CONGRESS WILL FINALLY GET SOMETHING DONE, approving a modest gun reform bill in the House this morning, with a presidential signature within days. Then the first of two summer recesses will begin — leaving several huge issues up in the air.
HERE ARE OUR CANDIDATES for the five big questions of the summer:
First, the Ukraine war: As we wrote last week, when will Western European leaders say enough is enough? Emmanuel Macron is the proverbial canary in the coal mine, one of the first political victims of populist anger over food and gasoline prices. Unfortunately, we don’t see a Ukrainian settlement this summer, even if tentative talks resume.
Second, the Economy: Consumers are battered, economic growth is slowing, the labor market is softening, and no one can depend on their flights this summer. So could the Federal Reserve ease up on its rate hikes? Highly unlikely.
The debate at the July 26-27 FOMC meeting will be whether the central bankers will hike by 50 basis points or 75. The latter seems likely, despite the slowing economy. And then the markets will breathlessly wait for the big economic story of the late summer — the Fed policy session at Jackson Hole, Wyoming.
Third, Build Back Better is Back: Is it possible that some of Joe Biden’s tattered agenda could be revived this summer? Key members of Congress are negotiating deals on everything from student loan relief to a bill to fund semiconductor chip manufacturing. If there’s a surprise this summer, it could be legislation actually making some progress.
Fourth, Looking for a Hail Mary on gasoline: This is a nightmare that won’t go away for Joe Biden, whose gasoline tax rebate has virtually no chance of passing this summer. He may consider other options, including some modest tariff relief, but it’s nearly too late for consumer attitudes on gasoline to change; opinions will harden well ahead of the Nov. 8 election.
Fifth, Who’s Running for President? Yesterday we wrote about Republicans who may be running, as Florida Gov. Ron DeSantis moves into an early lead. There’s a similar frenzy among Democrats — a half dozen governors and as many as ten members of Congress are considering running. Out of respect for Biden, Democrats won’t announce this summer, but we expect a crowded pack visiting New Hampshire.
The other big political story will be congressional campaigning, as the House still looks like a very likely GOP takeover. The Senate is a much tougher call, as two Republican-held seats — in Wisconsin and Pennsylvania — suddenly look vulnerable.
BOTTOM LINE: It looks like a long hot summer, with the bond market adding an element of uncertainty — what to make of sliding yields late this week? Will the prospect of a recession by winter keep a lid on yields and commodity prices?
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