CPI release highlights week as debt ceiling overhangs DC.

This week the Labor Department will issue the CPI for January.  While there are many data points that market watchers, economists and the Federal Reserve look at when making forecasts, in political circles no figure has the weight of the CPI number.  Politicians and the press focus on the CPI as it is generally easy to understand and tends to reflect costs that many Americans are paying.  Complexity is not something politicians and the press do well, so the CPI number tends to be the “go to” inflation number.

At his post-meeting press conference and his various talks Chair Powell talks about the future Fed rate decisions being data driven; clearly the CPI because of its wide public role is a key data point.  The Fed’s Federal Open Markets Committee (FOMC) next meets on March 21/22.  The Bureau of Labor Statistics releases the number tomorrow, Tuesday, at 8:30am.

Debt Ceiling

The need for Congress to increase the debt ceiling remains a market driving issue in Washington, and last week saw the President address the issue during his State of the Union address.

During the speech, there was an interesting back and forth on Social Security and Medicare where President Biden put the key political issue front and center.  The heckling from some Republicans almost seemed to make the session sound like Prime Minister’s question time in the UK Parliament. Both Speaker McCarthy and Senate Republican Leader Mitch McConnell have made clear that they are staying away from any discussion of Social Security or Medicare as part of the debt ceiling debate.  Indeed McConnell made clear after the speech that Senator Rick Scott’s (R,FL) proposal to sunset all federal programs including Social Security and Medicare was a Scott proposal not a Republican idea. 

As I often say, while I have not worked on campaigns in many years, little changes in American politics.  Social Security has often been called the third rail of American politics and the back and forth at the SOTU put this on full display once again.

I thought one good sign in the speech was a statement by the President that got little attention in the press but that I thought showed a potential exit strategy for both sides to resolve the debt ceiling issue.  Here is the short quote from the White House release of the speech text:

“Next month when I offer my fiscal plan, I ask my Republican friends to offer their plan. We can sit down together and discuss both plans together.”

Speaker McCarthy, sitting behind the President during the speech gave a knowing smile when the President read these lines as this is specifically what the two have discussed.  The President has said he will put forward the Administration’s budget on March 9 and that hopefully will begin a serious debate on spending priorities and the debt ceiling.

Balloons and other unidentified objects

In the SOTU President Biden was largely silent on the diplomatic dilemma that has been created for the Administration by the Chinese spy balloon that traversed the US.  This of course was followed by the taking down of three more unidentified objects flying 40,000 feet over Alaska, Michigan and Canada.

The issue of the Chinese balloon has serious political and economic ramifications. The fact of the matter is that the economies of our two nations are intertwined and the building tensions potentially pose serious problems. This was highlighted when Secretary of State Blinken cancelled his planned trip to Beijing. 

The spy balloon has done one thing that at times has seemed impossible: uniting Republicans and Democrats in the House.  Last week the House considered a resolution condemning China’s “ brazen violation of US sovereignty.” In the highly partisan House the anti-China resolution passed on a vote of 419 to 0!  In the Senate, Defense officials faced tough bipartisan questioning on the balloon, what intelligence the Chinese may have gained, and why the President waited so long to take down the balloon.  Much more to come in the weeks ahead as more evidence is gathered from the remnants of the balloon. The balloon also potentially impacts the debt ceiling debate as it confirms for many Republicans that this is not the time to cut Defense spending.