austin and Commerce Secretary Gina Raimondo.
Tuesday: Senate Environment and Public Works Committee hearing, “Perspectives on New and Existing U.S. Army Corps of Engineers Authorities to Respond to Water Management Issues Including Drought and Water Conservation.”
Wednesday: House Agriculture Subcommittee on Livestock, Dairy, and Poultry hearing: “A Review of Animal Agriculture Stakeholder Priorities.”
Wednesday: House Oversight and Accountability subcommittee hearing, “Driving Bad Policy: Examining EPA’s Tailpipe Emissions Rules and the Realities of a Rapid Electric Vehicle Transition.”
Wednesday: Senate Agriculture subcommittee hearing on rural broadband.
Thursday: Senate Finance Committee hearing on tax incentives in the Inflation Reduction Act.

USDA nomination. The Senate Agriculture Committee will vote Wednesday on the nomination of Xochitl Torres Small to be deputy USDA secretary, replacing Jewel Bronaugh, who left earlier this year. Torres Small, currently serving as undersecretary for rural development, is expected to win Senate confirmation, but there is a chance some senators could delay the vote on other concerns.

Executives at failed regional lenders Silicon Valley Bank and Signature Bank are set to testify before the Senate Committee on Banking, Housing and Urban Affairs this week. The three hearings will take place from Tuesday through Thursday.

Witnesses on Tuesday at 10 a.m. ET: Greg Becker, former chief executive, Silicon Valley Bank; Scott Shay, former chairman and co-founder, Signature Bank and Eric Howell, former president, Signature Bank.
Witnesses on Wednesday at 2:30 p.m. ET: Mark Bialek, inspector general, Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau; Paul Kupiec, senior fellow, American Enterprise Institute and more.
Witnesses on Thursday at 9:30 a.m. ET: Michael Barr, vice chair for supervision, Board of Governors of the Federal Reserve; Martin Gruenberg, chairman, Board of Directors of the Federal Deposit Insurance Corporation; Adrienne Harris, superintendent, New York State Department of Financial Services and more.

The House Financial Services Committee will hold a joint hearing on the “Continued Oversight Over Regional Bank Failures” on Wednesday.

Background: Federal regulators were first called to answer questions about the bank collapses from the Senate Banking Committee and House Financial Services Committee in March. Since then, the Federal Reserve and Federal Deposit Insurance Corporation have released reports detailing management missteps at SVB and Signature Bank, as well as federal regulators’ own mistakes in properly addressing red flags preceding the banks’ demises. The Fed recommended a sweeping re-evaluation of its regulatory and supervisory functions in its report, and Barr called on the central bank to strengthen those processes.

The Independent Community Bankers of America holds its Capital Summit this week. On the schedule:

Monday: CFPB Director Rohit Chopra, former FDIC Chair Sheila Bair and former Kansas City Fed President Esther George.
Tuesday: Treasury Secretary Janet Yellen and Rep. Roger Williams (R-Texas), chairman of House Small Business Committee.
Wednesday: Rep. Andy Barr (R-Ky.), chairman of the House Subcommittee on Financial Institutions and Monetary Policy, and Sen. Kevin Cramer (R-N.D.), member of the Senate Banking Committee.

On Tuesday, OpenAI CEO Sam Altman is scheduled to testify before Congress as lawmakers increasingly scrutinize the risks and benefits of artificial intelligence. OpenAI is the company behind ChatGPT — the groundbreaking chatbot that has led to a wave of new investment in AI, prompting a scramble among policymakers who have called for new regulations amid fears of the technology’s misuse.

Commerce Secretary Gina Raimondo joins Washington Post Live to discuss “The Workforce of Tomorrow” on Thursday.

President Biden announced two key Federal Reserve nominees. The president said he’d nominate Philip Jefferson and Adriana Kugler to fill key policy-making roles. If confirmed, Jefferson would become the Fed’s second-in-command and Kugler would be the first Latino on its board in its 109-year history. Senate Banking Committee chairman Sherrod Brown (D-Ohio) said Friday he planned to quickly confirm both economists, though Republicans on the committee opposed three nominees for other posts last week.

On the trade policy front, Spanish Prime Minister Pedro Sanchez said President Joe Biden was open to a request to remove Trump-era duties on his country’s black olives. “I have found receptivity to be able to solve this issue,” Sanchez told reporters after meeting Biden in Washington on Friday. Spain is the world’s top olive producer but its exports of the fruit to the U.S. fell sharply after President Donald Trump’s administration in 2018 imposed import taxes on products it deemed to be receiving unfair subsidies.

The European Union has urged Washington to remove the tariff, which a World Trade Organization panel in 2021 found to be illegal. In April, the bloc began a new WTO proceeding, raising pressure on the Biden administration to end the dispute.

Of note: Drought and heat waves in the Mediterranean have driven up prices of olive oil to their highest level in 26 years — $6,000 per metric ton.

On the election front, Sunday’s election in Turkey is the toughest for President Recep Tayyip Erdoğan in his 20 years in charge. A loss by Erdoğan would be a relief for Western leaders and a worry for Russia, which could lose an economic and diplomatic partnership. Link to NYT article for background.

Turkey’s opposition alliance has accused state media of “deceiving” the public with early results of Sunday’s election, underscoring the intense battle between president Recep Tayyip Erdoğan and rival Kemal Kılıçdaroğlu. Erdoğan has secured about 51% of the vote, compared with just 43% for Kılıçdaroğlu, according to figures collated by the state Anadolu news agency, based on the count from 70% of ballot boxes. By contrast, the Anka news agency put Kılıçdaroğlu at 46% and Erdoğan at 48%, based on 65% of ballot boxes.

Kılıçdaroğlu’s allies on Sunday objected to data provided by Anadolu, arguing the calculations had excluded areas where the opposition had performed well and claimed that Erdoğan’s Justice and Development party (AKP) was slowing down the counting process by raising objections in opposition strongholds. “My advice is ignore Anadolu agency numbers because they are trying to deceive you,” Ekrem İmamoğlu, the Istanbul mayor who is one of the top leaders in the “table of six” coalition, said on Sunday.

As the U.S. Defense Department removes Confederate names from military property, Fort Benning is now Fort Moore.

Get ready for an interesting book coming out June 27. It’s a publication from former U.S. Trade Representative Robert Lighthizer. It is called No Trade Is Free: Changing Course, Taking on China, and Helping America’s Workers.

A summary of the book reads in part: “For decades, unbalanced ‘free’ trade was the preferred option for the most powerful in Washington, and millions of ordinary Americans paid the price. Instead of prioritizing healthy American communities, good jobs, higher wages, and a promising future for our workers, Washington too often cared more about corporate profits, cheap imports and the concerns of foreign governments, including the Chinese. In return, we got cheaper coffee makers and tee shirts, while thousands of factories closed, wages stagnated, communities deteriorated, economic inequality rose in our country, and we racked up trillions of dollars in trade deficits.”

“Part memoir, part history, and part policy analysis, No Trade is Free tells the story of how America found itself at this point and how the Trump administration took on the orthodoxy of the trade establishment, with astonishing results. With in-depth character sketches of some of the most important leaders of our time — from Donald Trump, to Xi Jinping, to Nancy Pelosi, to Andrés Manuel López Obrador — Lighthizer explains how trade negotiations actually work and why leverage is the key to success—no trade is free.”

“This book is a wake-up call to our politicians, thought leaders, but most importantly, everyday Americans. It presents the case against the policies that have weakened America and left our families and communities behind. It argues for a worker-focused trade policy. It tells the story of our fight for every American job and how for the first time, a U.S. administration took on China. But most importantly, it is a guide to the new world economy — one which will require a worker-focused trade policy.”

Economic Reports and Key Events for the Week

Federal Reserve speakers are out in force this week (see schedule below) while key economic reports include Retail Sales (Tuesday), Business Inventories (Tuesday) and new home sales figures (Wednesday) will provide further evidence as to the extent of the slowdown. The monthly Chinese activity readings are important given recent signs that the post-Covid rebound is losing momentum. The EU publishes its spring economic forecast for GDP, inflation, employment and public finances on Monday. Key U.S. earnings reports include Home Depot (Tuesday), Target (Wednesday) and Walmart (Thursday).

Monday, May 15

Federal Reserve Bank of New York releases its Empire State Manufacturing Survey for May. Consensus estimate is for a reading of one, about 10 points less than in April. The index turned positive last month after four consecutive months in deeply negative territory.
Treasury International Capital
Atlanta Fed’s 2023 financial markets conference. Securities and Exchange Commission Chair Gary Gensler, Atlanta Fed President Raphael Bostic, Richmond Fed President Tom Barkin, Chicago Fed President Austan Goolsbee and Dallas Fed President Lorie Logan will take part.
Federal Reserve speakers: Raphael Bostic, Neel Kashkari, Thomas Barkin.
EU, spring economic forecast for GDP, inflation, employment and public finances.

Tuesday, May 16

National Association of Home Builders releases its Housing Market Index for May. Economists forecast a 45 reading, even with the April data. The index has rebounded sharply from December’s 31 reading, as home builders have turned cautiously optimistic, due in part to limited existing-home inventory. “Currently, one-third of housing inventory is new construction, compared with historical norms of a little more than 10%,” according to NAHB Chief Economist Robert Dietz.
Census Bureau reports retail sales data for April. Consumer spending is expected to increase 0.7% month over month, while sales excluding autos is seen rising 0.4%. This compares with declines of 0.6% and 0.4%, respectively, in March.
Industrial production is expected to come in unchanged in April after March’s 0.4 percent increase that was boosted by utilities output. Manufacturing output is seen up 0.1 percent after falling 0.5 percent in March.
Business inventories in March are expected to stall, remaining unchanged following a 0.2 percent build in February. Business inventories are the dollar amount of inventories held by manufacturers, wholesalers, and retailers. The level of inventories in relation to sales is an important indicator of the near-term direction of production activity.
Atlanta Fed’s 2023 financial markets conference (continued)
Federal Reserve speakers: Cleveland Fed President Loretta Mester will speak at the Global Interdependence Center Central Banking Series: Dublin event. New York Fed President John Williams will speak at an event organized by the University of the Virgin Islands.
U.S. earnings reports: Baidu, Home Depot, Keysight Technologies, and Vodafone Group report quarterly results. ON Semiconductor, PTC, and ServiceNow hosts investor meetings.
Canada April consumer price index (CPI) inflation rate figures.
China April retail sales and industrial output data.

Wednesday, May 17

MBA Mortgage Applications
Census Bureau reports new residential construction data for April. The consensus call is for a seasonally adjusted annual rate of 1.4 million housing starts, 20,000 fewer than previously.
U.S. earnings: Cisco Systems, Synopsys, Take-Two Interactive Software, Target, and TJX Cos. release earnings.
Japan preliminary Q1 GDP figures.

Thursday, May 18

Jobless claims for the May 13 week are expected to fall back to 255,000 after rising a steep 22,000 to 264,000 in the prior week.
The Philadelphia Fed manufacturing index has been in contraction the last nine reports and very deeply so in April at minus 31.3. May’s contraction is seen at minus 20.0.
Conference Board releases its Leading Economic Index for April. Economists forecast the index to decline 0.5% month over month, following a 1.2% drop in March. The LEI is at its lowest level since November of 2020, and the think tank expects a recession starting in mid-2023.
National Association of Realtors reports existing home sales for April. Expectations are for a seasonally adjusted annual rate of 4.3 million homes sold, slightly lower than in March. The median existing-home price was $375,700 in
Fed Balance Sheet
Money Supply
Federal Reserve speakers: Jefferson speaks at the National Association of Insurance Commissioners International Insurance Forum in Washington, D.C. Lorie Logan also speaks.
U.S. earnings: Alibaba Group Holding, Applied Materials, DXC Technology, Ross Stores, and Walmart hold conference calls to discuss quarterly results.
France, Germany, Switzerland: financial markets closed for public holidays.
Japan, April trade balance data.

Friday, May 19

Federal Reserve speakers: Fed Chair Jerome Powell, John Williams and former Fed Chair Ben Bernanke will speak at the Thomas Laubach Research Conference in Washington, D.C. Fed Governor Michelle Bowman speaks at the Texas Bankers Association Annual Convention in San Antonio.
U.S. earnings: Deere reports second-quarter fiscal 2023 earnings.
Germany April producer price index (PPI) inflation rate figures.
Japan April CPI inflation rate figures.
2023 G7 summit opens in Hiroshima, Japan. Concludes on Sunday.

Key USDA & international Ag & Energy Reports and Events

Ag highlights: China’s second batch of trade data for April, including corn, pork and wheat imports, will be released Thursday. Focus during the week will also be on the Future Food Asia conference in Singapore and the GrainCom event in Geneva.

On the energy front, the International Energy Agency publishes its monthly Oil Market Report on Tuesday. On Thursday, Politico hots its first-ever Energy Summit. The event features conversations with Energy Secretary Jennifer Granholm, White House National Climate Adviser Ali Zaidi and Jigar Shah, director of the DOE’s Loan Programs Office.

Monday, May 15

Ag reports and events:

Export Inspections
Crop Progress
Feed Grains Database
Dairy Monthly Tables and Dairy Quarterly Data
Season Average Price Forecasts
Wheat Data
North American Flour Milling Products Summary
GrainCom conference in Geneva, day 1
Malaysia’s May 1-15 palm oil exports