Happy Monday! On this date in 1996, President Bill Clinton, who had campaigned on a promise to “end welfare as we know it,” signed into law the “Personal Responsibility and Work Opportunity Reconciliation Act,” which led to a dramatic drop in the number of people receiving federal cash assistance.
Here’s what’s making fiscal news today.
Most Americans Worried About Student Loan Forgiveness: Poll
With the pandemic suspension of federal student loan payments scheduled to end in less than two weeks, the Biden administration is expected to announce its decision on extending the pause any day now – in what could be a major event for the roughly 44 million people who owe about $1.7 trillion in federal student loan debt.
Education Secretary Miguel Cardona on Sunday told NBC’s “Meet the Press” that the issue is front and center in the White House. “We know Aug. 31 is a date that many people are waiting to hear something from,” he said. “We’ve been talking daily about this and I can tell you that the American people will hear within the next week or so from the president and the Department of Education on what we’re going to be doing around that.”
The expectation is that the loan payment suspension that was declared at the beginning of the Covid-19 pandemic will continue for the rest of the year, but some activists are calling for more — with proposed options including the permanent forgiveness of $10,000 in student loans per borrower.
The costs of debt relief: Many economists oppose the idea, citing both the cost of forgiving loans and the potential inflationary effects. Jason Furman, who led President Obama’s Council of Economic Advisers, argued late last week that debt forgiveness would necessarily increase inflation. “We’re at capacity now,” Furman said of the economy. “Student loan relief would lead some people to spend more. We can’t make more so others would consume less. The way that happens is inflation.”
Furman also said that student debt relief would necessarily have a cost. “Student loan relief is not free. It would be paid for,” he wrote. “Part of it would be paid for by the 87% of Americans who do not benefit but lose out from inflation. Part of it would be paid for by future spending cuts [and] tax increases — with uncertainty about who will bear those costs.”
In a series of tweets Monday, former Treasury Secretary Lawrence Summers, also a Democrat, agreed. “I hope the administration does not contribute to inflation macro-economically by offering unreasonably generous student loan relief or micro-economically by encouraging college tuition increases,” he said. “Student loan debt relief is spending that raises demand and increases inflation.”
Many Americans seem to agree: In a poll released by CNBC Monday, 59% of respondents said they are worried that student loan debt relief will make inflation worse. The online poll of 5,142 adults was conducted from August 4 to 15.
72% of Economists Expect a Recession by Mid-2023: Survey
The Federal Reserve is still aiming to rein in inflation without causing a recession, but many economists think that a significant slowdown is more likely than not.
In a survey released Monday, 72% of forecasters in the National Association for Business Economics said they expect to see a recession by the middle of 2023 — and nearly 20% think the economy is already there.
“Overall, panelists are not confident that the Federal Reserve will be able to bring inflation down to its 2% goal within the next two years without triggering a recession,” NABE’s analysts wrote, summing up the views of the 198 participants in the biannual survey. “In addition, roughly one-fifth of panelists believes the U.S. is already in a recession, while nearly half the panelists—47%—expects a recession to begin by the end of 2022 or the first quarter of 2023.”
One problem identified by the forecasters is that they think the economy is still receiving too much of a boost from the government, with slightly more than half of respondents saying that current fiscal policy is too stimulative. At the same time, about three-quarters expressed approval of the Inflation Reduction Act, with 69% supporting the 15% minimum corporate tax, 68% supporting the Obamacare subsidies and drug price negotiation power for Medicare, and 63% supporting the increased federal spending on combatting climate change.
All eyes on Powell: As central bankers gather this week for their annual meeting in Jackson Hole, Wyoming, to discuss the state of the global economy, investors and forecasters are waiting for Fed chief Jay Powell to provide an update on his latest thinking about the battle against inflation when he speaks on Friday.
Many on Wall Street are hoping that the Fed has seen signs of economic slowing and can therefore ease its tightening campaign. But expectations are high that Powell will signal that the central bank plans to maintain its exceptionally vigorous anti-inflation effort. “They are so focused on doing this partly just because they screwed up last year with the whole ‘transitory’ thing, and they realize that the one thing they can do now is tighten policy, and that will slow inflation,” Kevin Cummins, the chief US economist at NatWest Markets, told Bloomberg.
Summers, the former Treasury secretary, on Monday urged Powell to maintain the current path – and to make it clear that conditions are not yet tight enough, and that further tightening will necessarily cause economic pain.
“My worst fear would be that the Fed will continue to be suggesting that it can have it all in terms of low inflation, low unemployment and a healthy economy,” Summers told Bloomberg Television. Continuing to talk about a soft landing, in which inflation falls without unemployment rising significantly, inserts “a certain confusion into all of their statements,” he added.
Summers said that, in his view, financial conditions are still too loose, and inflation is still very much a problem. “I don’t see that we’re making any great progress with respect to core inflation,” he said. “We’ve still got a substantial inflation challenge ahead of us.”
Summers called on Powell to make it clear that “policy is not yet restrictive, that it needs to be restrictive if we’re going to contain inflation, and that we’ll need to accept the consequences of that.”
The message should “be delivered starkly and clearly,” Summers added.
Plurality of Voters Say Dems’ Inflation Reduction Act Is a Good Idea — That Won’t Help Them: Poll
The NBC News poll found that 42% of registered voters think the Inflation Reduction Act passed by Democrats is a good idea, while 31% think it’s a bad idea and 26% have no opinion. But Democrats may have a challenge in convincing voters of the law’s benefits, especially in the near term. The NBC poll found that 35% of respondents think the law will make things worse for them personally, a similar share think it won’t make any difference to them and just 26% think it will make things better for them.
Fauci Says He Will Step Down in December
Dr. Anthony Fauci, who has led the National Institute of Allergy and Infectious Diseases since 1984 and rose to national prominence as the face of the federal Covid-19 response, announced Monday that he will step down from his government positions in December.
Fauci, 81, is President Joe Biden’s chief medical adviser and the government’s top infectious disease official. He first joined the National Institutes of Health in 1968 and has been in public service for more than 50 years.
“Fauci has been at the forefront of every new and re-emerging infectious disease threat the country has faced over the past four decades, including HIV/AIDS, West Nile virus, the 2001 anthrax attacks, pandemic influenza, Ebola and Zika, and most recently the COVID-19 pandemic,” The Hill’s Nathaniel Weixel notes.
The politicization of the federal Covid response and the partisan divide over measures such as masking turned Fauci into a controversial and polarizing quasi-celebrity, alternately glorified or vilified everywhere from television screens to T-shirts. The attacks from the rights led to threats on Fauci’s life and resulted in Fauci being assigned a security detail, according to The Washington Post.
Fauci said he is not retiring: “After more than 50 years of government service, I plan to pursue the next phase of my career while I still have so much energy and passion for my field,” he said. “I want to use what I have learned as NIAID Director to continue to advance science and public health and to inspire and mentor the next generation of scientific leaders as they help prepare the world to face future infectious disease threats.”
And Republicans said they would not stop investigating him: “It’s good to know that with his retirement, Dr. Fauci will have ample time to appear before Congress and share under oath what he knew about the Wuhan lab, as well as the ever-changing guidance under his watch that resulted in wrongful mandates being imposed on Americans,” House Minority Whip Steve Scalise (R-LA) said in a statement.
Why it matters: “His departure,” The Wall Street Journal says, “portends changes at the helm of the country’s pandemic efforts as the Biden administration recalibrates to reflect the public’s changing sentiments, while preparing a campaign for the fall to boost people’s immune defenses against the latest, evasive versions of the virus.”
Number of the Day: 22
The unemployment rate is at or below 3.0% in 22 states and under 3.5% in 28 states, according to Labor Department data released on Friday. Minnesota has the lowest unemployment rate, 1.8%, while the District of Columbia ha the highest, 5.2%, followed by Alaska and New Mexico at 4.5% and New York, Nevada, Illinois and Delaware at 4.4%.
News
- U.S. Treasury Disputes Finding That New IRS Funding Would Increase Middle-Class Taxes – Reuters
- Expansion of Clean Energy Loans Is ‘Sleeping Giant’ of Climate Bill – New York Times
- USDA to Invest Millions of Dollars in Organic Farming Initiative – The Hill
- Pfizer Asks FDA to Authorize Updated Booster Shot – NBC News
- Frustrated Pharmacists Are Opting Out of the Insurance System, Saving Some Customers Hundreds of Dollars a Month – NBC News
- An Unusual $1.6 Billion Donation Bolsters Conservatives – New York Times
- Threats to Democracy Top List of Issues Facing US: Poll – The Hill
Views and Analysis
- The $80 Billion IRS Infusion Means More Audits—in 2026 or 2027 – Laura Davison and David Ingold, Bloomberg
- The IRS Could Be on the Verge of Changing the Way Americans File Their Taxes – Tobias Burns, The Hill
- Republican Scare Tactics About IRS Funding Are Becoming Increasingly Dangerous – Leslie Book, NBC News Think
- This Could Be a Momentous Week for Millions of Young People – Paul LeBlanc, CNN
- The IRA’s Green Energy Tax Credits Lose Their Punch Because They Try to Do Too Much – Howard Gleckman, Tax Policy Center
- Kyrsten Sinema Has Made Sure the New Tax Bill Doesn’t Go Near the Wealthy – Steven Rattner, New York Times
- Shrinking Deficits Cushion Fed’s Retreat From Markets – Sam Goldfarb, Wall Street Journal
- In US Politics, Moderates Still Run the Show – David A. Hopkins, Bloomberg
- When Too Much Inflation Is a Long-Awaited Victory – Daniel Moss and Gearoid Reidy, Bloomberg
- Want to Slash Billions Off Your Tax Bill? Buy a Container Ship – Chris Bryant, Bloomberg
- Passing IRA Was Half the Battle, Now the Real Work Begins – Jillian Blanchard, The Hill
- Drug Pricing Reforms Can Hurt Innovation. Here Are 3 Ways to Prevent That – Caleb Watney and Heidi Williams, Washington Post
- Democrats Have Embraced Economics. Too Much? – Peter Coy, New York Times
- Inflation Reduction Act Is a Ray of Light in the Darkness of Climate Ignorance – Ben Santer, The Hill
- Even a Single Case of Polio Is a Threat – Mary T. Bassett, New York Times
- Hearing Aids Being Available Over the Counter Will Do More Than Save People Money – Helene Rosenthal, NBC News Think