September 19, 2022: Jerome Powell, Congressional Procrastination, & Bad Times in the Eastern Bloc
By Joe Noser, Research Analyst
As we inch closer to the end of the month and the fiscal year, the chances of the worst procrastinators on planet earth (I am referring to Congress here and not myself) finding something to muck up and/or get upset about continues to increase. Elsewhere, we're likely to get more bad economic news – and oh, by the way, the 'Stans are alive with the sound of territorial disputes being worked out by way of artillery and lead.
Here's what's Coming Down the Pike this week.
1. Jerome Powell will set fire to the markets – again: Until last Tuesday, Wall Street had shown itself to be skeptical that the Fed would maintain its ultra-aggressive strategy to combat inflation by severely raising interest rates. The rate raises we've seen have already had tangible impacts, such as mortgage rates being the highest they've been since 2008 and the three, ten, and thirty-year bond yields being at rates not seen since 2014. Those increases haven't really affected the labor market yet, and rent and wages have continued to rise. But all of that may be coming to an end. With Tuesday's announcement that the CPI came in at an 8.3% year-over-year increase – a number below the 8.5% reading from July but measurably higher than the anticipated rate of 8.0% – the market had its worst day since March 2020. A bunch of billionaires also lost a boat-load of money, although I don't really care about that. This Wednesday's press conference from Powell, in which he's expected to announce another .75-point interest rate hike to 3.0-3.25%, will probably spook the markets further. With the IMF's chief economist warning today of a "historic global slowdown" if the Fed and other central banks continue their aggressive postures, I have a hard time seeing America dodging the recession bullet in the next two quarters.
2. Congress will gear itself up for a budget fight: As has become customary this time of year, very few if any of Congress' 13 appropriations committees have passed funding bills for this session, meaning Congress will have to find a way to fund the government by condensing what should be a year-long process into about two weeks. Classic. This year's late-September surprise is a push from Senate Democrats to get the child tax credit expanded. A report from the New York Times released last week showed that the expansion of the credit, which Joe Manchin killed at the beginning of this year, cut the child poverty rate down to a historic low of 5.2% (overall poverty was also at a historically-low rate of 7.8%). Democrats are again trying to get the credit increased, only this time they may have some support from Senate Republicans to do so. That's because Senate Republicans are banking on the Democrats bailing them out for a mistake they made in 2017 when they put together their tax-breaks-for-assholes bill at the last minute. To try to tell people that the bill was revenue neutral (ha!), Republicans wrote in a Jan. 1, 2022 phase-out a provision that allowed businesses to write off R&D spending immediately, rather than over a period of a couple of years. Sure enough, the provision did phase out Jan. 1. Now, corporations want that provision to be a part of the FY '23 budget and for it to retroactively cover all R&D spending from this year. The corporations are loudly proclaiming all the horrible things that will happen if they don't get their write off. So, the combination of not wanting to upset their corporate backers and the need to score some points with some soccer moms means Republicans may actually be willing to negotiate with Democrats on the child tax credit. But I wouldn't hold my breath.
3. The eastern bloc will stay hot: With Russia running for the hills in Northeast Ukraine and Putin increasingly facing pressure at home, the nations bordering Russia to the south have taken their vodka-and-war-crimes-loving friend's ineptitude as a sign to start killing each other. Clashes along a disputed part of the southwestern border between Kyrgyzstan and Tajikistan broke out again last week and have claimed 81 lives so far, making the fighting far worse than the skirmishes seen there last year. Kyrgyzstan also said it had evacuated 136,000 civilians from the area. Both sides' presidents agreed to a cease fire Friday in Uzbekistan, but they also promptly repeatedly violated it, although it apparently held up decently well yesterday and today. While it looks like Tajikistan may be the aggressor this time, that fact is disputed. In Armenia, Speaker Pelosi continued to flex her diplomatic muscles, calling on Azerbaijan to abide by a ceasefire Armenia announced on Wednesday. The border dispute between the two countries has already killed 155 soldiers, marking the deadliest confrontation between the two nations in years. Here's the gut-punch for the Russians: all four of these countries are part of the Collective Security Treaty Organization (CSTO), Putin's pathetic attempt at revitalizing the Soviet bloc by saying the nations should put their differences aside to focus on the real menace, NATO. And all four nations have ignored Putin during these border skirmishes, with Armenia and Azerbaijan even blatantly violating a ceasefire Putin himself negotiated Tuesday.
Elsewhere on Capitol Hill, the bipartisan Senate working group on codifying same-sex marraige signaled to Sen. Schumer last week that they need more time to get 10 Republican votes, a nice way of saying the bill only has a chance in a lame-duck session. It is my opinion that Pres. Biden's comments on 60 Minutes about Taiwan (in which he said for the 4th time in his presidency that the U.S. will militarily defend Taiwan in the event of a Chinese invasion) will be enough to get that bill passed on to the lame-duck session, as well. Biden's insistence on saying to hell with strategic ambiguity in regards to Taiwan is a significant departure from previous U.S. policy, to say the least, although administration officials again tried to say after his interview that our policy toward Taiwan hasn't changed. Also, in Ukraine, we'll get more information about the war crimes the Putin regime committed during its occupation of Izyum. It is my hope that someday U.S. special forces will be tasked with tracking down the perpetrators of such heinous crimes and bringing them to justice, just as we did in Bosnia, Serbia, and Kosovo in the 1990's. A righteous mission, indeed.
Hope everyone has a great week.
All the best,
Joe