Progress Report on FY24, Inflation

Update 759 — Not Quite Done Yet:
Progress Report on FY24, Inflation

This week saw incremental progress on two of the most vexing economic policy challenges of recent times. Yesterday, Congress averted the latest shutdown threat, passing another Continuing Resolution (CR) keeping the government open but setting deadlines for later this month to finish appropriations measures for the FY24 budget. The hurdle ahead is less the bills’ spending levels than the policy riders demanded by House conservatives.

Meanwhile, yesterday’s PCE report indicated that inflation, not quite at the Fed’s two percent target yet, bumped up by the most in four months in January, reinforcing the consensus view that the Fed is not likely to begin cutting interest rates until June or later, when the current 5.25-5.5 percent federal funds rate will have been in place for almost a year — higher for longer than investors and progressive advocates had been hoping. See details on these and other policy developments this week below.




Congress Extends CR, Again Averting a Shutdown 

Congress passed another short-term Continuing Resolution (CR) this week, again opting to kick the can on FY24 funding legislation to avoid a government shutdown. The new CR pushes the funding deadline for the four bills originally set to expire from March 1 to March 8, where they will join both Commerce, Justice, and Science and Interior and the Environment. Congress extended temporary funding for the remaining six appropriations bills to March 22. Proposed funding levels from last year and the current status of each appropriation bill are highlighted below: 

Appropriators came close to concluding a deal for the first, less controversial group of appropriations bills due this week but needed more time to finalize bill text and allow members adequate time to review it before voting. Text for the first group of six funding bills listed above is expected to be released as early as this weekend. Congressional leadership is hopeful that they will be able to vote on funding measures as early as next Wednesday. 

Though Speaker Johnson called this a “process CR” in defense of the use of a short-term funding measure that rankles GOP House conservatives, there is still much left to negotiate for the second tranche of funding bills now scheduled for a funding lapse on March 22. Homeland Security and Labor-HHS have an especially tough bargaining process ahead, made more difficult by the Republican push for extreme “poison-pill” policy provisions in all six of the bills. 

Opposition from far-right members of the House Rules Committee necessitated a vote on the latest CR under suspension of the rules, meaning it required a two-thirds majority vote, expediting passage by circumventing the traditional rules process and time-consuming amendments. In a positive sign, the House cleared the measure on Thursday in a 320-99 vote, with less opposition than previous stop-gap measures.

In the Senate, the CR passed 77-13 on Thursday night. Senators Roger Marshall (R-KS) and Mike Lee (R-UT) proposed amendments that would have extended the CR through September 30, otherwise known as a full-year CR. These, as well as other amendments to address issues ranging from border security to barring the Federal Reserve from purchasing and selling municipal debt, were handily defeated on the Senate floor.

If full funding for each of the FY24 appropriations bills cannot be secured by April 30, both defense and non-defense discretionary programs would face across-the-board cuts of as much as $100 billion. This process, known as sequestration, kicks in if any government program is funded through a CR at the end of April. This enforcement mechanism was included in the Fiscal Responsibility Act (FRA) last year to facilitate a smooth FY24 appropriations process by establishing funding targets and disincentives for contention. 

Though a majority of members from both parties are determined to avoid the large cuts associated with sequestration, the House Freedom Caucus (HFC) released a letter last week where the caucus stated support for a full-year CR — which would trigger sequestration — in the absence of “significant policy changes” (i.e. poison-pill provisions/riders). The HFC and House Republicans have yet to secure any major policy wins, but it will be important to continue monitoring funding legislation as it is released.

The latest short-term extension pushes funding decisions deep into the fiscal year. Congress has only used short-term CRs to extend funding past March two times in the last 14 years (FY11 and FY17). FY24 already ranks among the most difficult fiscal years for government funding in recent history. Failure to move the FY24 spending package as scheduled may have political implications, coming in an election year. 

Other Developments

Inflation Bumps Up in January, Broader Trend Down

Inflation as measured by the personal consumption expenditures (PCE) price index continued to fall on an annual basis in January, although both headline and core PCE ticked up slightly over the month.

January PCE data released yesterday morning showed that headline PCE rose by 0.3 percent in January, the fastest pace in four months, and by 2.4 percent on an annualized basis. Core PCE, which excludes food and energy prices, rose by 0.4 percent last month, rising 2.8 percent over the prior twelve months. Both headline and core PCE have reached their lowest levels since early 2021. 

Source: Council of Economic Advisors

Prices for services rose by 0.6 while prices of goods fell by 0.2 percent over the month. Within services, the largest contributors to the increase were housing and utilities, financial services and insurance, and health care. Within goods, the leading contributors to the decrease were motor vehicles and parts, gasoline and other energy goods, and other nondurable goods, led by prescription drugs. The price of food rose by 0.5 in January and by 1.4 percent on an annualized basis. Energy prices fell by 1.4 percent over the month and by 4.9 percent over the twelve months prior.

The modest rise in prices in January, with both headline and core PCE trending persistently toward the Federal Reserve’s two percent target over the past few months, is another promising sign for the Fed as officials consider the fate of interest rates. Just last week, Vice Chair of the Federal Reserve Board Philip Jefferson said that he believes that rates are likely at their peak for this tightening cycle. Chair Powell has indicated that the Fed is looking to see two percent inflation over a twelve month period before the Federal Open Market Committee begins cutting rates, and Wednesday’s modest PCE data is unlikely to move Committee officials towards cutting sooner than mid- to late-2024. 

Holding rates higher for longer has already hurt American families, as the Fed’s current cycle of interest rate hikes has hiked costs for home purchasers, higher rents, and reductions in new homes and apartment buildings. Senators Elizabeth Warren (D-MA), John Hickenlooper (D-CO), Jacky Rosen (D-NV), and Sheldon Whitehouse (D-RI) noted that rate hikes have aggravated the affordable housing crisis when they recently urged Powell to reverse the Fed’s recent interest rate hikes this year. Members of the House Committee on Financial Services and Senate Committee on Banking, Housing, and Urban Affairs will likely raise the concern when Powell testifies before the committees next week when he delivers the Fed’s Semi-Annual Monetary Report to Congress. 

GDP Grows by 3.2% in the Last Quarter of 2023

The United States economy grew by 3.2 percent in the fourth quarter of 2023, according to the second estimate released by the Bureau of Economic Analysis yesterday, revised down by 0.1 percent from the first estimate in January. U.S. GDP growth has surpassed two percent for the past six consecutive quarters. The American economy grew by a strong 2.5 percent in 2023. 

The modest downward revision primarily reflected a downward revision to private inventory investment, which is estimated to have increased by a US $66.3 billion rate compared to the previously estimated US $82.7 billion rate. This was partially offset by upward revisions to state and local government spending and consumer spending. The second estimate confirms that consumer spending, which added over 1.9 percentage points to real GDP growth in the fourth quarter of last year, remained strong in late 2023. 

The International Monetary Fund (IMF) estimates that the American economy will grow at a slower but still strong pace of 2.1 percent in 2024, at a faster rate than the United Kingdom, Germany, and Japan. 

FTC Sues to Block Kroger-Albertson Merger 

On Monday, the Federal Trade Commission (FTC) sued to block the Kroger-Albertson merger, the largest proposed supermarket merger in U.S. history, alleging that the deal is anticompetitive. The FTC was joined by nine state attorneys general from Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming. 

Through the $24.6 billion deal, Kroger Company is seeking to acquire Albertsons Companies Inc. These competitors in the already-consolidated supermarket industry, if combined, would control over 15 percent of the grocery market share, and the resulting company would be the second largest grocer by market share in the United States. Kroger owns roughly 2,800 stores in 35 states and employs about 420,000 workers, while Albertsons owns about 2,200 stores in 34 states and Washington D.C. and employs approximately 290,000 workers. 

The merger would affect communities, workers, farmers and ranchers. As the American Economic Liberties Project notes, workers could lose $300 million in annual wages, the deal could create more food and pharmacy deserts, and businesses and producers throughout the food ecosystem will have reduced buying power.

The merger would also affect workers who would lose bargaining power over their wages and benefits and could be laid off if stores are closed. 20/20 Vision continues to oppose the proposed acquisition and applauds the FTC’s decision to join the fight.


HFSC OKs Housing Bills, Dangerous Crypto Resolution 

The House Financial Services Committee advanced five bills favorably out of committee yesterday morning after the markup was unexpectedly pared down due to Thursday’s government funding vote which was needed to avert a government shutdown. 

The five bills advanced were:

  • H.J.Res. 109, providing for congressional disapproval of the rule submitted by the Securities and Exchange Commission relating to “Staff Accounting Bulletin No. 121
  • H. R. 6864, HUD Accountability Act of 2023
  • H.R. 7280, HUD Transparency Act of 2024
  • H.R. 7156, Combating Money Laundering in Cyber Crime Act of 2024
  • The Wildfire Insurance Coverage Study Act of 2023

H.J.Res. 109, led by Representatives Mike Flood (R-NE) and Wiley Nickel (D-NC), would rescind the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin 121 (SAB 121) which directs SEC registrants to treat their crypto holdings as balance sheet liabilities to account for the many risks associated with investing in crypto assets. The resolution could well result in investors being exposed to more harm from the risks of crypto markets and make it harder for the SEC to issue guidance applicable to other markets. The resolution was agreed to by a recorded vote of 31 ayes to 19 nays. 20/20 Vision strongly opposes the resolution. 

H.R. 6864 and H.R. 7280 would require the HUD Secretary and HUD Inspector General, respectively, to testify before the HFSC annually. Representative Mike Lawler (R-NY) and Representative De La Cruz (R-TX) said that the bills would allow Congress to fulfill its duty to provide greater oversight to an agency that provides billions of dollars in aid every year, pointing to the worsening housing crisis as an important issue that requires greater attention from Congress. Ranking member Maxine Waters (D-CA) denounced the bills as do-nothing legislation that allows the GOP to point fingers without making any substantial effort to address issues such as housing affordability and homelessness.

Committee Chair Partick McHenry (R-NC) said an announcement on when consideration of bills pulled from the markup at the last minute will be taken up was forthcoming. We expect an announcement in the coming weeks or months. We expect the Committee to consider the remaining seven bills, including H.R. 7440, the Financial Services Innovation Act of 2024, which would allow new, unproven companies to evade existing consumer protection laws, and H.R. 7428, the Earned Wage Access Consumer Protection Act, which would exempt fintech cash advances from the Truth in Lending Act. 20/20 Vision continues to oppose both dangerous bills. 

Look Ahead

Wednesday, March 6

Thursday, March 7

Friday, March 8

  • February jobs report