Hill Republicans are in Revolt — Their New Target is Herman Cain; Can’t We Please Get Some Inflation?
Author: Greg Valliere
April 10, 2019
THE GRUMBLING IS INCREASING among leading Republicans on Capitol Hill, who complain that they’ve been blindsided by the White House on issues from Homeland Security to new trade tariffs. But their biggest complaint is that they’re never consulted on nominations — and they’re in open revolt over Herman Cain.
WE WENT OUT ON A LIMB last Friday, predicting that Cain had only a 35% chance of confirmation. That was too generous; our sense is that Cain has no better than a 20% chance, and we anticipate a mercy killing coming — the nomination probably will be yanked with weeks (or days). The background check on Cain surely will delve into sexual harassment charges; even Cain indicated this past weekend that he might not pass the test.
CAIN’S LIKELY DEMISE COULD HELP STEPHEN MOORE’S CHANCES, since many Republicans don’t want to oppose both of the Trump nominations; besides, Moore is very popular among conservatives. But he also faces an embarrassing background check that will focus on his child support and tax controversies. We said on Friday that Moore has a 45% percent chance of confirmation, and that might be a few points too low.
THE BIGGER ISSUE AMONG MANY REPUBLICANS is that they’re in the dark as controversies swirl at the White House. Conservative Sen. John Cornyn weighed in on Cain: “I think rather than have the embarrassment for the nominee and for the president or for senators, I just encourage that there has to be consultation,” Cornyn said.
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THERE’S A DEEPENING CONCERN at the Federal Reserve over the central bankers’ inability to generate much inflation. They want their favorite indicator — the personal consumption expenditure deflator — to hit or exceed 2%, but they can’t get there.
THIS HAS BOLSTERED THE CASE for the so-called Modern Monetary Theory, which argues that more stimulus (and deficits) aren’t necessarily a bad thing. We were at a conference yesterday where a speaker said MMT might become a reality in a few years — but we disagree, it’s here NOW as policymakers frantically explore options to heat up the economy, encourage risk-taking and revive animal spirits.
FISCAL POLICY WILL STAY REMARKABLY STIMULATIVE, not because Congress has embraced MMT, but because the path of least resistance for gridlocked Democrats and pro-defense Republicans is to spend and spend and spend. Trump and Larry Kudlow don’t care about deficits.
THE MORE INTRIGUING ANGLE IS THE FED’S renewed push to goose the inflation rate. The Wall Street Journal and others are reporting this morning that Fed officials are actively considering options such as allowing inflation to run above 2% after periods in which the rate has been below 2%. The Fed is planning a “listening tour” and a June conference to explore ways to reach inflation targets.
WESTERN EUROPE PERHAPS COULD BENEFIT from a dose of MMT, but the initial reaction to news of Italy exceeding its budget deficit target was scolding. The EU seems to be perilously close to another recession, clinging to hope that massive Chinese investments in Europe might stimulate modest GDP growth. Reducing budget deficits still appears to be the goal in the EU — but not in the U.S. (or China, for that matter).
THERE’S ENOUGH FISCAL AND MONETARY STIMULUS in the system to make 2% GDP growth a relatively low bar to clear in the U.S. this year, but the stubbornly low inflation rate will continue to be a concern. Wages will be crucial, and we suspect Trump realizes that job creation will be pivotal to his re-election prospects.
WHAT TRUMP DOESN’T UNDERSTAND is that the greatest obstacle to job creation and stronger economic growth is the shrinking labor force, a huge issue in many rural regions of the country where the economy is actually contracting. If the answer is getting more workers, a coherent immigration policy would be a good place to start.
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