It was a busy week in DC for economic issues with President Biden officially kicking off the budget talks related to the debt ceiling and Fed Chair Powell addressing Congress on the state of the economy.
On Thursday the White House released the President’s budget for fiscal year 2024 that begins on October 1. The release of the President’s budget is always a news-making event but even more so this year with the need to raise the debt ceiling in a divided Congress.
Last month House Speaker Kevin McCarthy and President Biden had a face to face meeting centered around the upcoming need to raise the debt ceiling. Both sides left the White House meeting agreeing to continue to talk as their budget proposals are released. At this point it is not clear when the Republicans will put their counteroffer on the table, but it’s hard to negotiate when only one side has a proposal.
The deadline for increasing the ceiling remains elusive, but it is likely to be sometime between July 4 and Labor Day. Finding common ground will not be easy with both sides having taken the three biggest items—Social Security, Medicare and defense spending—off the table. In fact the Biden Administration budget proposes a 3.2% defense-spending increase over the current fiscal year to a record $842B.
Much discussion on how to find common ground in the coming weeks.
The Fed
Fed Chair Jay Powell made his semi-annual trip to the Capitol to testify before the House and Senate Banking Committees. There were no real surprises in the sessions, though Chair Powell did sound more hawkish than he did in the post-meeting presser in February.
The Chair continued his central message that the FOMC will be data-driven when it meets later this month to make their next rate decision. However, concern over recent hot inflation data caused the Chair to clearly put a 50bps increase on the table at a time when markets had assumed the increase would be 25bps. After a strong reaction to his hawkishness on Tuesday, by Wednesday he made clear that no decisions had been made for the meetings on March 21/22.