Inching Forward on a Budget Deal; Momentum Shifts to Ukraine
Author: Greg Valliere
May 15, 2023
KEY MEMBERS OF CONGRESS are expected to meet with President Biden on Tuesday, before he leaves on an Asian trip. We expect an announcement that there’s been progress, with the likelihood of presenting Biden with the rough outlines of a deal when he returns. He won’t like it and neither will conservative House Republicans.
BUT THERE’S A ROUGH CONSENSUS to impose spending caps, claw-back un-spent Covid aid, cut benefits for those who refuse to look to work, and reform “permitting” rules for energy projects. On these and several other provisions, there’s grudging agreement — but Biden will reject major changes on climate change, IRS funding and other key provisions that were included in his so-called Inflation Reduction Act.
THE TALKS WILL HEAT UP in the week of May 22, ahead of the Memorial Day break the following week. Disappointing tax receipts will add extra pressure on the negotiators, who are facing a potential default as early as the first week of June.
IF BOTH SIDES are close to an agreement by early June, it’s likely that they will ask for a few more weeks to finish their work. A debt extension until the July 4 recess would be a logical target, although the complexity of many provisions could push the “X date” until fall.
BOTTOM LINE: We still think there’s a 60-40 chance of avoiding default, and if there are signs of real progress later in May, those odds could improve to 70-30.
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MOMENTUM TILTING TOWARD UKRAINE: The challenge is not getting too optimistic — but, clearly, the momentum in this ugly war is tilting toward Kyiv. President Volodymyr Zelensky has won major new military aid from Western Europe, and his troops are advancing in the battered city of Bakhmut, ahead of a spring offensive on many fronts.
REGULAR READERS KNOW THAT WE HAVE predicted for over a year that the key to this war is troop morale, and there are credible reports — and film — of Russian troops fleeing. The only reason Russia has fought to a stalemate
around Bakhmut is the Wagner mercenaries, but its leaders are dispirited.
A TRUCE IS INCREASINGLY LIKELY, as Russia seeks a face-saving exit ramp. The most Russia can hope for is a stalemate — but even that looks unlikely as Ukrainian troops go on the offensive, a further humiliation for Vladimir Putin, who quite clearly is losing the war.
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