Federal Reserve set to increase interest rates; President Biden to meet with House Speaker McCarthy for first time since midterms
Two big meetings today in Washington. Which one is more important depends on whether you think monetary policy or executive/congressional branch cooperation is more important at this moment.
The Federal Reserve Open Market Committee meets today and is expected to approve a 25-basis point increase in interest rates. Recent economic news has showed inflation slowing down and the labor market remaining resilient – despite layoffs at several large companies. A quarter point rise in interest rates would be smaller than the recent Fed moves – but would still keep the Fed on a tightening path and signal it is not yet confident inflation will return to the Fed’s preferred benchmark of 2%. The rapid rise in interest rates is designed to slow the economy. The great unknown, however, is whether the Fed can tame inflation without causing a recession. In other words, can it achieve a “soft landing.” History suggests it can’t, but recent economic data indicates the Fed might pull it off. The International Monetary has revised its prediction upwards for global growth in 2023 but warns, “the global economy is poised to slow this year, before rebounding next year. Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity.”
The other big meeting today is at the White House. President Biden will host a one-on-one meeting with the new Speaker of the House Kevin McCarthy. In many ways this is a traditional meeting between leaders of the two parties – a basic governing ritual. At the same time, with the return of divided government and the need for two deeply divided parties to work together to fulfill basic governing necessities, today’s meeting is an important step to set a direction and tone for the new Congress. Neither side expects a specific outcome. But each side is working to gain leverage and capture the mantle of the “responsible” actor in upcoming negotiations. The White House wants to portray Speaker McCarthy as captured by the extreme “Ultra MAGA” wing of the Republican party. Speaker McCarthy and congressional Republicans want to position themselves as asking for common sense fiscal responsibility in the wake of historic inflation and federal spending increases of the past three years. The political posturing will go on for months before actual negotiations begin over how to raise the nation’s debt ceiling later this year.
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