Debt-limit Talks Take Quick Turns Up, Down and Sideways; Biden & McCarthy Talk

Remembering and honoring Charlie Stenholm | Supreme Court rulings Thursday

Washington Focus

The House is in session and the Senate is out, but will be called back if there are any votes in store regarding the debt-limit hike/suspension debate.

Did anyone think the two political parties would reach a debt-limit deal without theatrics? Talks were suspended Friday but top negotiators for President Joe Biden and House Speaker Kevin McCarthy (R-Calif.) resumed talks Friday evening. There will likely be more twists and turns before the end zone is reached.

President Biden again called on congressional Republicans to move toward a deal to raise the U.S. borrowing limit and characterized GOP proposals as “extreme,” as he prepared to return to Washington with the possibility of an unprecedented financial default looming. “I’m not going to agree to a deal that protects wealth tax cheats and crypto traders while putting food assistance at risk for nearly 1 million Americans,” Biden continued. “It is time for Republicans to accept that there is no bipartisan deal to be made solely on their partisan terms. They have to move as well. All four congressional leaders agree with me that default is not an option. And I expect each of these leaders to live up to that commitment.”

Biden on Sunday said he is willing to cut spending, which Republicans have said should be a condition of any effort to raise the debt ceiling, but he underscored that reforming the tax system to bring in more revenue from the wealthiest Americans and corporations should also be under consideration. “They just said revenue is off the table. Revenue is not off the table,” Biden said. “That’s what we continue to have a significant disagreement on, on the revenue side.”

According to the nonpartisan Congressional Budget Office, the spending freeze proposed by the White House this weekend would result in a nearly $90 billion cut in spending next year while shaving off about $1 trillion over a decade by slowing the growth of agency budgets.

McCarthy comments. “I do not think it’s extreme that we simply say we should spend less than we spent this year,” McCarthy said on Fox News’ Sunday Morning Futures. He disputed the suggestion that Republicans are moving the goalposts.” “We have never offered something different than we talked about the entire time,” he said, pointing out that the White House, meanwhile, has gone wobbly on whether they would actually accept changes to work requirements. “It seems as though [Biden] wants default more than he wants a deal,” McCarthy said.

However, McCarthy on Sunday said a call with President Biden about the debt limit and looming default earlier in the day was “productive” and that the pair will meet in-person on Monday. “I believe it was a productive phone call,” McCarthy said. “Look, we’re 11 days out. We’ve got to be able to solve this problem,” McCarthy said on Sunday.

Rep. Jodey Arrington (R-Texas) on whether Republicans would consider raising revenue as Biden has suggested, on ABC’s This Week: “No, because you couldn’t get tax policies and tax revenues in the Senate bill. We certainly weren’t going to put it in the House bill. So, No. 1, it’s not on the table for discussion. No. 2, taxes right now would only be passed onto consumers in higher prices. So, we would exacerbate inflation. … We’re heading into recession. The last thing we want to do is add another tax.”

“Unless the president engages, I do not believe a deal is possible,” said Rep. Dusty Johnson (R-S.D.), the chair of the Main Street Caucus, a group of about 100 Republicans. Johnson said a big concern was over spending levels. “The gap in the top line numbers continues to be the biggest barrier to a deal,” he said.

Biden reiterated Sunday that his team has been examining whether he can circumvent Congress by issuing debt under the 14th Amendment, a Reconstruction-era addition to the Constitution that says the “validity” of U.S. debt “shall not be questioned… I think we have the authority” to issue debt under the 14th Amendment, Biden said but added that he doesn’t believe there is enough time between now and a possible default date to fully resolve the likely legal challenges that would arise if he invoked it. The question is could it be done and invoked in time,” Biden said. Sen. Ted Cruz (R-Texas), appearing on Fox News Sunday, addressed the 14th Amendment argument, saying that invoking it would be “legally frivolous. “Joe Biden can ensure that we don’t default on the debt,” Cruz said. “He has ample authority to do that and to do that right now, by saying we’re going to pay the interest on the debt.”

Treasury Secretary Janet Yellen, appearing on NBC’s Meet the Press on Sunday, underscored the urgency of debt limit talks, reasserting that the so-called “X date” when the government can no longer pay its bills is likely June 1. “I think that that's a hard deadline,” Yellen said. “It's hard to be absolutely certain about this, but my assessment is that the odds of reaching June 15th while being able to pay all of our bills is quite low.”

Moody’s Analytics predicts that a default would cost more than seven million jobs and cause the unemployment rate to move above over 8%. The ratings company also predicts that the stock market would lose a fifth of its value.

Upshot. Investors are seeking protection in case of a debt-ceiling debacle. Link to Wall Street Journal article.

How Dr. Vince Malanga, president of LaSalle Economics, sizes up a potential debt-limit accord:

An agreement on the debt ceiling wouldn't change economic forecasts for minimal GDP growth and an inflation rate around 3%, he says. However, there are questions about whether the Federal Reserve would find such an inflation rate acceptable in an election year. He notes policy makers are using the Phillips curve model to suggest that a 5% jobless rate must be maintained to bring inflation down to a sustainable 2%. However, this model has been criticized and it's uncertain if such a rise in the jobless rate is necessary, Malanga notes. The current jobless rate of 3.4%, he adds, indicates the federal budget deficit for fiscal 2022 will likely be closer to $2 trillion, as opposed to the Biden administration's original forecast of around $1 trillion. In the event of a recession with jobless rates over 5%, the fiscal 2023 deficit could approach $3 trillion, he adds, saying this scenario implies an ongoing cycle of increasing debt and subsequent debates over raising the debt ceiling.

Farm bill event this week:

Wednesday: The Environmental and Energy Study Institute hosts a briefing on the farm bill with speakers like Rep. James Clyburn (D-S.C.).

The House Appropriations Committee will hold full committee markups for the fiscal 2024 Homeland Security and Agriculture appropriations bills May 24 at 10 a.m. ET, the committee announced Friday.

Perspective: This will continue to be a GOP message bill as there is zero chance most of the details will ever show up in a final spending measure and more likely an omnibus spending package. Look to the Senate for spending direction as that chamber will require a bipartisan agreement to get anything done.

Another item that should not be taken too seriously is full House action this Tuesday that could use the Congressional Review Act to block the EPA from implementing new pollution standards for trucks. President Biden has threatened to veto it should it come to him, but any House-passed measure would face hurdles in the Senate.

The Supreme Court is expected on Thursday to issue additional rulings. The ag sector hopes it will rule on the pending Waters of the U.S. (WOTUS) case.

Federal Deposit Insurance Corp. Chairman Martin Gruenberg and acting Comptroller of the Currency Michael J. Hsu give keynote remarks at the 2023 Bank On National Conference on Tuesday in Washington, D.C.

Federal Housing Finance Agency Director Sandra Thompson will testify Tuesday before the House Financial Service Committee in a session titled, “FHFA Oversight: Protecting Homeowners and Taxpayers.”

Fed lessons learned. Jason Furman, former chair of the Council of Economic Advisers, Richard Clarida, former Fed vice chair, and former Fed Chair Ben Bernanke join the Brookings Institution on Tuesday for an event titled, “The Fed: Lessons learned from the past three years.”

Failure of bank supervision. The House Committee on Oversight and Accountability will hold a hearing Wednesday on “A Failure of Supervision: Bank Failures and The San Francisco Federal Reserve.”

The Wall Street Journal will hold a CEO Council Summit on Tuesday and Wednesday in London, which will feature appearances by Twitter Inc. Executive Chairman and Chief Technology Officer Elon Musk talking about future-facing technology and former Google CEO and Chairman Eric Schmidt discussing artificial intelligence.

Bloomberg will host the Qatar Economic Forum in Doha, Qatar, kicking off on Tuesday. The multiday event will feature appearances by TikTok CEO Shou Chew; Jack Selby, managing director at Thiel Capital; and Daniel Marti, head of public affairs and global policy at Tencent Holdings Ltd.

On the international front, President Biden said he expected a thaw in relations with China. Speaking at a news conference wrapping up the Group of Seven meeting in Japan, Biden said that the U.S. wants to open more lines of communication with Beijing and called an incident early this year involving a suspected Chinese spy balloon silly.

The statements came a day after the U.S. and other G7 nations said they would take steps to block transfer of sensitive technology to China and protect nations from what they see as its intimidation. G-7 leaders are also meeting with Ukrainian President Volodymyr Zelenskyy.

Atypical BSE case announced. On Friday, the USDA’s Animal and Plant Health Inspection Service (APHIS) announced that an atypical case of Bovine Spongiform Encephalopathy (BSE), a neurologic disease of cattle, has been found in a bovine animal that arrived at a slaughterhouse in South Carolina. The approximately five-year-old or older beef cow tested positive following routine surveillance protocols and the carcass was condemned soon after. The animal possessed a radio frequency identification tag associated with a herd in Tennessee. USDA APHIS and state animal health officials will conduct a thorough investigation of the case. "Atypical" BSE cases occur rarely and spontaneously, often in older cattle. This is only the nation's 7th case of atypical BSE, following a previous incident in 2018.

On the political front, Sen. Tim Scott (R-S.C.) formally entered the 2024 GOP presidential nomination race, now dominated by former President Donald Trump, and will launch a $6 million television advertisement campaign. Scott is expected to formally announce he's entering the 2024 GOP presidential primary race after filing paperwork with the Federal Election Commission. Scott — the only Black Republican in the Senate — has been testing the waters for months and has made frequent visits to Iowa.

Meanwhile, Florida GOP Gov. Ron DeSantis also will enter the Republican presidential race, reports note, initiating his much-anticipated bid to wrestle the future of the party away from former President Donald Trump. DeSantis is expected to file paperwork declaring his candidacy with the Federal Election Commission, followed by a soft launch of his campaign before a formal announcement in his hometown of Dunedin.

By the end of this week, there will be at least seven contestants in a race to see who gets to go head-to-head with Donald Trump for the GOP crown. So DeSantis, Sen. Tim Scott and former New Jersey Gov. Chris Christie are expected to announce they are joining Nikki Haley, Vivek Ramaswamy, Larry Elder, Asa Hutchinson and Trump. Former Vice President Mike Pence is sitting on the fence.

Former President Trump has unveiled his vision for a second term, aiming to increase the power of the presidency over various aspects of American life. Trump, leading early polls for the 2024 GOP nomination, is advocating for a significant expansion of federal authority. Some of his wishes (link for more via Axios):

For the federal workforce, Trump seeks presidential authority to hire and fire federal workers at will.
On education, he wants to remove "radical left" officials who accredit universities, eliminate tenure for teachers, reduce the number of college administrators, and end diversity, equity, and inclusion programs.
Defunding: Trump, who's facing multiple criminal charges, mentioned after being indicted in New York that he aims to "defund" the Justice Department and the FBI.
On crime, he proposes using the U.S. military to combat drug cartels and street crime.
Concerning gun laws, Trump advocates for national concealed carry reciprocity, enabling those with a concealed carry permit in their home state to have the same privilege in all other states.

Marion Berry dies. He was the former Democratic U.S. congressman who represented Arkansas’ 1st Congressional District for seven terms — from January 1997 until January 2011. He died Friday in Little Rock at the age of 80 following a long illness. During his 14 years in Congress, Berry served on the powerful House Committee on Appropriations and several of its subcommittees, including Homeland Security and Veterans Affairs. He also served some time as the ag sector point person in the Clinton White House.

Combest-Sell wrote a moving honor to the memory of the Honorable Charlie Stenholm (D-Texas), former ranking member of the House Ag Committee “and a truly distinguished gentlemen from West Texas.”

The consulting group’s Jeff Harrison wrote:

“Tom Sell and I had the distinct privilege and honor of working directly with Mr. Stenholm and his capable staff and so we can speak personally to his character which was beyond reproach just as his zeal for American agriculture was without limits. Agriculture Committee Chairman Emeritus Larry Combest (R-Texas), after whom our firm is named, was a close personal friend of Mr. Stenholm’s to the point where, when the two ascended together to lead the Committee as Chairman and Ranking Member, Mr. Combest told House Republican leadership that he didn’t need a numerical advantage over the Democrats on the Committee because he would never move a bill without the support of Charlie Stenholm, such was his faith in his friend.

“Together, the two moved mountains for the American farmer and rancher, including $31 billion in emergency ad hoc relief to aid farmers and ranchers through the farm recession of the late 1990s; $16 billion in new funding for Federal Crop Insurance to push producers into higher levels of coverage, to fully cover revenue policies, and to push the agency and the private sector to develop innovative policies to better address the needs of all producers, crops, and regions; and $79 billion to rebuild a badly tattered farm safety net, fully including soybeans, oilseeds, and pulse crops for the first time ever, reinstating the safety net for commodities where it had been taken away, including with respect to honey, wool, mohair, and effectively for sugar, and provision of the first ever energy title to boost biofuels. And the list goes on. Happily, when the chips were down, their Farm Bill would not only come in $35 billion under budget but their crop insurance legislation would largely obviate the need for expensive ad hoc programs until their reemergence in 2017.

“While it was truly amazing to work with a Ranking Member where there was no sunlight between him and the Chairman, this, of course, is just a part of a man whose legacy is much, much larger than that. In a day and age where we are a throw away culture more interested in tearing things down than building things up, Charlie Stenholm was not a cynic but a builder through and through and he never cut bait. f readers are concerned about the direction of the world, the country, their communities, their parishes, and their families, we can find in the life of the Honorable Charlie Stenholm a roadmap on how to effectively put it all back on a firm foundation through the good old fashioned work of faith, patriotism, fidelity, leadership, zeal, and personal examples of grace, humility, kindness, generosity, and charity. He was a lion. Requiem aeternam dona eis, Domine; et lux perpetua luceat eis. — Eternal rest grant unto them, O Lord; and let perpetual light shine upon them."

Stenholm

Economic Reports for the Week

Inflation data, Federal Reserve meeting minutes, and first-quarter earnings reports from retailers and chip makers are the highlights on this week's calendar.

Monday, May 22

San Francisco Fed President Mary Daly speaks with National Association for Business Economics President Julia Coronado at the NABE – Banque de France International Economic Symposium.
St. Louis Fed President James Bullard will discuss the U.S. economy and monetary policy at the American Gas Association 2023 Financial Forum.
Richmond Fed President Thomas Barkin and Atlanta Fed President Raphael Bostic will join the “Technology-Enabled Disruption Conference: Uncertainty and Prospects for Disruptive Investments” on Monday, hosted by the Federal Reserve Bank of Richmond.
Earnings and other meetings: Heico and Zoom Video Communications release earnings. Ford Motor hosts a capital markets day in Dearborn, Mich. JPMorgan Chase holds an investor day in New York.

Tuesday, May 23

Census Bureau releases new residential sales data for April. The consensus estimate is for a seasonally adjusted annual rate of 650,000 new single-family homes sold, 33,000 fewer than in March. Still, new-home sales have rebounded from last summer’s postpandemic low of 543,000.
S&P Global releases both its Manufacturing and Services Purchasing Managers’ Indexes for May. Expectations are for readings of 50 for the Manufacturing PMI and 52.6 for the Services PMI. Both figures would be slightly below April’s.
Richmond Fed's manufacturing index in May is not expected to emerge from four prior months of contraction, at a consensus minus 8 versus minus 10 in April.
Dallas Fed President Lorie Logan gives welcome remarks at a technology conference.
Earnings: Agilent Technologies, AutoZone, Intuit, Lowe’s, Palo Alto Networks, and V.F. Corp. report quarterly results.

Wednesday, May 24

MBA Mortgage Applications
Federal Open Market Committee releases the minutes from its early-May monetary-policy meeting.
Fed Governor Christopher J. Waller gives economic outlook address at the University of California Santa Barbara conference: 2023 Santa Barbara County Economic Summit, Santa Barbara, California.
Earnings and other meetings: Nvidia reports first-quarter fiscal-2024 results. Shares of the largest semiconductor company by market value are up 114% this year, making it the best performer in the S&P 500 index. Analog Devices, Bank of Montreal, Bank of Nova Scotia, and Snowflake release earnings. PG&E and Thermo Fisher Scientific hold investor days in San Ramon, Calif., and New York, respectively.

Thursday, May 25

Jobless claims for the May 20 week are expected to rise 6,000 to 248,000 following a 22,000 swing lower to 242,000 in the prior week.
Bureau of Economic Analysis (BEA) reports its second estimate of first-quarter gross domestic product growth. The consensus call is for a seasonally adjusted annual growth rate of 1.1%, unchanged from the preliminary estimate released in April.
Pending home sales in April are expected to rise 1.1%.
Fed Balance Sheet
Money Supply
Federal Reserve: Susan Collins speaks.
Earnings and other meetings: Autodesk, Best Buy, Canadian Imperial Bank of Commerce, Costco Wholesale, Dollar Tree, Marvell Technology, Medtronic, Royal Bank of Canada, Toronto-Dominion Bank, Ulta Beauty, and Workday hold conference calls to discuss quarterly results. Zoetis hosts an investor day in New York.

Friday, May 26

BEA reports personal income and expenditures for April. Economists forecast both income and spending increases of 0.4%, month over month. This compares with a gain of 0.3% and a flat reading, respectively, in March. The core personal-consumption expenditures price index is seen rising 4.4% year over year, two-tenths of a percentage point less than previously.
International trade: The U.S. goods deficit (Census basis) is expected to widen marginally to $85.6 billion in May after narrowing by $6.5 billion in April to $85.5 billion.
Census Bureau releases the durable goods report for April. New orders for durable manufactured goods are expected to be down 1% from March’s total, to $273.6 billion.
Consumer sentiment is expected to end May at 58.0, nearly 6 points below April but 3 tenths up from May's mid-month 57.7 flash.

Key USDA & international Ag & Energy Reports and Events

USDA on Thursday offers another update on food prices. The report is expected to note recent declines in some food product categories.

On the energy front, three are several conferences this week with some top government and industry officials speaking.

Monday, May 22

Ag reports and events:

Export Inspections
Crop Progress
Monthly MARS report on EU crop conditions
Holiday: Canada, Colombia, Venezuela