Despite, or perhaps due to, the installation of a new Speaker of the House, Congress remains stuck in a fiscal policy time warp. 15 days remain before the Continuing Resolution (CR) keeping the government funded expires, and the House and Senate are making their way through a regular order appropriations process that is very unlikely be completed in time to avoid another shutdown. Terms have also not yet been discussed on extending the current CR.
Speaker Johnson has referred obliquely to a “laddered” process for completing a Fiscal Year 24 budget that appears designed to accommodate, if not foster, delay. Progress toward completing international and domestic supplemental funding requests took a step backward yesterday, as the House passed a stand-alone funding bill for Israel. This bill includes a pay-for provision to cut IRS funding, which has prompted a veto threat from the Biden Administration.
We cover the foregoing, as well as today’s jobs report, this week’s UAW strike resolution, and other economic developments of the week below.
SBF Found Guilty on All Charges
Crypto firm FTX co-founder Sam Bankman-Fried, facing seven counts of up to ten billion dollars of wire fraud, money-laundering, and conspiracy in violation of federal law, was found guilty on all counts yesterday by a jury that reached a verdict after five hours of deliberation and a month-long trial. Bankman-Fried, known universally as SBF, faces a decades-long sentence on March 28 and is expected to appeal the verdict.
Appropriations Continue amid Funding Disagreements
The House of Representatives has continued to move forward with its ambitious appropriations timetable this week. Consistent with stated plans, the House passed the Legislative Branch funding bill on Wednesday by a margin of 214-197 and Interior and the Environment funding bill today by 213-203. The House was unable to consider THUD this week and will take it up when it is back in session next week. The remaining Appropriations bills will be considered under the following timeline:
- Week of November 6: FSGG, and CJS
- Week of November 13: Labor/HHS and Agriculture
Meanwhile, the Senate has been able to push through its minibus spending package that was slowed by a large number of amendments. This package of appropriations bills for MilCon-VA, Agriculture-FDA, and Transportation-HUD, passed in an 82-15 vote on Wednesday afternoon. Though time is ticking down until the November 17 deadline, Senate Appropriations Chair Patty Murray (D-WA) stated that the Senate still plans to group more bills together in another minibus.
The two chambers are still far from agreement. Another CR will likely be needed to avoid a shutdown on November 17 and formal discussions have yet to take place to agree on terms. In a press conference on Thursday, Speaker Johnson made mention of Representative Andy Harris’s (R-MD) idea to use a “laddered” CR that would extend funding for different appropriations bills for different lengths of time. This would likely slow and further complicate the appropriations process, which is the opposite of its stated purpose. More information about this idea is expected to be released early next week.
Supplemental Funding for Israel; House Approval
As both chambers scramble to pass appropriations before November 17, they have also taken up President Biden’s supplemental spending requests which include $106 billion for national security and $56 billion for domestic programs.
On Thursday, the House chose to put off aid for Ukraine requested in the national security supplemental, instead passing the Israel Security Supplemental Appropriations Act. The $14.3 billion bill carries a pay-for provision if equal cuts to IRS funding from the Inflation Reduction Act (IRA). The Congressional Budget Office (CBO) released its score of the offset, which found it would add $26.8 billion over the next ten years. A dozen Democrats joined the GOP in passing this bill through to the Senate, stressing the need for immediate assistance to Israel:
- Angie Craig (D-MN)
- Don Davis (D-NC)
- Lois Frankel (D-FL)
- Jared Golden (D-ME)
- Josh Gottheimer (D-NJ)
- Greg Landsman (D-OH)
- Jared Moskowitz (D-Fl)
- Darren Soto (D-FL)
- Haley Stevens (D-MI)
- Juan Vargas (D-CA)
- Debbie Wasserman Schultz (D-FL)
- Frederica Wilson (D-FL)
Republican Senators Mitch McConnell (R-KY) and Mitt Romney (R-UT) have stressed the importance of passing the national defense supplemental request as a package due to the interconnected nature of each issue, while other Republican Senators are calling on their colleagues to support their Republican counterparts in the House. President Biden has vowed to veto this measure if it can clear both chambers of Congress, something that is seemingly very unlikely. The House and Senate will work to find agreement on supplemental funding when they return next week.
Jobs Figure Cools; Unemployment Ticks Up in October
This morning’s jobs report showed that total nonfarm payroll employment increased by 150,000 in October, below expectations. In its release, the Bureau of Labor Statistics revised jobs added to the economy in August and September downward by a combined 101,000 jobs.
Gains in employment were seen in health care, government, and social assistance. Employment in manufacturing declined by 35,000 jobs over the month, reflecting a decline of 33,000 in motor vehicles and parts largely due to strike activity. With the resolution of the UAW strike, this decline is likely to be largely reduced in future reports.
As of November 3, 2023 at 8:30 am
Source: Council of Economic Advisors
The unemployment rate ticked up slightly by 0.1 percent to 3.9 percent. Meanwhile, wage growth slowed slightly in October. Nominal average hourly earnings rose by 0.2 percent last month.
The October report overall shows the labor market cooling. This is sure to be a welcome development for the Federal Reserve as it seeks to see economic cooling to signal progress in its effort to cool inflation. Earlier this week, the Fed held the interest rate steady at the 5.25 to 5.5 percent range. While the Fed has signaled that a potentially final 25 basis point hike may be in the cards for its meeting in December or one of its meetings early next year, the central bank has signaled that it will be taking a data-dependent approach as it evaluates its next steps.
UAW Strike Update
As of Thursday evening, the UAW had reached tentative agreements with the Big Three Detroit automakers – Ford, GM, and Stellantis – to end the six-week-long strike that brought the American auto industry screeching to a halt. GM, the last company to hold out, reached an agreement with UAW on Monday which largely followed the same template as the UAW’s agreements with the other two, one that would raise wages by about 25 percent over the 4.5-year contracts, reinstate cost-of-living adjustments, increase 401(k) company contributions, and enhance profit-sharing bonuses. On Thursday afternoon, workers at the first plant to strike – at Ford’s Michigan Assembly Plant in Wayne, MI – voted overwhelmingly to approve the deal. Other UAW chapters are likely to follow.
While the deals are an undeniable win for the UAW, and with the union clawing back concessions made after the downturn of the American auto industry in the late 2000s, some are questioning what effects the strike will have on the US auto industry in the long term. The higher labor costs that the Big Three agreed to mean that they will have more trouble competing with non-unionized auto manufacturers, such as Tesla, Toyota, and Hyundai. That said, the UAW’s success could inspire non-unionized auto workers to organize. In the short term, stockholders are grumbling about the billions that the Big Three lost in earnings as well as the substantial decline in the stock values for each company seen throughout the strike.
Biden Issues Order on Algorithmic Discrimination
On Monday, President Biden issued a sweeping executive order establishing new standards for safety and security around artificial intelligence (AI).Several provisions of the EO are designed to protect consumers from discrimination, bias, and other abuses that can result from the irresponsible use of AI in housing, health care, and the criminal justice system.
Complex algorithms, marketed as artificial intelligence, and other predictive decision-making technologies are being increasingly used in underwriting which can result in consumers being denied credit for reasons that may not be directly relevant to their finances. Agencies charged with consumer protection have been raising flags about the need to protect consumers from bias in automated systems. In September, the Consumer Financial Protection Bureau (CFPB) issued guidance on credit denials by lenders using artificial intelligence.
The new order provides clear guidance for landlords to prevent bias in AI tools used to decide whether applicants qualify for housing and encourages federal agencies to go further. The executive order instructs the Department of Housing and Urban Development and encourages the CFPB to issue additional guidance addressing:
- the use of tenant screening systems in ways that may violate the Fair Housing Act, the Fair Credit Reporting Act, or other federal laws.
- how the Fair Housing Act, the Consumer Financial Protection Act of 2010, or the Equal Credit Opportunity Act apply to the advertising of housing, credit, and other real estate-related transactions through digital platforms.
The executive order is a signal that the Biden administration is serious about protecting against the proliferation of inequality in access to housing that the irresponsible use of new technology has the potential to exacerbate.
House Capital Markets Subcommittee on SEC Agenda
The House Financial Services Committee Subcommittee on Capital Markets convened on Thursday morning for a hearing to examine the Securities and Exchange Commission’s agenda, with a focus on “unintended consequences for U.S. capital markets and investors.” The hearing is the latest in a series of hearings led by subcommittee Republicans opposed to the SEC’s efforts to protect capital markets.
The most immediate threat to the agency’s ability to effectively regulate America’s capital markets: the looming government shutdown, which as SEC Chair Gensler noted during a previous hearing, would result in over 90 percent of the agency’s roughly 5,000 employees being furloughed. The SEC would also be unable to review documents necessary to allow companies to proceed with their initial public offerings (IPOs). In his opening statement, Subcommittee Ranking Member Brad Sherman (D-CA) highlighted the risk for capital markets should the agency’s work be curtailed during a shutdown.
Subcommittee Chair Ann Wagner (R-MO) and Republicans reiterated their ongoing criticism of the agency, claiming that the agency is overly ambitious in its rulemaking agenda, failing to allow for sufficiently long comment periods, showing disregard for congressional concern and inquiries, and exceeding its mandate, particularly in areas related to environmental and social policies.
The SEC has been engaged in expansive rulemaking to regulate expanding capital markets, many of which continue to face challenges. Just this week, the Fifth Circuit Court of Appeals gave the SEC 30 days to “correct the defects” in its stock-buyback rule.
Senate Appropriations Takes on Biden Supplemental(s)
On Tuesday, the Senate Appropriations Committee held a hearing titled, “A Review of the National Security Supplemental Request.” This hearing discussed the $106 billion supplemental funding request submitted by the Biden Administration last week that includes aid for Israel, Ukraine, and the Indo-Pacific, as well as additional funding for border security. Witnesses, Secretary of State Anthony Blinken and Secretary of Defense Lloyd Austin stressed the interconnected nature of each piece of the funding request and urged Congress to support it in its entirety. This call to action was made amidst House Republican proposals to pass the $14.3 billion in funding for Israel that Biden requested in a stand-alone bill.
Last week, the Biden Administration also submitted a separate supplemental spending request for $56 billion to be used for domestic programs. The Senate Appropriations Committee will hold another hearing discussing the details of this request on November 7.
House Housing and Insurance Subcommittee: The High Cost of Insurance for Consumers
On Thursday, the House Financial Services Committee Subcommittee on Housing and Insurance held a hearing to discuss the factors leading to the high cost of insurance for consumers across the country. The GOP members, beginning with Subcommittee Chairman Warren Davidson (R-OH), stressed the importance of maintaining a state-based regulatory system for the insurance industry, as outlined by the McCarran-Ferguson Act. They accused the Federal Insurance Office (FIO) of overreaching its authority by collecting data from insurance providers on climate change, which they referred to as politicization of the agency’s authority. Democrats, such as Subcommittee Ranking Member Emanuel Cleaver II (D-MO), HFSC Ranking Member Maxine Waters (D-CA), and Representative Steven Horsford (D-NV) focused on rising costs for low-income families, especially families of color.
Hearing witnesses largely agreed that the biggest driving factors in high insurance costs were rising inflation and interest rates, increases in natural catastrophes, and high litigation from individuals pushing fraudulent claims. They were almost all in agreement on a few points, such as the need to renew the National Flood Insurance Program on a long-term basis. Robert Gordon, the Senior Vice President of the American Property and Casualty Insurance Association, was most focused on the importance of sound regulatory practices at the state and federal level. Joseph Petrelli, the President and Cofounder of Demotech, Inc., spoke of the dangers of “tech-enabled” claim instigation, where con artists use technology to instigate fraudulent claims against insurance providers, as well as other cyber crimes related to the insurance industry.
Tuesday, November 7
- House Financial Services Committee Hearing: The Tangled Web of Global Governance: How the Biden Administration is Ceding Authority Over American Financial Regulation
Wednesday, November 8
- Senate Appropriations Committee Hearing: A Review of the President’s Supplemental Request for the Departments of Health and Human Services and Homeland Security
- Senate Budget Committee Hearing: Fairness and Fiscal Responsibility: Cracking Down on Wealthy Tax Cheats
Thursday, November 9
- Senate Finance Committee Hearing: Examining How the Tax Code Affects High-Income Individuals and Tax Planning Strategies
- House Financial Services Committee Member Day Hearing
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