Plus, Congress tries to finish the $1.5 trilion spending bill
â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â â [The Fisc]( Â Â By Yuval Rosenberg and Michael Rainey Happy Thursday! Baseball is back, as owners and players reached a deal. Hereâs what else is happening following yesterdayâs congressional drama around the $1.5 trillion omnibus spending package. [*] Inflation Soars to 7.9% Annual Rate, Highest in 40 Years
Rising prices for everything from fuel and food to services and housing sent the 12-month consumer inflation rate soaring to 7.9% in February, the Labor Department announced Thursday. For the month, consumer prices rose by a hefty 0.8%. On an annual basis, the inflation rate surpassed the extraordinary 7.5% recorded in January. âThe 12-month increase has been steadily rising and is now the largest since the period ending January 1982,â the [report]( says. Wages were unable to keep pace with spiraling prices. Inflation-adjusted average hourly earnings dropped by 2.6% in February, according to a separate report released Thursday. Pain at the pump: The price of gasoline is playing a major role in the inflationary surge. Over the last 12 months, gas prices have risen 38%, increasing 6.6% just in February. And that number doesnât include most of the huge price increases recorded since the Russian invasion of Ukraine. More trouble ahead: Some analysts think that prices will continue to rise, driven in large part by soaring energy costs, and expect to see inflation levels of 8% or higher in the coming months. âThe price shock that is now cascading throughout the domestic and global economies will be captured in the coming months and in our estimation will push top-line year-over-year inflation to 10% or more,â economist Joe Brusuelas of the consulting firm RSM said in a note. Michael Gapen, chief economist at Barclays, told Bloomberg that it could take many weeks to reach a peak. âInflation is not likely to roll over and begin to come down for several more months,â he said. âThis sets the stage for where we are now. And we need to see how long this conflict plays out and how disruptive the sanctions regime actually is,â he added, referring to the invasion of Ukraine and the economic sanctions imposed on Russia. Headaches for the Fed: The Federal Reserve is expected to go ahead with a quarter-point interest rate hike next week at its monetary policy meeting, but surging inflation creates a dilemma for the central bank. On the one hand, rate hikes seem even more necessary as part of the effort to get inflation under control. But soaring energy prices could spark a recession, which officials might hesitate to contribute to by continuing to raise rates. âThe Fedâs in a tough spot,â Wells Fargo director of rates strategy Michael Schumacher told CNBC. âItâs getting tougher by the day. Itâs hard any time, but especially when youâve got incredible inflation, and weâve had the supply chain issues for a while, and now theyâve been exacerbated by Russia-Ukraine.â Many economists have been estimating that the Fed will raise rates seven times this year, bringing the federal funds rate close to 2%. But continued high inflation could mean fewer rate hikes. âI think if oil went to $150 and you saw some break in the data somewhere, they might skip May for a hike,â Barclays chief U.S. economist Michael Gapen said. Much will depend on the data and what Fed officials see as the biggest threat. Diane Swonk, chief economist at Grant Thornton, said that fears of inflation may weigh more heavily than worries about a recession. âWe came into this with a lot of momentum. Oil price spikes donât always cause recessions,â she told [CNBC](. âThe Fed has to hedge against what else itâs worried about. That is inflation expectations have been moving up. The Fed has to think about what are the chances of this inflation more entrenched like the 1970s. They are trying to avoid that at all costs.â Congress Looks to Finish $1.5 Trillion Spending Bill With Ukraine Aid
The House on Wednesday night passed a $1.5 trillion annual spending package that would keep the government funded through September and provide nearly $14 billion in aid for Ukraine and refugees fleeing the Russian invasion there. To secure the necessary votes, though, House leaders were forced to strip $15.6 billion in pandemic funding from the bill after some Democrats objected to a deal that would have redirected that money from existing programs, including $7 billion promised to state governments as part of last yearâs $1.9 trillion Covid relief law. The last-minute change leaves in doubt President Joe Bidenâs Covid-response plans. The House also passed a four-day stopgap extension of federal funding, a fallback measure meant to ensure that government operations can continue beyond the end of day Friday, when current funding is set to expire, while the Senate works to clear the larger omnibus spending bill. Senate leaders reportedly want to pass the legislation before the weekâs end, but the process faces delays as the result of a number of demands from GOP senators. âMembers of GOP leadership say they are still hopeful that the Senate could pass the $1.5 trillion government funding deal, which also includes the Ukraine assistance, later Thursday,â The Hillâs Jordain Carney [reports](. âBut first they need to cut deals with GOP senators who are warning that they could slow down the massive legislation.â Here are a few other takeaways about the spending bill: The pandemic is no longer the top priority â and replenishing funding wonât be easy: The White House said it requested $22.5 billion in additional pandemic funding âto avoid severe disruptions to our Covid response.â But Republicans were skeptical about the need for new money, and the conflict over the funding and offsets âunderscored the deep and persistent political divides over the pandemic, and the federal governmentâs role in responding to it,â writes Emily Cochrane at [The New York Times](. She adds that âit also demonstrated that as infections and deaths subside, Covid-19 is no longer the dominant priority in Washington.â Democrats still plan to hold a separate vote on the $15.6 billion in pandemic funding â without the repurposing of state and local money. âThat means the legislation isnât fully paid for, and there are no plans as of now to find an offset to replace the $7 billion in state and local aid,â The Washington Postâs Rachel Roubein [reports]( citing a senior Democratic aide. âThatâs a problem in the Senate, where at least 10 Republicans would have to support the measure.â More Ukraine aid ahead: The spending package includes $13.6 billion in [humanitarian and military aid]( in response to Russiaâs invasion of Ukraine, with more money likely to be needed before long. Top lawmakers âview this bit of funding as the first of many tranches of emergency money to come,â The Washington Postâs Paul Kane notes: âThe question is a matter of when, not if, Congress has to go back to the well to provide more funding and, largely depending on Zelensky and his governmentâs fate, whether this exercise becomes a semiregular round of war funding similar to how the wars in Iraq and Afghanistan were funded â or, possibly, whether it becomes more of a secretly financed effort akin to how Congress propped up the mujahideen resistance against the Soviet Unionâs invasion of Afghanistan during the 1980s.â Earmarks âare back with a vengeanceâ: After being banned for more than a decade, earmarks are back â and the spending package is loaded with more than 4,000 of them, The Hillâs Alexander Bolton reports, noting that the total âis still fewer than the 9,000 earmarks included in the fiscal 2010 appropriations bills that passed before House Republicans adopted an earmark ban after taking over the lower chamber in the 2010 midterm election.â Check out [his story]( for more details. Roll Callâs Lindsey McPherson adds that the omnibus bill includes more than $4.2 billion in earmarks for House lawmakers, with nearly 60% of that going to projects in Democratsâ districts. Column of the Day: The US Really Needs to Raise the Gas Tax
While some members of Congress have proposed to [suspend the federal gas tax]( â and a growing number of governors and state lawmakers are calling for a gas tax holiday, too â Washington Post columnist Charles Lane this week argued that fixing U.S. energy policy should include a âsubstantial increase in the federal gas taxâ â not right now, but once weâre past this crisis: âOf course, a gas tax raised from its current level â 18.4 cents per gallon â would sting consumers. Thereafter, though, they would adjust by consuming less, which would, over time, weaken the pricing power of Russia and OPEC (and, indeed, domestic companies). âTo the extent that drivers could not reduce their consumption â demand for gas is relatively âinelasticâ in economic parlance â the tax increase would âstick.â This is a feature, not a bug: both a long-term incentive to conserve and a long-term revenue stream for the government â the U.S. government, not the ones in Moscow, Riyadh, Tehran and Caracas. âInstead of funding those tyrannies, more of the dollars that drivers pay at the pump could be put to work in this country, building highways or mass transit, or reducing the deficit, or bolstering our national defense. ⦠âObviously, a higher gas tax is a nonstarter right now â economically and politically. ⦠Once this emergency passes, though, politicians are going to have to level with the public: The federal gas tax has not been raised since 1993, which means it has been cut 50 percent in real terms, and is long overdue for adjustment. ⦠Yes, there is a price to be paid for defending freedom. Letâs pay it to ourselves.â
[Read the full column at The Washington Post.]( --------------------------------------------------------------- Send your feedback to yrosenberg@thefiscaltimes.com. And please tell your friends they can [sign up here]( for their own copy of this newsletter.
--------------------------------------------------------------- News - [âNo Off-Rampsâ: U.S. and European Officials Donât See a Clear Endgame in Ukraine]( â Washington Post
- [Senators Clash as Congress Labors to Finish $1.5T Spending Bill]( â Politico
- [GOP Demands Delay Vote on Spending, Ukraine Aid]( â The Hill
- [White House Warns of 'Severe' Hit to COVID-19 Response After Funding Dropped]( â The Hill
- [Justice Department Reports More Than $8 billion in Alleged Fraud Tied to Federal Coronavirus Aid Programs]( â Washington Post
- [IRS Budget Boosted as Agency Struggles Against Tax Return Backlog]( â The Hill
- [U.S. Budget Gap Shrinks by More Than Half So Far in Fiscal Year]( â Bloomberg
- [Biden Blames Putin for Inflation. GOP Blames Biden.]( â Politico
- [Calls to Suspend Gas Taxes Across U.S. Grow as Prices Surge]( â Associated Press
- [âPeople Are Going to Get Real Nervousâ: Oil Shock Upends Fed Strategy]( â Politico
- [What You Need to Know About the Cost of Police Misconduct]( â Washington Post
- [Covid Long-Haulers Face Grueling Fights for Disability Benefits]( â Washington Post
- [U.S. Mask Mandate on Airplanes and Public Transit Extended as C.D.C. Reviews It]( â New York Times
- [2020 Census Missed 18.8 Million People, Bureau Estimates]( â Washington Post Views and Analysis - [Once Again, Congress Comes Together on the Main Thing It Can Agree On â Sticking It to Future Generations]( â Henry Olsen, Washington Post
- [Congress Rushes to Send Aid to Ukraine, With Much More Likely to Come]( â Paul Kane, Washington Post
- [Congress Has Wandered From Its Pathway to Deliver More Pandemic Funds]( â Rachel Roubein, Washington Post
- [Lawmakers Want to Suspend the Federal Gas Tax. Is That a Good Idea?]( â Janet Nguyen, Marketplace
- [Elevated Inflation Settles In for the Long Run]( â Jonathan Levin, Bloomberg
- [The Fed Needs to Delay Its Rate Hikes]( â Karl W. Smith, Bloomberg
- [How to Solve the Worker Shortage? Improve Pay and Other Conditions]( â Helaine Olen, Washington Post
- [Hereâs One Good Way to Lower the Cost of Insulin]( â Lisa Jarvis, Bloomberg
- [What Comes After Omicron? No One Knows]( â Faye Flam, Bloomberg
- [Workers Quitting Rotten Jobs Is a Good Thing]( â Jennifer Rubin, Washington Post Copyright © 2020 The Fiscal Times, All rights reserved.
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