The Fed Delivers Good News on Inflation

Plus, defense bill moves forward ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ [The Fisc](   By Michael Rainey Good evening. The House voted Wednesday to formally authorize an impeachment inquiry into President Joe Biden, raising the stakes of an investigation that could shape the 2024 election. In the Senate, lawmakers dealt with the annual defense policy bill and a possible deal on a supplemental spending package to provide aid for Ukraine, among other things. Meanwhile, traders on Wall Street set a record as the Federal Reserve’s last meeting of the year wrapped up. Here’s what you need to know. Reuters Senate to Vote on Massive Defense Policy Bill The Senate is expected to vote on the 2024 National Defense Authorization Act as soon as Wednesday evening. The sprawling bill authorizes $886 billion in defense spending, providing a $28 billion increase over 2023 spending levels. If it passes, as expected, the bill would then go to the House, where it could be taken up by the end of the week. The House is expected to approve the 3,100-page bill, though there may be some fireworks beforehand as lawmakers battle over the inclusion or exclusion of provisions that touch on controversial culture-war issues. Meanwhile, Senate negotiators continue to discuss a supplemental spending bill that includes aid for both Ukraine and Israel, as well as money and policy changes at the U.S. border. Republicans are demanding more extreme policy changes than Democrats have been willing to consider, and although a deal before the holiday break is unlikely, there are reports that President Joe Biden has signaled that he wants Democrats to be more flexible and give Republicans more of what they want. "Seemingly moribund talks on toughening U.S. border policy in exchange for providing aid to Ukraine were revived this week after the White House proposed allowing U.S. officials to summarily expel migrants at the border under some circumstances," The Washington Post [reported]( late Wednesday. The details have not been worked out, however, and any agreement that appeals to Republican hardliners could spark a serious protest from progressive Democrats. "I am concerned about how far the White House will go in agreeing to the concessions that the Republicans want — concessions relating to making permanent changes to asylum and some other aspects," Democratic Sen. Mazie Hirono of Hawaii said. "It’s pretty frustrating." In any event, the rapidly shrinking calendar may rule out reaching an agreement this year. "It’s way too little, too late," said Republican Sen. Ron Johnson of Wisconsin. "Apparently they’re reading the polls and they realize, ‘Hey, the American public really doesn’t like this open border.’ Duh." Fed Holds Steady as Rate Cuts Come Into View The Federal Reserve held steady in its battle against inflation Wednesday, maintaining its benchmark interest rate in a range between 5.25% and 5.5%. The central bank has now left its key rate untouched for three meetings in a row dating back to July, suggesting that it has reached a peak in the current cycle. While the move was widely expected, the Fed did deliver some new insights into how it sees the economy and its rate policy developing over the next 12 months. Some nuts and bolts: Projections from members of the Federal Open Market Committee indicate that they expect the central bank to cut rates by 0.75 percentage points in 2024, or three cuts of 0.25 percentage points each. Fed officials [estimated]( that the benchmark rate would be at 4.6% at the end of 2024, 3.6% at the end of 2025, and 2.9% at the end of 2026. Committee members think the economy will continue to expand without recession, though growth is expected to weaken next year. Fed officials projected growth rates of 2.6% for the current year, 1.4% for 2024 and 1.8% for 2025, with a long-term growth tendency of 1.8%. Unemployment is projected to rise slightly, ending the year at 3.8% and increasing to 4.1% in 2024 and 2025. Inflation is projected to continue its downward trend, with the personal consumption expenditures price index rising by 2.8% in 2023, 2.4% in 2024 and 2.1% in 2025 – before finally falling to the Fed’s 2% target in 2026. What experts are saying: Asked if he thought inflation has already been beaten, Fed Chair Jerome Powell told reporters that while he is pleased with the progress he has seen in the downward path of inflation so far, he wants to see more progress before coming to any firm conclusions. "No one is declaring victory," he said. "That would be premature." Still, analysts saw a lot to like in Powell’s comments. David Russell, Global Head of Market Strategy at TradeStation, said the Fed’s message was more dovish than expected, since it recognized that inflation is indeed falling. "Jerome Powell seems to be done taking the punch bowl away," he said, per [Bloomberg](. Traders on Wall Street certainly seemed to agree, with the Dow Jones Industrial Average rallying more than 500 points to close above 37,000 for the first time, as investors bet on a more accommodative stance by the Fed. Charlie Ripley, Senior Investment Strategist for Allianz Investment Management, said that although Powell won’t say so explicitly, it looks like the Fed has won its battle against inflation. "The third time’s the charm as the Fed has now refrained from hiking rates for the third consecutive meeting, investors can now fully believe the Fed is done hiking rates for this cycle," he said. "Furthermore, the dovish tone coming out of the meeting minutes with 75 basis points of rate cuts, not only signals the Fed is declaring victory on inflation, but moreover sets the table for Powell and team to manufacture a soft landing for the economy." One analyst likened the Fed’s announcement to a delightful holiday present. Joseph Brusuelas, chief economist at the consulting firm RSM, [wrote]( that the "major takeaway from the December policy meeting is that the Federal Reserve is forecasting a soft landing, full employment and intends to reduce its federal funds policy rate by at least seventy-five basis points in 2024 to support the ongoing business expansions." He added that "from our vantage point that is about the best holiday gift a central banker can bestow upon the investment community, policymakers, and the public." Quotes of the Day "We do not take this responsibility lightly and will not prejudge the investigation’s outcome. But the evidentiary record is impossible to ignore." — Speaker Mike Johnson, referring to the impeachment inquiry of President Joe Biden approved by the House in a 221-212 party-line vote Wednesday. "Instead of doing anything to help make Americans’ lives better, they are focused on attacking me with lies. Instead of doing their job on the urgent work that needs to be done, they are choosing to waste time on this baseless political stunt that even Republicans in Congress admit is not supported by facts." — President Joe Biden, in a statement responding to the approval of the formal inquiry. --------------------------------------------------------------- Send your feedback to yrosenberg@thefiscaltimes.com. And please encourage your friends to [sign up here]( for their own copy of this newsletter. --------------------------------------------------------------- Fiscal News Roundup - [House Approves Impeachment Inquiry Into President Biden as Republicans Rally Behind Investigation]( – Associated Press - [Border Deal Shows Signs of Life After Biden Offer]( – Washington Post - [‘Rude Awakening’: Biden Takes Progressive Fire in Border Talks]( – Politico - [Window Rapidly Closing for Deal on Appropriations Framework]( – Roll Call - [Sanders Presses Biden to Deny Israel $10.1 Billion in Military Aid]( – The Hill - [‘A Disservice to the American Public’: Democrats Rip Biden Over Weapons Sale to Israel]( – Politico - [5 NDAA Topics Causing a Stir as Defense Bill Heads Toward Final Vote]( – The Hill - [Fed Pivots to Rate Cuts as Inflation Heads Toward 2% Goal]( – Bloomberg - [Joe Manchin Says ‘Horrible’ Hydrogen Tax Credit Rules Coming Next Week]( – Bloomberg - [Millions in Opioid Settlement Funds Sit Untouched as Overdose Deaths Rise]( – KFF Health News Views and Analysis - [Sacrificing Migrant Rights for Ukraine Aid Would Be Terrible Policy]( – Antonio De Loera-Brust, Washington Post - [The Case for Interest Rate Cuts]( – David Dayen, American Prospect - [In Ukraine, the Risk Isn’t Stalemate. It’s Defeat]( – Lee Hockstader, Washington Post - [Tax Trades for Harvard Donors]( – Matt Levine, Bloomberg - [Axelrod Says WSJ Poll ‘Very, Very Dark’ for Biden Campaign]( – Miranda Nazzaro, The Hill - [Another Rough Month for Taxpayers]( – James Freeman, Wall Street Journal Copyright © 2023 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website or through Facebook. The Fiscal Times, 399 Park Avenue, 14th Floor, New York, NY 10022, United States Want to change how you receive these emails? [Update your preferences]( or [unsubscribe](