Can Biden and McCarthy Agree on Anything Today?
Author: Greg Valliere
February 1, 2023
WE SUSPECT POWELL IS DISMAYED by an unsubstantiated suspicion in the bond market that the Fed could begin cutting the funds rate by late fall. And why shouldn’t he be frustrated, with the Fed still hiking rates — 25 basis points today and probably another 25 in March.
SO THE PRESS CONFERENCE WILL GIVE POWELL still another opportunity to warn markets that the Fed is still quite hawkish. This should not be a surprise. The Biden-McCarthy meeting may be more interesting, without a clear outcome in sight.
THE FACT THAT THE TWO are already talking on Feb. 1 is encouraging, but there’s absolutely no chance of a deal now. Today’s expectations are modest: Republicans want a commitment from Biden for more talks, although Biden seems resistant to using the word “negotiations.”
BIDEN HAS TWO OBJECTIVES TODAY: He wants assurances from McCarthy that Republicans will not attempt to shut down the government or support a debt default, and he wants the GOP to produce a document listing spending cuts they support.
BOTH OF THESE DEMANDS WILL ENCOUNTER REPUBLICAN RESISTENCE in the House. Hard-line conservatives are not willing to cave — certainly not now — on opposing default. If McCarthy goes rogue and caves, he could be out of a job soon.
AS FOR PRODUCING A LIST of spending cuts, Republicans know they would be roasted by the public if they actually spelled out programs they would kill; that would give Democrats a huge target.
IT’S EARLY IN THIS DEFAULT SAGA, so the most we can expect today is a cordial meeting, a nice photo opportunity and an agreement to talk further. Anything more would be a pleasant surprise.
IF THERE’S ACRIMONY from both sides, threatening a crisis, this could revive a sense of unease in the markets, where investors still believe a default will be avoided this summer. At least the markets have a pretty good idea of where the Fed is headed; it’s the politicians who are preparing to ratchet up the uncertainty.
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