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Joe Manchin’s climate change spending bill should be considered Wimpy legislation.
You’ll remember J. Wellington’s character Wimpy from the Popeye comic and cartoons. Originally the main character of the animated film “Thimble Theater”, Wimpy was replaced by Popeye when it became an animated series. He was most famous for trying to trick the owner of the Rough House into giving him a burger on credit. “I’ll gladly pay you on Tuesday for a hamburger today,” Wibby said.
The Inflation Reduction Act, which Senator Manchin (D-WV) is working with Majority Leader Chuck Schumer (D-NY) to pass through the Senate this week, claims its nomenclature based on the claim that will reduce the budget deficit. As we’ve explained, the specific mix of spending and tax increases in the bill likely wouldn’t reduce inflation, even if the net effect was a reduction in budget deficits. It is not enough just to reduce the deficit by the size of increased spending. Tax increases or offsetting spending cuts must substantially reduce demand for the types of goods and services facing inflation.
Sen. Joe Manchin (D-WV), left, speaks with Senate Majority Leader Charles Schumer (D-NY) on March 15, 2022, in Washington, DC. (Chip Somodevilla/Getty Images)
On Thursday, the Congressional Budget Office released its analysis of the bill. According to the CBO, the bill would actually reduce the budget deficit by $101.5 billion over the next 10 years. Almost all of that reduction, however, doesn’t begin until 2028. So Manchin’s bill promises to pay for all of his extra spending on climate subsidies with savings from about 300 Tuesdays starting today.
Bullard Stomps the Pivot, Agora doesn’t care
St. Louis Federal Reserve Bank President James Bullard Wednesda saidy that the Federal Reserve will not stop raising interest rates until it sees hard evidence that inflation has been tamed. That was a message aimed squarely at financial markets, which currently reflect the view that the Fed is likely to back off or move away from fighting inflation if the economy clearly slips into a deep recession. Some on Wall Street are actually saying the Fed has already pivoted.
Much of this speculation that the Fed might be pivoting came after Fed Chairman Jerome Powell made a seemingly offhand remark that seemed to indicate he believed monetary policy was now neutral rather than accommodative. This led many to assume that only a few small increases would be needed to move monetary policy to a tightening stance that would reduce inflation.
Bullard went right to it on Wednesday.
“We still have some ways to go here to get to tight monetary policy,” Bullard said in an interview with CNBC. “I have argued now with the warmer inflation numbers in the spring, we should get to 3.75 percent to 4 percent this year. Just whether you want to do this in a particular meeting or some other meeting is a big question. I liked the front loading. I think it strengthens our anti-inflation credentials.”
St. Louis Federal Reserve Bank President James Bullard gestures during a discussion at Euro Finance Week in Frankfurt, Germany on November 18, 2016. (Jasper Juinen/Bloomberg via Getty Images)
That’s 150 basis points of additional gains over the remaining three meetings, which is more than the 25 points per meeting that many on Wall Street were expecting. As of yesterday, the Fed futures market indicated a 64% chance that the Fed’s target would be at 3.50% or lower after the December meeting.
Bullard also said he didn’t see a turnaround in the cards in the near future.
“I think we should probably be higher for a longer period of time in order to have the evidence that we need to see inflation actually turn around across the board and convincingly come lower, not just a tick lower here and there. Bullard told CNBC.
Bullard indicated that he does not believe we are in a recession right now. This is an aggressive position on interest rates because it shows that the economy is strong enough to accept larger rate hikes.
“With all the job growth in the first half of the year, it’s hard to say there’s a recession. With the unemployment rate holding steady at 3.6 percent, it’s hard to say there’s a recession,” Bullard said.
Important, Bullard he is not alone in this. On Tuesday, Cleveland Fed President Loretta Mester – like Bullard, a voting member of the Federal Open Market Committee this year – indicated that more tightening is needed before inflation can ease. San Francisco Fed President Mary Daley, Chicago Fed President Charles Evans, Minneapolis President Neil Cascari and the Richmond Fed’s Thomas Barkin – who did not vote for members this year – also said they see interest rates rising and emphasized the their commitment to fight inflation. Kashkari and Evans will be voting members next year.
However, the market is not convinced. As of Wednesday, futures still favor the Fed raising its target interest rate only to a range of 3.25% to 3.50%. Bullard’s range of 3.75 percent to four percent is given less than a six percent chance.
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