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The economy remains at risk of recession.Budget cuts included by President Joe Biden and his House Speaker Kevin McCarthyThe deal to raise the debt ceiling is not deep enough to go beyond the limit.
For months, Republicans have argued that any deal to raise the debt ceiling must be accompanied by a drastic cut in government spending. They argued that the U.S. economy needed strong fiscal discipline to reverse the inflation that has characterized the Biden economy for more than a year.
But neither party had the appetite to tackle important issues such as Social Security, Medicare and defense spending. And ignore the macroeconomic implications of any deal when it becomes clear that the White House will nearly block raids on funds channeled through Biden’s landmark legislative achievements, the Inflation Control Act and CHIPS. I assure you it can be done.
Brian RiedlA senior fellow at the Manhattan Institute and former chief economist for former Ohio Republican Senator Rob Portman, the headline cap on regular and non-emergency discretionary spending means a lot on Sunday. said to haveNote and asterisk [that] These numbers can be almost meaningless(This highlights why the deal has provoked a backlash from many right-wing Republican policymakers, including the governor of Florida. Ron DeSantis. )
Riedl told MM that the cuts corresponded to “rounding errors” in GDP.
Moody’s Chief Economist Mark ZandyAfter warnings of potential economic damage from Republican cut proposals were trumpeted by the White House last month, he said the macro effects of the deal would be tempered.
“It’s not as strict as the Limit, Save and Grow Act,” Mr. Zandi said in an interview. He said the discretionary spending limit could cause the economy to lose about 120,000 jobs, raise the unemployment rate by about a tenth of a percentage point, and reduce gross domestic product by less than a fifth of 1%. said to be sexual.
This is far from the millions of job losses and sharp economic contraction that the White House claimed would be imminent if Republicans got everything they wanted. Mr. Zandi said the Biden-McCarthy deal would weigh heavily on a fragile economy, but would not create enough resilience to push the country into recession.
“The timing is inappropriate given how fragile the economy is and how high the risk of recession is, but I don’t think this is the state of the economy,” he said.
Indeed, the economy is still in jeopardy. Rating agencies could downgrade Treasury bills even if Mr. Biden signs the debt-restriction agreement in time. That could drive up borrowing costs and sway markets. The Treasury Department’s new bond issuance could drain money from banks, further wreaking havoc on a sector that has endured turmoil this spring.
one more: Even if the macroeconomic impact is minimal, federal safety net cuts, including new labor requirements in two government-supported programs, would be affected in a recession.
“Democrats’ concerns about how the cuts will tie into the coming recession are not about the economic impact of the cuts, but about the human impact of the cuts.” Tobin Marcusa senior U.S. policy and political strategist at Evercore ISI, who previously advised Biden, told MM.
But the political impact of human influence is probably zero. These are not bank or corporate safety nets. Marcus said the constituencies they serve “tend to have the least entitled voters.” They don’t have “great capacity to make their voice heard.”
Even in a recession, “I don’t know if it’s really going to be a political headwind for the Democrats,” he added.
it’s tuesday — I hope you have a wonderful anniversary. Send tips, rumors, and suggestions to Sam. [email protected] and with zack [email protected].
today …Richmond Fed President Tom Birkin to speak at 1pm National Business Economics Association webinar …Former Treasury Secretary Lawrence Summers to deliver keynote address at 7pm at Peterson Institute for International Economics and International Monetary Fund…
Wednesday … Governor Michelle Bowman and Boston Fed President Susan Collins to speak at Boston Fed event at 8:50 a.m. … Senate Bank to hold hearing on China economy at 10 a.m. … April job stats released at 10 a.m. Will … Heather Bushey, member of the White House Council of Economic Advisers, speaking at the Peterson/IMF meeting at 1pm … Fed President Philip Jefferson speaking at 1:30pm … Fed Beige Book released at 2pm …
Thursday … FDIC Holds Advisory Meeting on Community Banking at 9 a.m.… Philadelphia Fed President Patrick Harker to Address NABE Webinar at 1 p.m.…
Friday … the May jobs report will be released at 8:30 a.m.
Must read – Victoria Guida delves into how massive wage increases for low-income workers over the past few years created a bizarre political dilemma for Biden. “Will Democrats, fearful of alienating inflation-stricken middle-income voters, paint the economy as a developing one still recovering from the shock of the pandemic? Will it emphasize the interests of low-income workers as counteracting the long-standing winner-takes-all scheme of benefits?
They still need to pass legislation — That’s easier said than done. McCarthy said Sunday that “more than 95 percent” of the Republican convention are “overwhelmingly excited about what they’re seeing,” according to Caitlin Emma. But on Monday, Rep. Chip Roy (R-Tex.), leader of the Freedom Caucus, said: warning shots on twitter It suggests that the chair may run into trouble on the House Rules Committee. Meanwhile, Jennifer Haberkorn, Holly Otterbein and Adam Canklin said Biden officials worked over the weekend to calm growing dissatisfaction with the new labor requirements in two of the government’s aid programs. writing.
So while stock futures rallied over the weekend on news of the acquisition, there is still the risk of a default not priced into the market. “It’s the worst possible risk.” Joseph Bruzuelasthe chief economist at consulting firm RSM US told moderators on Monday. It is a “non-systematic risk that cannot be adequately quantified”. It’s Wall Street’s Achilles heel. ”
So, in theory, prioritization is still under consideration. Treasury Secretary Janet Yellen informed lawmakers on Friday that the Treasury Department will make Social Security, Veterans and Medicare payments June 1-2, but the Treasury coffers are all but depleted. It ensured that May 5 would be a tough deadline for raising the debt ceiling. Democrats love lawmakers. Pramila Jayapal (Please wash.) And Brad Sherman (California) told Eleanor Mueller last week that uncertainty over whether the government will meet its obligations, especially to Social Security recipients, is putting substantial pressure on the process.
With those payments coming, the department could face excruciatingly complex decisions about where to send the tax revenue. Just paying Social Security and debt on time cuts nearly everything else by 40%. Wendy Edelbergdirector of the Hamilton Project at the Brookings Institution and former chief economist at the Parliamentary Budget Office, told Victoria.
George MadisonHe, who served as Treasury General Counsel during the bitter struggle over the 2011 debt ceiling, agreed, saying that about 70% of government spending goes to Social Security, Medicare, Medicaid, debt interest, and basically anything else. He pointed out that there was no room left to pay for Prioritize them.
Default is still a possibility and the market is gearing up for the worst. As IMF Managing Director Kristalina Georgieva noted on Friday, sovereign debt markets are “a cornerstone of stability in the global financial system.” When you pull anchor, the global economy, the ship we all are on, is in turbulent and, worse, uncharted waters. ”
Treasury and Fed officials, along with the Securities Industry and Financial Markets Association and BNY Mellon (the clearing bank for Treasury settlements and a major player in the cash market), have spent years preparing for volatile conditions. rice field.
Two sources who spoke with Treasury and Fed officials said the most likely, at least for now, would be for the Treasury to give advance notice if coupons or principal payments need to be delayed. It says. The department will also extend the maturity of these securities and make them transferable through the Fed’s clearing system, allowing regular trading and transfer.
SIFMA outlined these scenarios in a recent report. Still, yields on U.S. Treasury bonds that expire around the “X date” have surged in recent months, signaling that investors are demanding substantial risk premiums as the U.S. looks to the possibility of default. showing.
“Most contracts will include language that defaulted securities cannot be used as collateral,” he said. David Sequera, Chief U.S. Market Strategist at Morningstar Research Services. “In that case, I hope most parties realize that even if some short-term default occurs, people still see Treasuries as good money.”
And if you need to be reminded of the result, Our Katie O’Donnell: “If Republicans and the White House don’t reach a deal to raise the debt ceiling, a US debt default could derail an already fragile housing market.”