Update 736 — Thanksgiving Leftovers: CR Signed; Room for December Items?

Now that Congress has passed and the President has signed the Continuing Resolution (CR) funding the government at current levels into early 2024, the opportunity arises for Congress to take up the many issues unaddressed during the House leadership elections and CR negotiations. We will leave these for consideration here until after the Thanksgiving break.

This week, the CR, the good news on inflation, and the bad news at the FDIC, covered below, got deserved attention. Markets, in particular, seem convinced that the drop in core CPI means the end of more interest rate hikes for the Fed this year. And speculation is rampant about the emerging sexual improprieties at the FDIC. See below for more on these and other economic policy developments of the week.

Good weekends, all…

Best,

Dana

Headline

Senate OKs, Biden Signs Speaker’s CR Proposal

President Biden signed House Speaker Mike Johnson’s CR into law on Thursday, ensuring avoidance of a government shutdown at midnight. The CR passed in the Senate Thursday in an 89-11 vote. Senator Rand Paul’s (R-KY) last-minute amendment to reduce the non-defense discretionary spending levels of the CR by one percent was defeated by 65-32. The Senate passed the House CR proposal without any modifications. Following our coverage Wednesday, the House tried to resume consideration of their appropriations bills. The House had originally planned to work through amendments for Commerce, Justice, and Science (CJS) before heading home for Thanksgiving recess. But progress was held up by conservatives unhappy with the clean CR proposed by Speaker Johnson. In protest, 19 Republicans opposed a rule vote that would allow floor consideration to begin for amendments to the bill. While CJS is not a departure from the other House appropriations bills, it does reinforce the prolific divisions within the House Republican Caucus.

Other Developments

CPI: Prices Cool Further in October

A core measure of inflation continued to cool in October, continuing the downward trend seen since September of last year. Consumer Price Index (CPI) data released on Tuesday showed core CPI, which excludes food and energy prices, rose by 0.2 percent last month and by 4.0 percent on a year-on-year basis. This represents the lowest annualized increase in core CPI since September 2021. 

Headline inflation remained flat in October with prices rising by 0.4 percent over the month, on par with September’s 0.4 percent increase. On a yearly basis, prices rose by 3.2. 

Source: CNBC

Shelter costs rose by 0.3 percent over the month, down from 0.6 percent seen during September. Meanwhile, food prices rose by 0.3 percent in October, a significant shift from the soaring rise in food prices seen in 2022. The energy index fell by 2.5 percent in October as the gasoline index fell by 5.0 percent while other components of the index rose. 

The continued fall in CPI toward the Federal Reserve’s target of two percent represents slow but steady progress in the effort to cool inflation. This may incline the Federal Open Market Committee (FOMC) to hold the federal funds rate steady at the 5.25-5.5 percent range rather than raise rates by another 25 basis points at their next meeting on December 12-13.

UAW Workers at GM Ratify Contract, Ending Strike

On Thursday, 36,000 UAW members working at General Motors voted 55 to 45 percent to ratify the contract that UAW negotiated with GM. The contract in question includes a 25 percent general wage increase over the contract’s 4.5-year lifespan, an immediate 11 percent pay increase, cost of living adjustments, and other concessions that mirror the contracts negotiated with Ford and Stellantis. The final tally comes after workers in GM facilities in Michigan, Indiana, Missouri, and Tennessee voted down the contract, with opposition arising in part from veteran workers concerned that the contract did not do enough to increase wages and benefits after decades of concessions and wage erosion.

Voting on the UAW contracts with Ford and Stellantis was ongoing as of Friday morning, with the total votes in favor of the contracts standing at 66.8% and 68.4% respectively. If all three contracts are approved, that ends the six-week-long strike that brought production at the Big Three automakers to a halt, causing over $9 billion in economic impact.

Hearings

Gruenberg Confronts Allegations; GOP Attacks Capital Proposal

Top officials at federal banking regulators testified before the Congress this week in separate hearings. Legislators grilled Federal Deposit Insurance Corporation (FDIC) Chair Martin Gruenberg on allegations of sexual harassment and toxic workplace culture at the agency while Republicans continued their ongoing attack on the regulators’ Basel Endgame proposal.

Gruenberg – along with Federal Reserve (Fed) Vice Chair for Supervision Michael Barr, National Credit Union Administration (NCUA) Chair Todd Harper, and Office of the Comptroller of the Currency (OCC) Acting Comptroller Michael Hsu – testified before the Senate Committee on Banking on Tuesday and the House Financial Services Committee on Wednesday in the semi-annual appearance of senior prudential regulators before Congress. 

The Fed, FDIC, and OCC’s joint proposal to implement the final components of the Basel III agreement, also known as the Basel III endgame, which includes a new set of capital requirements for the largest financial institutions, continued to receive criticism from Republicans. As Senate Banking Committee Chair Sherrod Brown (D-OH) pointed out, the banking industry and Republican’s criticisms of the proposal began before it was even released and persist despite covered banks’ capacity to comply while remaining profitable. Brown called on officials to deliver a strong final rule and to recognize tired attacks against the proposal as “whining.” 20/20 Vision reiterates Chair Brown’s call for a strong final rule to enhance the resilience of our financial system and protect Americans and small businesses.

Gruenberg claimed that he was unaware of allegations in Monday’s Wall Street Journal article – which detailed pervasive sexual harassment, misogyny, and a lack of accountability at the agency – before it was published, despite leading the agency in which a toxic work culture has allegedly driven female employees to leave. In another article published yesterday, current and former FDIC officials said that Gruenberg was involved in decisions over cases of “alleged sexism, harassment, and racial discrimination in which the agency didn’t take a hard line.” 

Since the reports were published, a growing number of members of Congress, including Senate Banking Committee Member Thom Tillis (R-NC) and Senators John Kennedy (R-LA) and Joni Ernst (R-IA), have called on Gruenberg to resign. The FDIC’s supervisors play a crucial role in protecting the stability of the banking sector and the broader financial system. 

Gruenberg’s position on the five-person FDIC Board is important for the path forward for proposed banking rules, including the Basel Endgame proposal. Gruenberg is one of three Democrat-appointed members. The two Republican-appointed members – Vice Chair Hill and Director McKernan – have voted against the proposal. 

JEC on Demographic of the U.S. National Deficit

On Wednesday, the U.S. Congress Joint Economic Committee held a hearing titled “Aging Americans and a Waning Workforce: Demographic Drivers of Our Deficit.” The hearing began with Dr. Julie Topoleski, CBO, and Dr. John Scott, the Pew Charitable Trusts, outlining projections for age demographics within the U.S. over the next few decades. Over the next 30 years, the population of people over 65 is expected to grow 10 times faster than the population under 65. Additionally, the CBO projects that immigration will account for 70 percent of the increase in population over the next thirty years, as fertility rates are currently below the replacement fertility rate of 2.1. The aging population in the U.S. is likely to present fiscal challenges as the number of older Americans will continue to grow relative to the population of people who are working and paying taxes.

Conservative members of Congress, such as Representative David Schweikert (R-AZ), pointed to mandatory spending, specifically on entitlement programs, as the main driver of our deficit. They emphasized the associated challenges that will come with changes in age demographics as we approach the insolvency of entitlement trust funds within the next ten years. However, Representative Katie Porter (D-CA) pointed to tax cuts in the TCJA that will increase our deficit by $1.8 trillion as the main contributor to our current fiscal situation. 

Witnesses Dr. Ben Harris, Brookings Institute, and Dr. Kathryn Anne Edwards noted the positive effects that paid leave policies and immigration reform could have on reversing the demographic trends that we are currently seeing. Paid leave policies could raise fertility rates, and immigration reform could bring more young people into the workforce who can pay into our entitlement programs. In general, witnesses at the hearing supported the idea that both revenue and spending will need to be addressed in pursuit of lowering the national deficit.

Kanter Appears Before House Judiciary Antitrust Panel

The House Judiciary Subcommittee on the Administrative State, Regulatory Reform, and Antitrust convened on Tuesday for a hearing focused on oversight of the Department of Justice (DOJ) Antitrust Division. 

Assistant Attorney General at the Department of Justice Antitrust Division Jonathan Kanter highlighted his department’s strategy of taking action in areas where people most feel the effects of concentration. Kanter discussed the department’s successful prosecutions of antitrust cases tackling consolidation in a broad range of markets, including housing to agriculture, including the Division’s successful efforts to :

• secure over $220 million in penalties for a criminal conspiracy by drug companies to raise drug prices. 
• secure commitments from chicken processors to pay over $90 million in restitution directly to slaughterhouse workers.
• block a de facto merger between two major airlines that would have further consolidated the industry. 

Subcommittee Chair Thomas Massie (R-KY) pushed back the Division’s work under Kanter’s leadership and the draft merger guidelines proposed by the DOJ and Federal Trade Commission in July. The proposed guidelines on approving mergers represent one of the most important developments in antitrust law in over a decade. It lays out roughly a dozen clear ways that mergers can violate the Clayton Act, the statute that most directly addresses mergers. 

Look Ahead

Both chambers will be out of session next week for the Thanksgiving holiday.