FY 2024 Spending: Unclear What Comes Next

Taiwan election | Houthis | Farm bill | Kerry to exit for Biden campaign | Ukraine | Tax package

Washington Focus

Jan. 15 is Martin Luther King Jr. Day. It’s a federal holiday, which means gov’t agencies, financial markets, banks, post offices and many corporate offices will be closed.

— Congressional leaders want to vote this week on a stopgap funding bill that would provide spending authority extensions beyond previous deadlines. One part of the government's funding (including for USDA) would be extended until March 1, while the remaining portion would receive an extension until March 8. The agreement comes just before the first funding deadline of Jan. 19. The second government funding deadline was Feb. 2. Link to Special Report.

   Congressional leaders released text (link/pdf) of the new short-term patch that would continue current spending rates for federal agencies through March 1 and March 8. A summary of the bill, which would also continue a series of expiring health care-related provisions, is available here/pdf. It does not include a separate tax package that leaders of the House Ways and Means and Senate Finance committees have been negotiating (see related item below).

     Funding details. Senate Majority Leader Chuck Schumer (D-N.Y.) and House Speaker Mike Johnson (R-La.) announced last weekend that they had reached an agreement on topline spending numbers, the first step in the process to fund the federal government. Those numbers include $1.59 trillion for fiscal year (FY) 2024, with $886 billion for defense spending and $704 billion in non-defense spending. Schumer and Johnson also agreed to a $69 billion side deal in adjustments that will go toward non-defense domestic spending.

     The next key issue is what 302(b) allocations will be provided to each subcommittee.  The House originally provided $25.3 billion for the Agriculture/FDA Subcommittee, while the Senate provided $25.993 billion. 

     Hurdles: Conservative Republicans are openly criticizing the latest proposal, with at least one GOP rebel, Rep. Marjorie Taylor Green (R-Ga.), threatening she will file a motion to vacate against Speaker Johnson.

     Johnson told members that Rep. Hal Rogers (R-Ky.) will be hospitalized this week following a car crash and will not be in the Capitol, according to reports, which will further narrow the conferences razor-thin majority. Johnson will likely have to bring the CR bill to the floor under suspension, which requires a two-thirds majority vote for passage. If every House Democrat votes yes, Johnson must put up 77 Republican votes.

     Schumer said on Sunday that the Senate will “begin the process” to pass the measure on Tuesday, giving Congress “the time it needs to finish our work to fund the government for the rest of the fiscal year… To avoid a shutdown, it will take bipartisan cooperation in the Senate and the House to quickly pass the CR and send it to the President’s desk before Friday’s funding deadline,” he added.

     Outlook: Even if the CR clears both chambers, few believe Congress can get all the spending bills done by March 8, thus necessitating still another CR.

— Release of President Biden’s FY 2025 budget request is expected to be delayed until March. Typically, the budget is released about two weeks after the State of the Union (SOTU) address. Due to the delay in completing action on FY 2024 bills, the SOTU address was scheduled for March 7. That signals the budget release is likely to occur in mid-March, but there is no requirement for the SOTU to precede the president’s budget release.

— House Speaker Johnson still wants a new farm bill this year, in March, according to key congressional sources. Getting floor time in March could be hard, and lawmakers still must deal with lingering FY 2024 spending issues.

     Farm bill hurdles are still unresolved. Those include additional funding needed to improve the Title I safety net for farmers, and disagreement over other policy issues including nutrition and conservation spending.

— President Biden revealed that the U.S. has privately conveyed a message to Iran regarding its support for the Houthi militants involved in targeting commercial vessels in the Red Sea. The message was delivered in response to a pair of attacks on numerous facilities in Yemen controlled by Tehran's proxies. While on his way to Camp David for the weekend, President Biden was asked about the nature of the message being sent to Iran. He responded by stating that the message had been delivered privately, and he expressed confidence in the preparedness of the United States in handling the situation.

— John Kerry, President Biden's special envoy for climate, is planning to leave the Biden administration by spring, according to reports citing sources familiar with his intentions. At the age of 80, Kerry has been at the forefront of climate negotiations for the Biden administration since early 2021. His role involved urging governments worldwide to take aggressive actions to reduce greenhouse gas emissions and combat climate change.

     Kerry recently met with President Biden to inform him of his decision to resign, and his staff learned of this decision in a hastily arranged meeting, the New York Times reports.  He expressed his intention to depart in the coming months and is expected to become involved in the 2024 presidential campaign to raise awareness of President Biden's climate change initiatives. A successor has not yet been announced.

     In the interim, Kerry plans to attend the World Economic Forum in Davos, Switzerland, Jan. 15-19 (link).

— Pentagon's oversight issues with $1 billion aid to Ukraine raise concerns. The Pentagon's inspector general revealed that the Defense Department has not adequately tracked more than $1 billion worth of sensitive military equipment provided to Ukraine. This equipment includes shoulder-fired missiles, night-vision goggles, one-way attack drones, and other items. The report raises concerns about the U.S.' ability to prevent the theft or diversion of its weapons.

     The findings come at a challenging time for the Biden administration, as their existing funding to support Ukraine is running out, and they have urged Congress to approve a substantial package of additional military aid for Ukraine. However, debates on this issue have stalled, with Republicans seeking changes to U.S. border policy.

     The report highlighted that U.S. officials faced difficulties in tracking sensitive military items provided to Ukraine, especially those with enhanced end-use monitoring (EEUM). These items often have sensitive technology and can be easily smuggled or stolen. The report examined approximately $1.7 billion worth of weapons and equipment categorized for EEUM tracking and found that more than half had not been properly accounted for. The period examined in the report extended up to June 2023.

     Challenges included difficulties in entering serial numbers into a tracking database, suspension of monitoring activity due to the evacuation of the U.S. Embassy in Kyiv, and the shipment of monitored items to the front lines, making real-time tracking challenging.

     Despite the report's findings, senior officials disputed its conclusions, stating that they had alternative methods to account for the equipment and weaponry provided to Ukraine and that they were satisfied with the tracking efforts.

     Bottom line: The report's release could impact the future of Ukraine aid, which has faced declining support among congressional Republicans. Some lawmakers have tied their approval for further assistance to changes in U.S. immigration policy. The inspector general's report may further influence the stance of Republican lawmakers regarding Ukraine aid.

— A possible tax deal is still being negotiated with its eventual fate murky, especially in an election year. The around $70 billion tax package proposal has benefits for both businesses and low-income families, which is why it has support from both Democrats and Republicans in both chambers.

     The tax deal aims to expand the child tax credit, revive business tax breaks, make changes benefiting smaller businesses, and address tax reporting for contractors. It also includes measures to boost the supply of affordable housing.

     The push faces criticism, particularly regarding the employee retention tax credit (ERTC), which was initially aimed at helping small businesses and nonprofits retain workers during the pandemic. Some are pressing lawmakers not to end the ERTC early, while negotiators are considering doing so to reduce the package's cost.

     Of note to the ag sector: Lawmakers are mulling making deductions for research and development (R&D) spending, interest costs, and equipment or machinery purchases fully retroactive. This means that businesses may be allowed to apply these deductions retroactively, potentially benefiting from tax savings for expenses incurred in previous tax years. This move could provide businesses with financial relief and incentivize investment in R&D, equipment, and machinery. Note: Foreign R&D spending is not in the proposal.

     Market impact: While the extra cash would boost consumer spending, it would also risk reigniting inflation pressures — complicating prospects for the Federal Reserve to lower interest rates this year, economists warn. Analysts say much will depend on the final details of any agreement and how the tax breaks will be structured. The draft deal would extend breaks through 2025. If approved and signed into law, money could start flowing to households as soon as March. If the tax proposal is agreed, negotiators are aiming for Congress to enact it before the Jan. 29 start of the annual tax-filing season.

     Bottom line: One congressional observer says: “Everything I hear is positive. Quite frankly, Rep. Jason Smith (R-Mo.) and Sen. Ron Wyden (D-Ore.) have been working very constructively and positively since last May. That portends well for next year. I think most of these provisions are made retroactive for 2023 through 2025, setting up even more for the fiscal cliff divers at the end of 2025.”

— A carefully brokered bipartisan Senate border compromise would be dead-on-arrival in the House — and would draw the opposition of Speaker Mike Johnson, House Judiciary Chairman Jim Jordan (R-Ohio) said. Jordan said Sunday in an interview with Bloomberg Television that he was confident that Johnson —under intense pressure from conservatives to reject the plan — would oppose the Senate proposal. “We’ve got to see the plan, but based on what’s leaked out thus far, there’s no way I’m going to go for that. There’s no way Speaker Johnson’s going to go for that,” Jordan said.

— The Supreme Court is currently considering a dispute that could have significant implications for federal agencies and their ability to enact regulations related to consumer and environmental protections. The central issue revolves around the concept of Chevron deference, which is the practice of courts deferring to federal agencies' interpretations of laws when those laws have multiple possible meanings. The case before the Supreme Court questions whether courts should continue to give federal agencies wide latitude to interpret ambiguous laws. If the Court decides to limit Chevron deference, it could make it more challenging for presidential administrations to introduce regulations aimed at addressing pollution, climate change, or consumer protection without explicit authorization from Congress.

     Of note: Justices Neil Gorsuch and Clarence Thomas have expressed doubts about Chevron deference in the past, and Justice Brett Kavanaugh is also viewed as a skeptic. The positions of newer justices, such as Amy Coney Barrett and Ketanji Brown Jackson, are less clear.

— Trump maintains big lead in Iowa poll, while Haley climbs to second. Former President Donald Trump continues to maintain a strong lead in Iowa's Republican presidential nomination race, polling at 48%, according to the Des Moines Register/NBC News/Mediacom poll. While Trump has consistently led the field, the battle for second place has been aggressive. In this latest poll, former UN Ambassador and former South Carolina Governor Nikki Haley has secured the second position with 20% support, followed by Florida Governor Ron DeSantis at 16%.

     This poll is regarded as a crucial benchmark ahead of the Iowa caucuses, providing insight into voters' preferences and potential late surges in the race. Haley is already looking ahead to New Hampshire, where she aims to appeal to more moderate, independent voters, but a strong performance in Iowa could provide her with valuable momentum.

     A separate Suffolk University poll released recently had Trump leading with 54% support, Haley in second at 20%, and DeSantis at 13%. Notably, previous Iowa caucus polls have accurately captured late-breaking candidates who gained momentum, such as Ted Cruz in 2016 and Rick Santorum in 2012.

     Complicating matters this year is adverse weather, as Iowa is experiencing a blizzard with concerns about whiteout conditions and record-breaking cold. The Des Moines Register/NBC News/Mediacom poll was conducted by phone from Jan. 7-12 among 705 Iowa registered voters who indicated they would attend the GOP caucuses, with a margin of sampling error of plus or minus 3.7 percentage points for overall results.

     Next up: New Hampshire primary, which will be held on Jan. 23.

— The annual meeting of the World Economic Forum (WEF) has started in Davos, Switzerland. This event brings together representatives from over 100 governments, major international organizations, and 1,000 partner companies, along with civil society leaders, experts, youth activists, and social entrepreneurs. The attendees include Argentina’s President Javier Milei, European Central Bank President Christine Lagarde (one of several central bankers on the podium), U.S. Secretary of State Antony Blinken, Chinese Premier Li Qiang, France’s Emmanuel Macron, and Ukraine’s Volodymyr Zelenskyy.

     In preparation for the gathering, the WEF released its annual report on global risks (link). The report raises concerns about the future, highlighting two major challenges:

1. Disinformation turbocharged by artificial intelligence: The report warns that disinformation, which is false or misleading information spread intentionally, is on the rise and is being exacerbated by artificial intelligence (AI) technology. AI can be used to create and disseminate misinformation at an unprecedented scale, making it a significant threat to societies worldwide.
2. Devastating effects of climate change: The report also underscores the catastrophic consequences of climate change. Climate change poses a significant risk to the environment, economies, and human well-being. The effects of climate change can include extreme weather events, rising sea levels, and disruptions to ecosystems, with far-reaching and potentially devastating impacts.
    

— Other events of note this week include:

• U.S. Conference of Mayors hosts a three-day gathering beginning Wednesday featuring policymakers including Treasury Secretary Janet Yellen and House Minority Leader Hakeem Jeffries (D-N.Y.).
• Senate Banking Committee Thursday morning holds a hearing on national security challenges related to China and emerging technology.
• House Financial Services Committee’s Oversight and Investigations panel holds a hearing Thursday morning on the SEC’s push to mandate climate-related disclosures from companies.
• Alliance for a Stronger FDA webinar on the agency’s reorganization plan (link).
• American Farm Bureau Federation on Saturday begins its annual meeting, this year in Salt Lake City, Utah (link).  
   

Economic Reports & Other Events for the Week

The economic calendar includes Wednesday morning's retail sales data for December from the Census Bureau. That afternoon, the Federal Reserve will release its first beige book of 2024. On Friday, the University of Michigan will publish its Consumer Sentiment survey for January. Meanwhile, as noted, the World Economic Forum holds its annual meeting in Davos, Switzerland.

Monday, Jan. 15

• World Economic Forum annual meeting begins in Davos, Switzerland (Jan. 15-19) 
   

Tuesday, Jan. 16

• January's Empire State Index is expected to improve nearly 10 points to minus 4.7 after December's steep fall to minus 14.5 in a report that showed steep declines for both new and unfilled orders.
• Federal Reserve Board Governor Christopher Waller is scheduled to speak on the economic outlook before the Brookings Institution. 
   

Wednesday, Jan. 17

• MBA Mortgage Applications
• Retail sales likely rose 0.4% in December, after a 0.3% rise in November. Excluding automobiles, retail sales likely gained 0.2% in December after a similar climb in the previous month.
• Import & Export Prices: Import prices are expected to fall 0.5% in December after depreciating 0.4% in November. Meanwhile, export prices are likely to fall 0.6% in December, after a dip of 0.9% the month before.
• Industrial Production: The Federal Reserve is expected to show industrial production likely remained flat in December after adding 0.2% in November. Manufacturing output for December is also expected to show a flat reading after an increase of 0.3% in November. Capacity utilization for the industrial sector, a measure of how fully firms are using their resources, is expected to be at 78.7% in December.
• Business inventories in November are expected to edge 0.1% lower to match October's 0.1% draw.
• NAHB Housing Market Index: Forecasters expect the housing market index to rise 1 point to 38 in January after rising 3 points in December to 37. December saw gains in traffic and future sales tied to moderation in financing costs.
• Atlanta Fed Business Inflation Expectations
• Federal Reserve Beige Book
• Federal Reserve Board Governor Michelle Bowman is scheduled to participate in a discussion, "The Path Forward for Bank Capital Reform," before the U.S. Chamber of Commerce Protect Main Street Lending Event.
• Federal Reserve Vice Chair for Supervision Michael Barr is slated to speak on "Cyber Risk" before the 2nd Annual Massachusetts Institute of Technology/Federal Reserve System Conference on Measuring Cyber Risk in the Financial Services Sector.
• Federal Reserve Bank of New York President John Williams will give opening remarks before the hybrid event, "An Economy that Works for All: Measurement Matters," at the Federal Reserve Bank of New York.
• China: Fourth-quarter gross domestic product figures from China are forecast to come in at 1% for the quarter and 5.2% year on year, compared with 1.3% and 4.9% respectively in the third quarter. Official data released on Friday showed Chinese consumer prices remained in deflationary territory for a third straight month in December, adding to the challenges policymakers face. Some analysts have penciled in an even larger jump for fourth-quarter growth, with Standard Chartered forecasting a rise of 5.8%. Economists at SocGen are forecasting 5.3% and Goldman Sachs is eyeing 5.6%. On the gloomier side, economists at Barclays are predicting just 4.5%. China will also release population for 2023, as well as monthly housing transactions and retail goods sales. China’s financial regulator vowed “zero tolerance” for illegal behavior.
  
  Of note: China’s central bank held a key interest rate steady on Monday while still pumping more cash into the financial system, bucking expectations that it would cut borrowing costs to support the economy. The People’s Bank of China maintained the rate on its one-year policy loans — called the medium-term lending facility — at 2.5%, contrary to widespread expectations among economists that it would make its first trim to the rate since August. It also offered 995 billion yuan ($139 billion) through the MLF, resulting in a 216-billion-yuan net injection that will boost liquidity and help meet funding demand.
   

Thursday, Jan. 18

• Jobless Claims: The Labor Department's weekly report is expected to show initial claims for state unemployment benefits likely rose 5,000 to a seasonally adjusted 207,000 for the week ending Jan. 13. Meanwhile, continued jobless claims for the week ending Jan. 6 are also due.
• Housing Starts: Overall building permits are expected to rise to 1.475 million units in December from 1.467 million units in the prior month. Meanwhile, housing starts numbers are likely to drop to 1.439 million units in December from 1.560 million units in November.
• Philadelphia Fed Manufacturing Index: The Philadelphia Fed manufacturing index is expected to improve slightly to minus 6.7 in January versus December's minus 10.5 in a report that showed deep contraction for new orders and continued contraction for unfilled orders.
• Federal Reserve Bank of Atlanta President Raphael Bostic is scheduled to give brief remarks on the economic outlook before the Metro Atlanta Chamber board of directors meeting. Separately, on the same day, Bostic will speak on the 2024 economic outlook before the Atlanta Business Chronicle 2024 Economic Outlook lunch.
• Fed Balance Sheet
• Money Supply  
   

Friday, Jan. 19

• A report from the National Association of Realtors is expected to show existing home sales remained unchanged at 3.82 million units in December from the previous month.
• University of Michigan releases its Consumer Sentiment survey for January. Consumers’ expectations for year-ahead inflation were 3.1% in December, the lowest level since March of 2021.
• Treasury International Capital
• Federal Reserve Vice Chair for Supervision Michael Barr is to participate in a discussion on "Bank Regulation" before the Responsible AI Symposium: Advancing a Blueprint for Tech Equity" hosted by the National Fair Housing Alliance on Friday.
• Federal Reserve Bank of San Francisco President Mary Daly will participate in a fireside chat before the hybrid event, "A Future Outlook: Innovation & Economic Growth in San Diego."
• Japan will release inflation figures for December and the 2023 full year. The core consumer price index, excluding volatile fresh foods, rose 2.5% in November from a year earlier, staying above the Bank of Japan's 2% inflation target for the 20th straight month. The newest figures will draw attention especially as the Japanese government urges businesses to raise wages. The country's real wages have declined for 20 straight months through November, signifying that inflation has overshadowed wage raises.
   

Key USDA & international Ag & Energy Reports and Events 

For the ag sector, focus return to South American production and weather.

In the energy sector, OPEC issues its monthly market report on Wednesday, while the Paris-based IEA follows suit on Thursday.

Monday, Jan. 15

     Ag reports and events:

• Malaysia Jan. 1-15 palm oil exports
• Holiday: U.S.  
   

Tuesday, Jan. 16

     Ag reports and events:

• Export Inspections
• Feed Grains Database
• Dairy Monthly Tables
• Season Average Price Forecasts
• Wheat data
• EU weekly grain, oilseed import and export data
   

Wednesday, Jan. 17

     Ag reports and events:

• Broiler Hatchery
• Cotton and Wool Outlook Tables
• Oil Crops Outlook
• Feed Outlook
• Rice Outlook
• Wheat Outlook
• FranceAgriMer’s monthly grain balance sheet
   

     Energy reports and events:

• API weekly U.S. oil inventory report
• OPEC publishes its Monthly Oil Market Report
• Genscape weekly crude inventory report for Europe’s ARA region
• WTI February options expire
   

Thursday, Jan. 18

     Ag reports and events:

• Feed Grains: Yearbook Tables
• Port of Rouen data on French grain exports
   

     Energy reports and events:

• EIA natural gas storage change
• EIA weekly U.S. oil inventory report
• U.S. weekly ethanol inventories
• EA publishes monthly Oil Market Report
• Insights Global weekly oil product inventories in Europe’s ARA region
   

Friday, Jan. 19

     Ag reports and events:

• Weekly Export Sales
• CFTC Commitments of Traders report
• Food Expenditure Series
• Livestock, Dairy, and Poultry Outlook
• Sugar and Sweeteners Outlook: January 2024ERS
• Cattle on Feed
• Peanut Prices
   

     Energy reports and events:

• Baker Hughes weekly U.S. oil/gas rig counts

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