Washington digests some very good, very confusing, economic news
The US economy’s encouraging start to 2023 got a major boost this morning when the Labor Department published its January jobs report. It showed that non-farm payrolls increased by 517,000 last month, a far higher figure than the Dow Jones estimate of 187,000. Economic forecasts are often wrong, but that’s a very big miss.
The White House has welcomed the news: “The Biden economic plan is working,” said the president this morning. “Sometimes good news is just good news. And this time, it’s great news,” outgoing chief of staff Ron Klain observed to Politico’s Ben White.
But the unalloyed goods are a rare thing in Washington, and these jobs numbers will needle at economic policymakers’ fears that the fight against inflation is a long way from over. And, politically speaking, inflation is the economic indicator the administration is most worried about.
Few will feel that worry more intensely than Jay Powell. The jobs report comes hot on the heels of a Wednesday interest rate hike of 0.25 percent, a smaller increase than the rises 0.75 percent and 0.5 percent in November and December respectively. “The job is not yet done,” said Powell, warning of further rises ahead. “Whatever you say, Jerome,” replied the market, with stock prices surging.
The fundamental economic question that still hangs over Washington is whether inflation can be tamed without higher interest rates triggering a recession.
Such a scenario is certainly possibly, but history suggests it is unlikely. And the US economy could fail to buck the trend in one of three ways. Inflation could continue to fall but with the economy contracting. Or the economy could do the opposite, reheating and pushing up inflation in the process. Also possible: a stagflationary period in which the economy contracts and but inflation stays high.
Politically speaking, there’s an awful lot at stake. A soft landing would ease pressures on the administration and save Biden, Powell and others from confronting unpalatable trade-offs in the next year. Which of these paths the US is on will set the backdrop to 2024 and help decide the legacy of the big economic decisions made by the Biden administration in its early months that set the tone for so much of the economic debate in the years that followed. “If we have inflation get durably back to 2, 2.5 percent range without there ever having to be a downtown, the American Rescue Plan looks much better to future historians,” said Larry Summers this morning. He’s right. But with inflation still up at 6.5 percent, that remains a big if.
So far this year, the US economy’s prospects have gotten a little better — and a lot more confusing.
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Shoot down the balloon!
A Chinese spy balloon is hovering somewhere over Montana. Cockburn is monitoring the situation and thinks the simplest situation is the best: shoot the thing down. After scrambling two F-22 fighters from Nellis Air Base in Nevada, the administration decided against doing so. A senior defense official said that the balloon added “little additive value” to what the Chinese would be able to see with a satellite. That poses the question: why risk sending it at all? Secretary of state Antony Blinken was set to visit Beijing for talks with Xi Jinping but the trip has been postponed in response to the incursion.
Trump freestyles on Ron and revenge tours
Donald Trump gave what might politely be described as a freewheeling interview to radio host Hugh Hewitt yesterday. Asked whether he would get pay back on his political enemies if he won in 2024 he said he’d be “entitled to go on a payback tour, to tell you the truth, but I won’t do that.” He also claimed that there were tears streaming down Ron DeSantis’s face when he asked for the then-president’s endorsement in 2018.
Perhaps the most eyebrow-raising part for Republican listening, though, was his refusal to commit to backing the party’s nominee in 2024. Just Trump being Trump, or signs of a major fissure to come?
What you should be reading today
David Marcus: We are failing the test of protecting our children
Ben Domenech: Trump forfeits his vaccine success to attack DeSantis
Charles Lipson: The ever-shifting excuses about Hunter Biden’s laptop
Tyler Cowen, Bloomberg: Deglobalization is the new globalization
Jim Geraghty, National Review: Hunter Biden’s utterly ridiculous prosecution demands
Hugh Hewitt, Washington Post: The GOP is in much better shape than you think
Poll watch
President Biden job approval
Approve: 43.9 percent
Disapprove: 52.3 percent
Net approval: -8.4 (RCP average)
Views on American support for Ukraine
All voters
Too much support: 26 percent
About right: 31 percent
Not enough: 20 percent
Republicans
Too much support: 40 percent
About right: 24 percent
Not enough: 17 percent
Democrats
Too much support: 15 percent
About right: 40 percent
Not enough: 23 percent (Pew)
