CUSEF Blog

Economy

The Federal Reserve raised its target interest rate by a quarter of a percentage point, further slowing its aggressive rate hikes.

Why it matters: The rate increase is the smallest since March 2022 and marked a significant slowdown from the Fed’s fastest rate rise since the 1980s.

What’s happening: Fed’s decision brings the target range for the federal funds rate to 4.50%-4.75%.

• Fed’s chairman Jerome Powell said that officials were discussing raising rates “a couple more” times to ensure price pressures are fully under control.

Opinions: Economists pointed out that the central bank has entered a new phase in which it will raise interest rates more slowly as recent price growth is cooling.

U.S. job growth was surprisingly strong in January as employers added 517,000 jobs and the unemployment rate fell to 3.4%, the lowest level since 1969.

Why it matters: The unexpected strength of the labor market could be a challenge for the Federal Reserve, which has pushed to slow economic growth and tame inflation by aggressively raising interest rates.

What’s happening: The employment increase was led by growth in service businesses.

• Despite solid job growth, wage growth continues to slow. Average hourly pay rose 4.4% in January from a year earlier, down from a 4.8% year-over-year increase in December.

Debt ceiling

President Joe Biden and Republican House Speaker Kevin McCarthy (R-CA) held preliminary talks Wednesday on lifting the government’s borrowing limit.

Why it matters: The meeting might be the start of a political battle between the White House and Republicans over the federal debt ceiling.

What’s debt ceiling: Because the government spends more than it takes in, it regularly borrows money to pay its existing bills.

• Only Congress can set the limit on how much the government can borrow to pay for its spending. That cap is $31.4 trillion now.
• The government hit its borrowing limit on January 19. The Treasury Department has taken “extraordinary measures,” including suspending some planned investments in retirement and disability welfare, to keep the government paying its bills until early June.
• Failure to raise the debt limit in time could cause a default on the government’s debt obligations and hugely impact the economy and financial markets.

What’s happening: Republicans, which control the House, say they would only lift the debt limit if the administration agrees to cut its spending. On the other hand, the White House stated that lawmakers should negotiate separately to reduce the spending, underlining that congressional leaders are obligated to raise the debt ceiling.

• After meeting with Biden, Speaker McCarthy said the two sides agreed to address the issue in a “responsible” way. He also noted that they could find “common ground” on the debt ceiling.

Opinions: Observers are pessimistic as the lack of signs of an immediate breakthrough in the talks and the motivations of both sides suggest progress toward a deal may be elusive.

Congress

On Tuesday, Rep. George Santos (R-NY) said he would temporarily step down from his committee assignments amid calls for his resignation.

Why it matters: The retreat marked the first concession by the New York Republican, who has admitted to making up some parts of his curriculum vitae and faced multiple investigations.

What’s happening: In his statement, Santos said he would temporarily recuse himself from the House Small Business Committee and the Science, Space and Technology Committee until “he was clear.”

The big picture: Santos’s decision was more likely to be linked to Speaker Kevin McCarthy’s recent efforts to remove Rep. Ilhan Omar (D-MN) from the House Foreign Affairs Committee. Observers noted that Santos’s decision appeared intended to protect Republicans from hypocrisy before they attempt to oust Omar from a committee seat.

On Thursday, House Republicans voted to remove Rep. Ilhan Omar (D-MN) from the Foreign Affairs Committee over her past criticism of Israel, which is condemned as antisemitic.

Why it matters: The ouster was seen as Republican revenge. In the last Democratic-led House, Democrats ousted Reps. Marjorie Taylor Greene (R-GA) and Paul Gosar (R-AZ) of their committee assignments for incendiary tweets and violent comments against Democrats.

What’s happening: In a vote along party lines, the House stripped Omar, who is Black and one of the first two Muslim women in Congress, of her assignment in the Foreign Affairs committee.

• The resolution cited numerous comments Omar made between 2019 and 2021 about Israel and pro-Israel groups that have been slammed as antisemitic by lawmakers on both sides.
• While Democrats, including many Jewish lawmakers, stood with Omar, the GOP argued that Omar needs to be “held accountable for her words.”

Opinions: Observers noted that McCarthy’s move to compel the ouster of Omar, which some of his rank-and-file members opposed, revealed his willingness to gain favor with the hard-right Republican base, who were once against his speakership, in the early days as Speaker.

Hotspots in the field

• Tyre Nichols, a Black man, was beaten to death by five Black police officers during a traffic stop. The death led to rallies denouncing police brutality and calls for Congress to act on police reform.
• Texas proposes a law that bans entities and citizens related to four countries – China, North Korea, Iran, and Russia – from purchasing real estate in Texas, with green card holders excluded. Chinese-Americans in the state denounced the bill as racist and unconstitutional.
• Dell will cut about 6,650 jobs, or about 5% of its global workforce, in the face of a sharp decline in demand for personal computers.
  
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