2024 Prices’ Holding Pattern

Update 763 — 2024 Prices’ Holding Pattern
CPI Pause to Beget Another Fed Rate Pause

The most critical economic variable in the minds of voters today is probably the cost of living — everyday expenses and purchasing power. Over the coming months, Americans will make choices about whether to vote and how with these in mind. This week’s CPI report for February, combined with last month’s, suggests a stall thus far this year in the Fed’s efforts to bring prices down to two percent.

With inflation continuing to cool but at a modest if not microscopic pace of late, no one expects the Fed to shift course and cut rates. The good news is that the economy in other respects remains robust and the Fed’s high rates are not raising recession risks. Below, we detail the CPI report, the upcoming Fed meeting, the status of the ongoing FY24 budget process, and key hearings in Congress this week.

Good weekends all…




Inflation in a Slow Cool; FOMC Meets Next Week

A key measure of core inflation continued to cool modestly last month, according to consumer price index (CPI) data, the February price change report released by the Labor Department’s Bureau of Labor Statistics on Tuesday. 

Headline CPI rose by 0.4 percent in February, rising slightly higher over the month than during January when prices rose by 0.3 percent or during December and November when prices rose by 0.2 percent. On an annualized basis, headline CPI rose by 3.2 percent last month. Meanwhile, core CPI, which excludes food and energy prices, rose by 0.4 percent in February. On a year-on-year basis, core CPI rose by 3.8 percent, its lowest level in over two years.

Source: Council of Economic Advisers

Headline CPI was driven up by energy prices which rose by 2.3 percent in February, with gasoline prices rising by 3.8 percent, natural gas prices rising by 2.3 percent, fuel oil prices rising by 1.1 percent, and electricity prices rising by 0.3 percent last month. In contrast, food prices remained flat last month after rising by 0.4 percent in January. 

Other areas that saw increases during the month included apparel, prices of which rose by 0.6 percent, and airline fares, prices of which rose by 3.6 percent in February following a 1.4 percent increase in January. The shelter index rose by 0.4 percent in February, making it the largest factor in the monthly increase in core CPI. Shelter prices rose by 5.7 percent on an annualized basis, accounting for roughly two-thirds of the year-on-year increase in core CPI. 

Tuesday’s CPI report is the final major data point on inflation to be released ahead of the Federal Open Market Committee (FOMC) meeting next Tuesday and Wednesday. The new data is unlikely to push the Federal Reserve to shift course. The Fed is widely expected to hold interest rates steady at the 5.25 to 5.5 percent range — a fifth consecutive pause before it is expected to begin cutting rates later this year, with the Fed last signaling three such cuts in calendar 2024. February personal consumption expenditures (PCE) index data to be released late this month will give a clearer picture of progress inflation continues to make toward the Fed’s two percent target. 


CBO Releases Guidance on FRA Sequester 

A sequestration provision was included as an enforcement mechanism for the FY24 appropriations process in the Fiscal Responsibility Act (FRA) negotiated by former Speaker Kevin McCarthy and President Biden last summer. Following the terms of the FRA, the Office of Management and Budget (OMB) is to determine whether across-the-board funding cuts for defense and non-defense discretionary (NDD) spending triggered by sequestration are indeed needed to bring FY24 funding levels in line with FRA spending caps. 

This week, the Congressional Budget Office (CBO) released updated guidance on the terms of sequestration. It noted that, due to the use of CRs that have been below the FRA caps and the passage of six of the 12 appropriations bills that fund discretionary spending, NDD spending is not likely to face as significant a cut as was previously expected in the case either of a full-year CR or of full-year appropriations bills. 

Under the FRA, Section 102 funding caps apply in the case of a full-year CR and Section 101 funding caps, which are slightly higher for defense and lower for NDD, apply in the event that full-year appropriations bills are enacted for FY24 before April 30. The following cuts are predicted by the CBO in each scenario:

Source: CBO

Though a full-year CR was originally projected to lead to significant cuts in NDD spending, this new guidance shows that this is not likely to be the case, a relief for progressives. But as the CBO noted in its letter, the ultimate decision regarding sequestration lies with the OMB. 

Schumer Speaks Out, $300 mil. Drawdown for Ukraine 

In a rare address on Thursday, Senate Majority Leader Chuck Schumer (D-NY) delivered his most pointed criticisms yet of Prime Minister Benjamin Netanyahu’s handling of Israel’s war against Hamas. Schumer suggested new elections are needed in Israel and, if the current coalition remains on its current course, the United States could utilize its “leverage” and take a more active role to ensure peace. This address further complicates the already murky road ahead toward completing the negotiation of a foreign assistance package any time soon.

In a related development that will likely bear on the supplemental, on Tuesday, the Pentagon announced its latest, this time unexpected, $300 million Presidential Drawdown Authority (PDA) package to send much-needed military capabilities to Ukraine. After “unanticipated cost savings” from previous Department of Defense contracts, the United States will use those funds to send artillery and munitions for the first assistance since $250 million for air defense capabilities and artillery among other military equipment was last authorized in December. 

This latest announcement comes as pressure builds for Speaker of the House Mike Johnson (R-LA) to bring the Senate-passed $95 billion National Security Supplemental Package to the floor or risk a procedural workaround as discharge petitions near, thus forcing a vote. 

While the Senate’s supplemental continues to stall, Speaker Johnson revealed this week that he plans to send a drastically revised supplemental package to the Senate. Most notably, the House-devised package may resemble a loan or lend-lease program for Ukraine. The package could also include a provision similar to the Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act which would seize Russian assets and allocate those funds to assist Ukraine in an attempt to gather skeptical Republican support.

Time is of the essence as the Pentagon made clear its drawdown would only be able to sustain Ukraine for weeks, not months, as Congress prioritizes a second deadline for government spending bills on March 22, followed by a two-week recess. 


JEC Examines the U.S. Fiscal Situation

In a hearing titled “The Fiscal Situation of the United States,” members of the Joint Economic Committee contributed to the debate about drivers of the national debt and deficit on Tuesday, largely blaming low revenues or high spending along party lines. Democrats like Joint Economic Committee Chairman Senator Martin Heinrich (D-NM) praised the budget framework set forth by the Biden Administration this week and its focus on creating a fairer tax code, while conservative members and witnesses warned against the negative economic impact of increasing tax rates and allowing spending to go unchecked.

Conservatives applauded the Fiscal Commission Act of 2023, which cleared the House Budget Committee earlier this year, for its potential to address mandatory spending on programs like Social Security and Medicare. Witness Michael Linden (Washington Center for Equitable Growth) argued in favor of policies that promote wealth equality and invest in the American people, noting that they are a much better way to stimulate our economy than tax cuts that primarily go to the wealthiest five percent of Americans.

The takeaway is that resources/savings for the wealthy and corporations do not trickle down to less wealthy individuals. Corporations have had huge savings in tax liabilities resulting from Trump-era tax policies implemented through the 2017 Tax Cuts and Jobs Act (TCJA) yet very little of these savings has been passed down to consumers. In fact, the inverse is true, with firms taking advantage of inflationary conditions to charge higher prices. As we approach the need for major tax reform in 2025 with the expiration of many TCJA provisions, members of Congress should support Biden’s plan to increase revenues and invest in the American people equitably. 

Senate Banking: Housing Affordability and Availability

In a hearing on Tuesday focused on the affordable housing crisis, both Republicans and Democrats in the Senate Banking Committee agreed that there is an issue with a low housing supply, as the country is currently short by at least 3.8 million housing units, driving up not just home prices but rental costs as fewer people have access to homeownership. 

Despite agreeing on the basic issue at hand, members of either party differed in opinion about how the issue should be addressed. The GOP insisted that the best thing for the federal government to do would be to get out of the way and let the free market do its thing. Led by Ranking Member Tim Scott (R-SC), the Republican committee members pointed to the damaging effects that inflation and high interest rates have had on housing affordability and pointed fingers at the Biden Administration for wasteful government spending and burdensome regulations, proposing free market-oriented legislation such as the ROAD to Housing Act as a path forward for addressing the housing shortage.

Committee Democrats, led by Chairman Sherrod Brown (D-OH), focused on a holistic approach to addressing the housing affordability crisis, one that focused on supply-side as well as demand-side issues. They called on Congress to pass legislation that provides subsidies for construction, aids first-time homebuyers in making their downpayment, provides housing for essential community members, and curtails evictions among other actions.

House Small Business: Regulation and Access to Capital 

On Tuesday, the House Committee on Small Business’s Subcommittee on Oversight, Investigations, and Regulations discussed how regulations affected the ability of small businesses to access capital. Led by Subcommittee Chairwoman Beth Van Duyne (R-TX), the GOP members of the subcommittee highlighted the difficulties faced by small businesses due to high inflation, high interest rates, and “overregulation,” which they blamed on the Biden Administration. Witnesses Prag Shah, the Co-Founder and CTO of Vemos, and Mary Kennedy Thompson, the COO of Neighborly, described the problems faced by small businesses in accessing capital through traditional channels, with entrepreneurs relying increasingly on private equity to start and expand businesses.

In contrast, Jeremy Kress, Assistant Professor of Business Law at the University of Michigan, pushed back on the claim that regulations were only making life miserable for small businesses while urging policymakers to take on legislation that would allow small businesses to have access to traditional capital. He stated that policy responses to the 2008 Financial Crisis strengthened the banking system, voiced his support for bank regulators’ Basel III Endgame proposal, and stressed that one of the biggest reasons that so many small businesses cannot access traditional lending is due to the massive amounts of mergers and consolidations in the banking industry that have eliminated thousands of community banks.

Look Ahead

Tuesday, March 19

  • Federal Open Market Committee meeting (Day 1)

Wednesday, March 20

Thursday, March 21