Do-Nothing Washington Hits the Wall
Author: Greg Valliere
January 18, 2024
A FEEL-GOOD MEETING between President Biden and Congressional leaders yesterday produced no deals, although there’s bipartisan agreement that the U.S. should not abandon allies like Ukraine. But that requires agreement on immigration reform, which could take weeks or months to resolve. Congress will spend much of February on vacation.
WHY NO BORDER REFORM? The answer, like everything in this city, is political. House Republicans have little incentive to move on immigration because they can blame the failure to act on the Democrats, a red-hot political issue for the GOP, propelling Donald Trump’s landslide in Iowa. Voters want action but why should Republicans resolve their strongest issue?
THERE’S PLENTY OF BLAME to go around. The White House, pressured by liberal activists, never had a plan on immigration, and even now Democrats think they can win this debate. They can’t. If Trump wins the election, border policy may be the biggest reason why.
SO AS BOTH SIDES TALK PAST EACH OTHER, the prospects for border reform diminishes, and without border reform, there will be no money in the House for Ukraine and other U.S. allies. A handful of House members — maybe a dozen — will block any compromise; even a budget deal by tomorrow night isn’t certain.
THE BEST BET IS A “KICK THE CAN” budget extension lasting into early March. What happens then? Maybe another extension — this could persist through the entire fiscal year, which means there will not be spending cuts, or increases. This would be a disaster for the Ukrainians, who are running out of weapons.
MADDENINGLY, a vast majority of Congress wants a budget bill, immigration reform and aid to Ukraine, but they don’t have enough votes unless Speaker Mike Johnson seeks support from Democrats. Stay tuned — it’s the only option for moving a budget but immigration reform will be much tougher to achieve.
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YESTERDAY’S DURABLE GOODS REPORT showed the economy is off to a strong start this year; the Atlanta Fed is now predicting 2.4% GDP growth in the fourth quarter. With inflation not totally subdued, a rate hike on March 20 seems premature; May 1 might be more likely. A key question: how accommodative will Chairman Jerome Powell be, with an election coming?
THE FEDERAL OPEN MARKET COMMITTEE is still quite hawkish, and there simply may not be enough votes for five or six rate cuts this year, which the markets are expecting. Three rate reductions seem more likely.
THERE ARE ALWAYS WILD CARDS, and our candidate for the big one in 2024 is supply chain problems, as global trade copes with increased instability in the shipping industry. The Middle East war seems to be widening, as Iran and even Pakistan attack each other.
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