House Speaker Johnson Unveils Standalone $17.6 Billion Supplemental Funding Package

New U.S. attacks on Iran-linked targets | Tax package | Border security | Trade policy

Washington Focus

House Speaker Mike Johnson (R-La.) surprised most congressional insiders by releasing on Saturday an alternative supplemental spending plan for Israel and the Middle East. This further sinks the Senate’s ill-fated Ukraine aid and border security funding measure, which House leadership had already called “dead on arrival.” That won’t stop Senate Majority Leader Chuck Schumer (D-N.Y.) from trying to get a vote on a controversial bipartisan aid-and-security bill this week (see related item below).

Behind-the-scenes work on fiscal year (FY) 2024 spending bills continues, with 20% of them (including USDA) having a March 1 deadline; March 8 deadline for the remaining 80%. Funding allocation caps for the 12 spending bills have finally been agreed to, so discussions are now taking place on individual spending measures.

A nearly $79 billion tax bill easily cleared the House but faces rougher waters in the Senate. Despite headwinds, some signal the big House vote in favor of the package increases odds it could eventually become law. However, some Senate Republicans think the issue is better addressed in a new Congress, perhaps with GOP in control, including the White House. The proposed tax package would extend 100% bonus depreciation through 2025, retroactively covering 2023. It would reduce to 20% in 2026 and end in 2027. The proposal also includes a slightly higher Section 179 expensing cap for 2024, raising it from $1,220,000 to $1,290,000 and adjusting it annually for inflation.

As for new farm bill discussions, both chambers are throwing out ideas that, frankly, should have come last year, not now. This further leads most farm bill watchers to conclude consensus on a new measure will not be found this year.

— The House is set to vote on a new $17.6 billion aid package for Israel, which excludes IRS cuts originally part of the bill, according to Speaker Mike Johnson (R-La.). This announcement made Saturday is significant as Senate negotiators are working on a comprehensive funding package for Israel, Ukraine, the Indo-Pacific, and border security, which House Republicans have already criticized as "dead on arrival."

The new House bill includes $3.3 billion to support U.S. military operations in the Middle East amid a growing regional conflict. This move could potentially exert pressure on Senate negotiators to reconsider their deal.

In a letter (link/pdf) to House Republicans, Johnson expressed his concerns about the Senate's exclusion of the House in the negotiations and their failure to move swiftly on emergency spending legislation. He argued that by passing a clean, standalone Israel supplemental package without the IRS offset, the House can provide critical support to Israel without further delay.

The House had previously passed a $14.3 billion aid package for Israel in November, which faced opposition due to its pairing with IRS cuts. This led to the bill being blocked in the Senate. The Senate has been working on a broader package that combines Ukraine funding with border security provisions, but Republican support for such a deal has diminished as negotiations have continued.

— Sen. Sinema reveals border security agreement talks. Sen. Kyrsten Sinema (I-Ariz.), outlined key details of ongoing bipartisan discussions among lawmakers regarding a border security agreement. Here are the key points:

Ending "Catch and Release": One of the proposals being discussed is to put an end to the practice of "catch and release." This practice currently allows migrants without proper documents to be released in the United States while their immigration cases proceed in court.
Short-Term Detention and Asylum Evaluation: Instead of releasing migrants, the plan is to place them in short-term detention for interviews to determine whether they qualify for asylum. If they do not meet the criteria for asylum, they will be returned to their home countries.
Supervision and Higher Asylum Standards: For migrants that cannot be detained, such as families, there would be a three-month supervision period, followed by an asylum eligibility interview. This interview process would require migrants to provide stronger evidence early on to support their asylum claims.
Border Shutdown Trigger: The proposed agreement includes a provision to shut down the border if there are 5,000 migrant encounters a day. However, it permits the government to initiate the shutdown when encounters reach 4,000 a day. The objective is to prevent the system from becoming overwhelmed, allowing sufficient time to process asylum claims and return those who do not qualify.

Sinema described these proposals as "incredibly powerful tools" in shaping immigration policy and addressing border security concerns. The focus is on ensuring that the immigration system has the capacity to manage the influx of migrants while upholding immigration laws and standards.

Of note: House Speaker Mike Johnson (R-La.) on Sunday revealed that he has not been offered a briefing on the bipartisan Senate border talks taking place but said that some negotiators said they would "send [him] something... that's palatable." Meanwhile, GOP presidential candidate Nikki Haley said Sunday that former President Trump is “playing politics” in trying to sink a bipartisan border deal in the Senate.

— President Biden plans to present his fiscal year (FY) 2025 budget proposal to lawmakers on March 11, just days after his State of the Union address and after the deadline to avoid a government shutdown. The budget proposal will come after FY funding deadlines on March 1 (including USDA) and March 8, as well as the president's annual address to Congress on March 7. This schedule will result in a busy period for lawmakers, as they first work to finish this year's government-funding bills, which are already over five months late, and then swiftly transition to fiscal 2025 negotiations.

— President Biden on Friday will host German Chancellor Olaf Scholz at the White House, where the two will reaffirm their strong support for Ukraine after Russia’s invasion. Biden and Scholz also will discuss efforts to prevent regional escalation in the Middle East, and their support for Israel’s right to self-defense and the imperative of increasing life-saving assistance and protection of civilians from harm in Gaza, the White House said.

— U.S. Supreme Court grants Colorado secretary of state 10 minutes to argue against Trump's ballot eligibility. Colorado Secretary of State Jena Griswold, a Democrat and vocal Trump critic, has been allocated just 10 minutes to present her case before the U.S. Supreme Court this Thursday, Feb. 8, regarding the eligibility of former President Donald Trump to appear on Colorado's presidential ballot. Griswold has filed multiple briefs arguing against Trump's eligibility based on Section 3 of the 14th Amendment. Despite not taking a stance on Trump's eligibility initially, Griswold has shown anti-Trump sentiments. The U.S. Supreme Court intends to issue written opinions on Feb. 8, the same day Griswold will have her 10-minute opportunity.

Legal experts suggest several potential ways the Supreme Court could address the case without delving into the insurrection issue. The court may rule that the president isn't an "officer of the United States," argue that Section 3 of the 14th Amendment doesn't apply, or vacate the Colorado court's decision for future reconsideration.

Bottom line: The high court’s decision to hear the case puts the nine justices squarely in the middle of the 2024 election and represents its most significant involvement in a presidential race since the momentous decision in Bush v. Gore more than 20 years ago.

— Friction among trade policy types in the Biden administration A recent Politico article (link) discussed the tension surrounding U.S. Trade Representative Katherine Tai and her progressive trade policy agenda, with disagreements within the administration and Congress over the direction of trade policies and their impact on workers and businesses. Highlights:

Tai is known for her commitment to progressive trade policies that prioritize workers and small businesses over large corporations. This approach aims to reshape global trade rules in favor of workers and small enterprises.
President Biden's trade agenda has faced obstacles in recent months, leading to departures from Tai's team, including the agency's former chief of staff and two of the three deputy U.S. trade representatives. Some of this discontent is attributed to Tai's leadership style, with claims that she can be tough on her staff. The departures are seen as unusual compared to other government agencies.
Tai's supporters argue that the real source of dissatisfaction lies in disagreements over her "worker-centered" trade agenda. Critics within the administration and Congress may not be aligned with this approach, which they argue aligns more closely with former President Donald Trump's protectionist stance on issues like tariffs than with the free trade policies associated with past Democratic presidents.
Some congressional members and allies of Tai believe that complaints about her leadership style are a convenient excuse for those who disagree with her policy direction. They contend that the real issue is the policy itself and not her management style.
Tai's trade agenda has encountered setbacks, such as the decision to walk away from trade talks under the Indo-Pacific Economic Framework in San Francisco due to pressure from Senate Democrats. Tai's allies argue that it was the White House, not Tai, that made this decision. They maintain that Tai has had to contend with opposition to her policies both within her own agency and the West Wing.
Despite the challenges, some members of Congress and Tai's allies are supportive of her efforts and believe that she has had to engage in policy arguments within the administration. They express the need to support her in pursuing her trade agenda.
The U.S. Trade Representative's office is currently short-staffed, with two of its three deputy positions vacant. President Biden's nomination to fill one of these positions, Nelson Cunningham, faces resistance from Tai's progressive allies in the Senate.
A key point of contention is that, despite advocating for a "worker-centered" trade agenda, the Biden administration has not been able to replicate the labor and environmental rules included in the U.S.-Mexico-Canada Agreement (USMCA), which replaced NAFTA. Some Democrats are concerned that failing to match these provisions under Biden may allow former President Trump to position himself as more progressive on trade, similar to his 2016 campaign strategy.
Bottom line: Some say that with little policy progress expected in an election year, some Democratic members of Congress are looking to assign blame for the challenges facing Tai's trade agenda.

— Trump's tariffs: Political win, economic loss; Study finds tariffs boosted GOP votes but didn't bring back jobs. A new study (link/pdf) examines the impact of the tariffs imposed by former President Donald Trump on China and other American trading partners. The study suggests that these tariffs were politically successful but economically ineffective.

The study, conducted by nonpartisan researchers, found that the tariffs imposed by Trump on foreign metals, washing machines, and various Chinese goods starting in 2018 did not result in a significant increase or decrease in overall jobs in the affected industries. They neither brought back jobs nor caused a substantial loss.

However, the tariffs did lead other countries to impose retaliatory tariffs on American products, making them more expensive to export, which did have a negative effect on American jobs. This was particularly true in agriculture, where farmers exporting products like soybeans, cotton, and sorghum to China were hit by Beijing's tariffs.

The Trump administration attempted to offset these losses by providing financial support to farmers, distributing $23 billion in 2018 and 2019. Nevertheless, these subsidies were unevenly distributed and only partially mitigated the harm caused by the tariffs.

Despite Trump's claims that his tariffs were successful in bringing back jobs and countering China's competition, the study concludes that the overall impact on U.S. jobs, considering the original tariffs, retaliatory tariffs, and subsidies, was "at best a wash, and it may have been mildly negative."

The study suggests that the tariffs were politically successful for Trump and the Republican Party. People living in areas affected by the tariffs, particularly in the Midwest, around the Great Lakes, and the South, were more likely to vote for Trump in the 2020 election. They also became less likely to identify as Democrats and more likely to elect Republicans to Congress.

These political beliefs were influenced by the economic effects to some extent, with Republican gains stronger in areas where tariffs and subsidies had a more positive impact on the job market. However, retaliatory tariffs weakened support for Republicans only modestly.

The study speculates that voters in areas hit hard by competition from China in the past may have valued the tariffs as a symbol of political solidarity, regardless of their actual job outcomes.

The U.S. economy was growing strongly during the trade war, which may have influenced voters' perceptions of the tariff effects. It's challenging to isolate whether the economy was doing well because of government policy or despite it.

The findings come as Trump has promised more aggressive trade measures if he wins the White House again, including a proposed 10% "baseline" tariff on all imported goods.

Meanwhile, the debate around tariffs continues, with proponents arguing that they protect American industries and generate government revenue, while critics claim they raise prices for consumers and burden lower-income individuals who spend more on goods. The study authors also highlight that tariffs may not have resulted in more U.S. jobs because firms may have simply imported products from other lower-cost countries instead of China.

Bottom line: It remains uncertain whether tariffs could create more jobs over longer periods, as the study suggests.

— In the ongoing legal battle concerning razor wire deployment along the Texas border, a federal appeals court on Wednesday is set to conduct oral arguments. The case began after a 5-4 decision by the U.S. Supreme Court in January, which allowed U.S. Border Patrol agents to remove the razor wire installed by Texas Governor Greg Abbott (R), in the Eagle Pass region. This Supreme Court decision was considered a significant win for President Joe Biden in his ongoing conflict with Governor Abbott regarding border policy. Despite the Supreme Court's ruling, the situation has evolved, as the Texas National Guard has since increased the amount of razor wire in the area.

— President Biden won the South Carolina Democratic primary on Saturday with 96% of the vote. Some 55 delegates were up for grabs. He easily defeated longshot challengers Marianne Williamson and Rep. Dean Phillips (D-Minn.).

— Donald Trump would not reappoint Jay Powell as Fed chair. The former president accused Powell of looking to lower interest rates to help President Biden, without providing any evidence. Trump said that if wins re-election in November, he would not back Powell to continue beyond 2026.

Of note: Trump on Sunday further fueled speculation over his pick for a 2024 running mate, dropping the names of Sen. Tim Scott (R-S.C.) and South Dakota Gov. Kristi Noem (R) when asked about who he is favoring. “It’s gotta be who is going to be a good president. You always have to think that,” Trump told Fox Business Network’s Sunday Morning Futures. “I have a lot of good people. We have a lot of really good people… I have a lot of good ideas, but I haven’t — and there’s no reason to do that quickly,” he added, before calling Scott “a real tiger” and lauding Noem for not running against him. Trump said he won’t announce his VP pick for a “while” and fessed up to making personnel mistakes in his first term. Trump revealed he intends to bring some old Cabinet members back in a hypothetical second term. Trump said Chinese leader Xi Jinping was a “very good friend of mine during my term,” but predicted that China would meddle in the 2024 election against him. “I think they will. And they won’t be interfering on my behalf. We should go same-day voting, paper ballots, voter ID, and no mail-in ballots,” he said. Trump further suggested that he plans to slap even more than the 60% tariffs against China he’s rumored to be considering.

— Fresh polling from NBC News shows Trump with a lead over Biden. Nationally, Trump leads Biden by five points, 47% to 42%. That’s a nine-point swing in Trump’s direction since July of last year when Biden was up four, 49% to 45%. There is a 5.25-point margin of error in the poll of 1,000 registered voters between Jan. 26-30. Link to poll results.

Currently, Biden’s job approval rating is only 37%. His disapproval rating is a full 60%. Both numbers represent his worst showing in this poll and put him -23 points underwater. In January of last year, he was down only four points with a 46/50 approve/disapprove rating.

Of note: Only 35% of Hispanics, 29% of young people (18-34), and 27% percent of Independents approve of the job Biden’s doing. In a potential 2024 rematch, only 75% of black voters support Biden, while 16% support Trump. In 2020, Trump won 8% of the black vote. Trump tops Biden with the Hispanic vote, 42% to 41%. In 2020, Biden beat Trump with Hispanics by 34 points, 66% to 32%.

— Some events on tap this week include:

Monday: National Association of State Departments of Agriculture winter policy conference, through Wednesday, in Washington, DC.
Monday: National Crop Insurance Services annual convention, through Wednesday, in Scottsdale, Arizona.
Tuesday: Clean Fuels Conference 2024, through Thursday, Fort Worth, Texas.
Wednesday: House Ways and Means subcommittee hearing on the World Trade Organization’s 13th Ministerial meeting.
Wednesday: Federal Maritime Commission hearing on the Red Sea shipping disruptions.

Economic Reports and Events for the Week

Highlight of the week is Friday's release of annual revisions to the Consumer Price Index from the Bureau of Labor Statistics. Those could affect the previous five years of inflation data, and may have implications for Federal Reserve policy. Typically, these revisions are minor and don't significantly alter the overall understanding of consumer price changes. However, in February 2022, there was an unexpected twist as substantial upward revisions were made, influencing the Federal Open Market Committee (FOMC) to continue with its plan to tighten monetary policy.

Monday, Feb. 5

ISM Services Index: ISM services are expected to rise solidly in January to 52.1 versus 50.6 in December which was more than 2 points lower than expected and included sharp slowing in new orders and a plunge and contraction for employment.
PMI Composite Final: No change at the mid-month's 52.9 is the consensus for the services PMI's January final. This index ended December at 51.3.
Federal Reserve Bank of Atlanta President Raphael Bostic is scheduled to give welcome remarks before the virtual "Uneven Outcomes in the Labor Market" conference hosted by the Federal Reserve Board of Governors and the Federal Reserve Banks of Atlanta, Boston, Cleveland, Philadelphia, San Francisco, and St. Louis.
OECD to publish interim economic outlook for the global economy.

Tuesday, Feb. 6

Federal Reserve Bank of Minneapolis President Neel Kashkari will participate in a question-and-answer session during a Greater Mankato Growth luncheon.
Federal Reserve Bank of Cleveland President Loretta Mester speaks on the economic outlook before the Ohio Bankers League Economic Summit on the same day.
Federal Reserve Bank of Philadelphia President Patrick Harker speaks on "The Federal Reserve's Role in Our Economy" before a Rowan Institute for Public Policy & Citizenship event.
Federal Reserve Bank of Boston President Susan Collins gives opening and overview remarks before the "Uneven Outcomes in the Labor Market" virtual conference hosted by the Federal Reserve Board of Governors and the Federal Reserve Banks of Atlanta, Boston, Cleveland, Philadelphia, San Francisco, and St. Louis.

Wednesday, Feb. 7

MBA Mortgage Applications
Commerce Department is expected to report that international trade likely contracted to a deficit of $62.2 billion in December from a deficit of $63.2 billion in November.
Consumer Credit
Federal Reserve Bank of Richmond President Thomas Barkin to participate in a conversation before the Economic Club of Washington, D.C.
Federal Reserve Board Governor Adriana Kugler speaks on "The Outlook for the Economy and Monetary Policy" before the Brookings Institution.
Federal Reserve Board Governor Michelle Bowman speaks via pre-recorded video on "Supporting Entrepreneurship and Small Businesses.”
Federal Reserve Bank of Boston President Susan Collins is expected to offer economic perspectives before the Boston Economic Club on the same day.

Thursday, Feb. 8

Jobless claims: Initial claims for state unemployment benefits probably dropped 4,000 to a seasonally adjusted 220,000 for the week ending Feb. 3.
Number of people receiving benefits after an initial week of aid, also known as continued claims, for the week ending Jan. 27.
Commerce Department will report the wholesale inventories data for December.
Fed Balance Sheet
Money Supply
Richmond President Thomas Barkin will speak before the Economic Club of New York.

Key USDA & international Ag & Energy Reports and Events

USDA’s monthly WASDE report comes Thursday with the focus on Brazil and Argentina crops. The first farm income forecasts for 2024 are released Wednesday.

On the energy front, more major energy companies will report earnings during the week, including BP, TotalEnergies and ConocoPhillips.

Monday, Feb. 5

Ag reports and events:

Export Inspections
Dairy Products
Malaysia’s Feb. 1-5 palm oil exports
Unica cane crush, sugar production (tentative)
Holiday: Mexico, Iraq, Pakistan