SO MANY BLOCKBUSTERS THIS WEEK: the Jan. 6 committee going for the jugular; a gun reform bill finally moving; an Iranian nuclear deal apparently dead, etc. But the big story is the Washington panic over inflation, which may lead the Federal Reserve to consider more aggressive tightening.
THE GASOLINE PRICE SPIKE has rocked the political world, as inflation becomes an issue that almost certainly will lead to a GOP tidal wave on Nov. 8. The reeling Biden Administration has no answers; the president has accepted no blame, instead blasting energy and shipping firms late last week.
THE INCREASINGLY ANGRY PRESIDENT said this in Los Angeles on Friday after learning about shipping industry profits: “Every once in a while, something you learn makes you viscerally angry — like, if you had the person in front of you, you’d want to pop them. No, I mean that.”
THE NEW YORK TIMES reported this weekend that Democrats increasingly believe that Biden should not run for re-election in 2024 (as we have asserted consistently). We’ll go even further — there’s a growing concern that Biden may not be capable of serving the rest of this term, two and a half long years to go.
BIDEN IS ON THE VERGE of winning a modest gun reform bill, which omits curbs on assault weapons, but any victory would be welcome at the White House. In need of a villain to target, the administration has a big one: Donald Trump, as a criminal referral to the Justice Department looks increasingly likely; the Jan. 6 committee will continue to exceed expectations today.
BUT WE REITERATE that the gasoline price spike is without political precedent in the past four decades, almost certain to cost Biden control of the House and possibly the Senate as well.
THERE’S A GROWING NEED TO CONVINCE THE FINANCIAL MARKETS that inflation will subside, so the White House is counting on the Federal Reserve to take strong action. We think a 75 basis point hike — either this week or more likely in late July — is now on the table.
THE MARKETS MAY NEED TO SEE A “SHOCK AND AWE” move by the Fed, where some officials — led by Fed St. Louis Fed President James Bullard — want to impose harsh medicine. We don’t think Bullard will have the votes this week, but we’ll carefully listen to Jerome Powell’s press conference on Wednesday; could Powell hint that a 75 bp move is possible at the late July meeting?
AS IF BIDEN DOESN’T HAVE ENOUGH ECONOMIC HEADACHES, there’s fresh gloom on geopolitics. An Iranian nuclear deal appears dead, as officials in Tehran have shut down cameras in its nuclear facilities, a sign that they will not comply with any restrictions. And a lack of ammunition has kept Ukrainian troops on their heels for the past few weeks.
BOTTOM LINE: This gloomy outlook is missing one key ingredient — a recession, which still doesn’t appear to be imminent this year. But by 2023 the absence of robust monetary and fiscal stimulus will become apparent; the annual budget deficit is about to plunge from about $3 trillion last year to about $1 trillion this year, an astonishing decline that makes us nervous about a stimulus-starved economy in 2023.
Related: The House Looks Gone, but do Democrats Have a Chance in the Senate?
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