Congress and the White House
It was a calculated risk. The White House wanted a big celebration to highlight the passage of the Inflation Reduction Act. They chose to hold the event on the White House lawn the day the Labor Department would release the August CPI report -- inflation numbers. They had reason for optimism. Gas prices have dropped for 13 consecutive weeks. Analysts expected the inflation rate to drop below 8 percent. But not all calculated risks pay off. The CPI report was not good. Year over year inflation came in at 8.3 percent, despite falling energy prices. This showed that core inflation is more widespread and persistent then expected. It also told the markets that the Federal Reserve would continue to raise interest rates to try and tame inflation. The Dow dropped nearly 1300 points. Former Obama and Clinton cabinet member Larry Summers had this to say.
“Today’s CPI report confirms that the US has a serious inflation problem. Core inflation is higher this month than for the quarter, higher this quarter than last quarter, higher this half of the year than the previous one, and higher last year than the previous one.”
In retrospect, probably not the day to celebrate the Inflation Reduction Act. Congressional Republicans pointed that out throughout the day. But the midterm elections are not going to turn on a botched photo op. Voters top concern is inflation and the economy. The CPI report shows the issue is not going away – it is a driving factor that favors Republicans. Abortion rights in the wake of the Dobbs decision has shot up as another top voter concern and it favors the Democrats. Voter registration and polls showing the enthusiasm gap narrowing indicate abortion will be a factor in the midterms. Sen. Lindsey Graham’s curious decision to divide Republicans and introduce a federal 15 week ban yesterday doesn’t change the fundamentals of the issue for the midterms. It already favored Democrats.
The Census Bureau issued another report yesterday about incomes. The report showed that median income was largely unchanged last year. “Real median household income was $70,784 in 2021, not statistically different from the 2020 estimate of $71,186.” But the report also showed two additional facts. Full time workers wages are declining – and the only group to see a real rise in income are those with a college degree or higher. The base of the Republican party is trending towards lower income, less educated Americans. The base of the Democratic party is trending towards higher income, highly educated Americans. The Census report underscores why Republicans believe, despite recent Democratic gains, that the economy is going to drive this election. Their voters are feeling the worst effects of inflation – their real wages are declining. Democratic voters see a strong job market and are more focused on what they view as Republican extremism on cultural issues like abortion.
Progress on a continuing resolution to keep the government open past September 30th remains slow. Senate Majority Leader Schumer reiterated again yesterday that he plans he attach permitting reform to the CR to fulfill a promise he made to Sen. Manchin. Republicans reiterated that they do not support that plan – and at least 10 Republican Senators need to support the CR for it to pass. The stalemate continues. A bipartisan group of senators continues to work towards finding ten Republican senators to support the Defense of Marriage Act. Majority Leader Schumer has indicated he wants a Senate vote on the bill before Congress leaves for the midterm elections.
Supply chain disruptions, from crops to water to energy, could be devastating if freight rail unions strike as soon as Friday. The threat of an economically devastating railroad worker strike that could begin as soon as Friday is forcing a crisis response from the Biden administration — and bringing 11th-hour brinkmanship from the freight rail industry, its unions and both parties in Congress. The White House was making it known that President Joe Biden is on the case, telling reporters that Transportation Secretary Pete Buttigieg and his agency are leading an effort to blunt a strike’s effects on critical resources such as food, drinking water and electricity. At least two other Cabinet secretaries have tried to help the railroads and unions reach a deal, and Biden himself has spoken directly with both sides of the labor dispute. A work stoppage would still inflict major trauma for the economy and the president’s party, threatening to leave consumers with soaring prices and bare store shelves less than two months before the midterm elections. That means maximum leverage for all sides of the dispute, including unions seeking to wrest more concessions from the railroads over working conditions.
Supreme Court ruling has made abortion access a top issue in midterm elections. Sen. Lindsey Graham (R., S.C.) introduced a bill on Tuesday that would ban doctors from performing abortions after 15 weeks of pregnancy, putting a brighter spotlight on the contentious issue headed into the November midterms and drawing a chilly reception from some prominent Republicans. Mr. Graham called the bill a response to a bill passed earlier this year by House Democrats that would ensure a right to an abortion through fetal viability, or around 21 to 24 weeks. Neither measure has a chance of passing into law, but Mr. Graham drew a straight line to the election this fall, as Republicans try to take back control of the House and Senate. Democrats and pro-abortion-access groups denounced the bill, which they called a nationwide abortion ban, and said it helps to show off the parties’ differences on the issue. “It’s very simple,” Senate Majority Leader Chuck Schumer (D., N.Y.) said. “You want to protect the right to choose, and you want to protect a woman’s right to healthcare? Vote for more Democratic senators.”
Consumer prices excluding food, energy rose sharply, showing broad price pressures strengthened. U.S. consumer prices overall rose more slowly in August from a year earlier, but increased sharply from the prior month after excluding volatile food and energy prices, showing that inflation pressures remained strong and stubborn. The Labor Department on Tuesday reported its consumer-price index rose 8.3% in August from the same month a year ago, down from 8.5% in July and from 9.1% in June, which was the highest inflation rate in four decades. The CPI measures what consumers pay for goods and services.So-called core CPI, which excludes energy and food prices, increased 6.3% in August from a year earlier, up markedly from the 5.9% rate in both June and July—a signal that broad price pressures strengthened. U.S. stocks tumbled and bond yields jumped after the report showed that price pressures are proving more persistent than investors anticipated. The Dow Jones Industrial Average dropped nearly 1,300 points, or 3.9%, Tuesday. The S&P 500 fell 4.3%, while the Nasdaq Composite slid 5.2%. The yield on the benchmark 10-year U.S. Treasury note settled at 3.422%, according to Tradeweb, up from 3.297% just before the inflation data were released. Bond prices and yields move inversely.
U.S. inflation is showing signs of entering a more stubborn phase that will likely require drastic action by the Federal Reserve, a shift that has panicked financial markets and heightens the risks of a recession. Some of the longtime drivers of higher inflation — spiking gas prices, supply chain snarls, soaring used-car prices — are fading. Yet underlying measures of inflation are actually worsening. The ongoing evolution of the forces behind an inflation rate that’s near a four-decade high has made it harder for the Fed to wrestle it under control. Prices are no longer rising because a few categories have skyrocketed in cost. Instead, inflation has now spread more widely through the economy, fueled by a strong job market that is boosting paychecks, forcing companies to raise prices to cover higher labor costs and giving more consumers the wherewithal to spend.
Households facing highest inflation in decades recorded median 2021 income of $70,800. Americans as a whole have experienced two years in a row of flat or declining household income, new government data showed Tuesday, reflecting the pandemic’s lingering economic pain as inflation is also taking the largest bite out of pocketbooks in four decades. In its annual assessment of the nation’s financial well-being, the Census Bureau said median household income of about $70,800 in 2021 wasn’t different in a statistically significant way from the inflation-adjusted 2020 estimate of about $71,200. Earnings—mostly wages and salaries—showed a mixed picture. Median earnings in 2021 for all workers rose 4.6% to about $45,500 from the previous year. However, among workers who worked full time, year-round, median earnings dropped 4.1% to about $56,500. Overall, income shifted toward higher-income households.
Inflation broadened in August even as the public grew less worried about future price rises. With only a week to go before a pivotal Federal Reserve monetary policy meeting, the outlook for interest rates has been rattled yet again. On Tuesday, the Labor Department reported consumer level inflation broadened in August after some recent data had pointed to the possibility that the worst of the price pressure surge had crested. The consumer-price index rose 8.3% last month from a year earlier and core CPI, which excludes food and energy, increased by 6.3% over the same period. Additionally, Fed data showed that the underlying level of pressure in the widely watched consumer-price index also took a turn for the worse. The Federal Reserve Bank of Cleveland said Tuesday its Median CPI, which strips out the biggest categories of price changes in a given month, increased 6.7% in August from a year earlier, up from the 6.3% year-over-year rise in July.
Mortgage demand appears to have nowhere to go but down, as interest rates go up. Application volume dropped 1.2% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. The week’s results include an adjustment for the observance of Labor Day. Since last year, homebuyers’ demand for mortgages has fallen by nearly a third.