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Happy Thursday morning. It’s Cinco de Mayo.
The Federal Reserve’s decision to raise interest rates by a half point yesterday – with more increases to come if necessary – is a sign of how serious the central bank takes inflation. It’s the biggest interest-rate boost since 2000, and follows a quarter-point increase in March. Fed Chair Jay Powell promised more rate hikes in coming months until inflation is under control.
The Fed’s move will cost Americans in a lot of ways. Cars, homes, student loans and other types of lending will become more expensive for consumers. For instance, rates for 30-year fixed mortgages averaged 5.1% in April, after being under 3% last fall. That means tens of thousands of dollars in additional interest over the life of the loan.
But let’s talk about the politics of inflation and interest rates. Senators in both parties – especially Republicans – hailed the Fed’s move on Wednesday. They’ve been hammered by voters back home who are seeing the price of food and groceries soar during the last year.
Republicans blame “runaway” government spending, particularly the $1.9 trillion American Rescue Plan – President Joe Biden’s biggest legislative win – for triggering the worst inflation since the early 1980s. They’ve been urging Powell for months to raise interest rates to counter the price surge.
Democrats and the White House counter that the inflationary pressure is the result of other factors, including a historically tight job market and the Covid-related disruption to global supply chains. They also point to the Russian invasion of Ukraine for causing a spike in oil prices, a major contributor to U.S. inflation rates.
What’s clear for Biden and Democrats, though, is something has to change on inflation – and soon. A CNN poll released on Wednesday showed Biden’s “economic approval numbers continue to tick downward, with 34% now approving and 66% disapproving, compared with 37% approval and 62% disapproval earlier this year.” That’s a disaster for the party as it tries to hang onto control of the House and Senate in November.
Yet the dilemma for the Fed, White House and Democratic congressional leaders is that raising interest rates could tip the U.S. economy into a recession. Powell believes the Fed can avoid that, but he admitted that raising rates is a “famously blunt tool” for curing the problem.
Sen. Joe Manchin (D-W.Va.), whose concerns over rising prices led him to derail the $1.7 trillion Build Back Better Act in December, said the only way to “kill inflation” is to raise rates. “There’s no easy fix to inflation,” Manchin told us in an interview Wednesday.
Manchin admitted he’s worried about a recession. Here’s what he told us:
“Sure, just look back in history. … Nine out of 10 times, you have inflation over 6% that lingers, basically you always have some sort of recession. You gotta tamp it down the best you can.”
So we wondered how lawmakers balance those two tricky dynamics – the necessity to raise rates to slow inflation, yet the likelihood that could trigger a recession.
Almost every senator we spoke to in both parties acknowledged the need to raise rates. But in the same breath many admitted they’re worried about the prospect of an imminent recession.
Manchin: “Well, inflation is the most dangerous thing we have right now…. The main thing is how do you fix it now? Inflation [can] only be fixed by tamp down and when you tamp down, you will slow things down.”
→ Sen. Mark Kelly (D-Ariz.): “That is the thing the Fed has to manage. It’s a balance between trying to [strike a balance] between keeping costs low without putting us into a recession.”
→ Sen. Thom Tillis (R-N.C.): “I’m concerned about a recession in any event. In some respects, this may take some of the pressure off of it, but we’ve got to do something because we’re headed into a very perilous time. And then we’ve got all these geopolitical factors that are weighing into it.”
→ Sen. Pat Toomey (R-Pa.): “It’s long overdue but at least the process has begun… When you have a 1.4% decline in real GDP growth in the first quarter, you can’t completely ignore that [a possible recession]. But the first responsibility of the Fed is to get inflation under control.”
→ Sen. Mitt Romney (R-Utah): “Unfortunately, the Fed kept their foot on the gas too long. Covid obviously disrupted our supply chain. And the president did almost everything wrong, throwing a lot of fuel on the inflation fire. To get the inflation under control was going to require someone to put the brakes on, and the Fed has the brakes. It’s a painful process, but that’s what’s gonna have to happen.”
→ Sen. Raphael Warnock (D-Ga.): “The Federal Reserve does its work. We need to do our job.”
We’ll close with Sen. Rick Scott (R-Fla.), who was one of the first – and loudest voices – over the last year talking about the risks of inflation. He’s been very vocal in his criticism of both Powell and Biden. The president lashed out at Scott yesterday.
Scott pushed back:
“The recession is going to happen because the Biden administration is making decisions that cause inflation to go up. They’re making it more difficult for businesses to be in business. They’ve done nothing to solve any economic problems – other than cause more inflation.”
BURLINGTON VS. SEATTLE
Bernie vs. Bezos
Sen. Bernie Sanders (I-Vt.) insists he doesn’t have anything against Jeff Bezos, the mega-billionaire founder of Amazon who’s the second richest person on Earth.
But this week, Sanders is getting extra mileage out of bashing Bezos.
The Senate Budget Committee will hold a hearing today entitled: “Should Taxpayer Dollars Go to Companies that Violate Labor Laws?” The focus of this hearing is Amazon, which is strongly resisting unionization efforts.
This is from a media advisory released by the Budget Committee, which Sanders chairs:
“Amazon, one of the largest and most profitable corporations in America, has become the poster child for illegal anti-union behavior while raking in billions in federal contracts… However, last year alone, Amazon spent over $4 million on consultants in an effort to illegally prevent its warehouses from unionizing. Amazon has also been penalized more than $75 million for breaking federal discrimination and wage laws, is currently being sued by the National Labor Relations Board (NLRB) for illegal anti-union retaliation, and has 59 Unfair Labor Practice cases currently open against them.”
Bezos was invited to testify at the hearing, the Budget Committee noted, although he won’t be there. Chris Smalls, the president of the Amazon Labor Union who helped lead a successful organizing effort at a company warehouse in Staten Island, will be. Sanders visited workers at the warehouse in March, and he’s been outspoken in support of their unionization drive.
Sanders also was on the Senate floor Wednesday night railing against a potential $10 billion NASA contract for Bezos’ space exploration company Blue Origin. The company wants a chance to participate in the lunar lander program for NASA’s future Moon mission
“We can give $10 billion to Jeff Bezos, the second-wealthiest person in this country who is the owner of the space company Blue Origin,” Sanders said sarcastically. “Clearly Mr. Bezos desperately needs this federal assistance. He is only worth $150 billion, and with all of his lawyers and accountants, and in a given year, pays nothing in federal income taxes.”
The Senate defeated a non-binding Sanders motion to block the Blue Origin funding.
We asked Sanders about the heavy focus on Bezos recently. This includes an op-ed in The Guardian where Sanders complained that NASA “has become little more than an ATM machine to fuel a space race” between Bezos and Elon Musk.
“I am pursuing oligarchy in America, and Bezos happens to be one – along with the others – one of the oligarchs. [Amazon] is one of the large corporations in America, one of the very powerful corporations, and we’re going to focus on that. No, it’s nothing personal at all.”
But in a recent Vanity Fair article, Sanders said this about Bezos:
“There’s nothing that I would say to him except, ‘You know what? We’re gonna take you on,’” Sanders said in a phone interview last week. “You could either start responding to the needs of your workers, or we’re gonna fight you ruthlessly.”
Amazon didn’t respond to a request for comment on Sanders’ recent criticism of Bezos.
→ You don’t see this too often. Jake Evans, a Republican running for a House seat in Georgia, is running his first ad, which notes that he was endorsed by former Speaker Newt Gingrich and Fox News personality Sean Hannity.
→ Former Rep. Ed Whitfield (R-Ky.) is now lobbying for DirecTV, the satellite TV giant. DirecTV signed with Farragut Partners to lobby on “telecommunications legislation and regulation. Privacy issues relating to the gathering, retention, and use of online information.”
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10:15 a.m.: President Joe Biden will get his daily intelligence briefing.
2 p.m.: Jen Psaki will brief the press.
4:15 p.m.: The Bidens will host a Cinco de Mayo celebration with Beatriz Gutiérrez Mueller de López Obrador, the wife of the president of Mexico.
10:30 p.m.: First Lady Jill Biden will leave for Romania.
→ “Once Close Allies, Roberts and Alito Have Taken Divergent Paths,” by Adam Liptak
→ Washington Memo: “As Leak Theories Circulate, Supreme Court Marshal Takes Up Investigation,” by Michael Shear and Zolan Kanno-Youngs
→ “Oligarch’s effort to broker peace falters even as it shields him from sanctions,” by Greg Miller and Shira Rubin
→ “White House scrambles for ways to protect abortion,” by Yasmeen Abutaleb and Tyler Pager
→ “Draft abortion opinion puts new spotlight on confirmation hearings,” by Seung Min Kim
→ “Mass Student Debt Cancellation Legally Risky, Says Top Obama Education Lawyer,” by Gabriel T. Rubin
→ “U.S. Considers Unprecedented Sanctions on China Tech Giant Hikvision,” by Jenny Leonard and Coco Liu
→ “Rising interest rates in US will hinder foreign economies,” by Paul Wiseman
Raleigh News and Observer
→ “Cawthorn downplays ‘crass’ leaked nude video, blames opponents’ ‘drip campaign,’” by Danielle Battaglia
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