McCarthy Closes In on a Win

By Yuval Rosenberg

Happy Friday! This week’s long fight for the House speaker’s gavel appears to be nearing an end. Rep. Kevin McCarthy (R-CA) finally has momentum, if not yet victory. But let’s take a moment to commemorate the two-year anniversary of the January 6, 2021, attack on the Capitol.

Here’s what else you should know as lawmakers head for a late night.

After 13 Tries, McCarthy Closes In on a Win

Kevin McCarthy is still not speaker of the House, but he is getting closer — and, after some furious dealmaking, he says he’ll have the votes he needs to win the gavel later tonight.

“I’ll have the votes,” he told CNN this afternoon, shortly before the House voted to adjourn until 10 p.m. ET.

The California Republican on Friday broke through the resistance of most of the 20 Republican rebels who had blocked his bid to become speaker of the House over the first 11 rounds of balloting spanning three days this week.

On the 12th round of balloting, McCarthy flipped 13 of his opponents and one member who had been voting “present.” He was able to finally top the vote tally, garnering 213 votes to 211 for Rep. Hakeem Jeffries (D-NY). Yet he was still short of the majority needed to secure the speaker’s gavel. On the 13th round, he picked up one more vote, but six Republicans continued to vote for other candidates.

The adjournment until nighttime allows time for negotiations to continue and for two Republicans who support McCarthy but had to be away from the Capitol earlier on Friday, Reps. Wesley Hunt (R-TX) and Ken Buck (R-CO), to return.

McCarthy reportedly promises big defense spending cuts: McCarthy has reportedly agreed to give his right-wing holdouts more power and more leverage over the legislative process, including some concessions on the budget and debt limit that could lead to risk-laden showdowns later this year.

Key elements of his deal with the Republican rebels reportedly include:

* Allowing any single member to offer a “motion to vacate the chair” and call for a vote to oust the speaker, potentially undermining his authority;

* More House Freedom Caucus conservatives on the Rules Committee;

* Floor votes on term limits for members and border security legislation;

* Requiring 72 hours between the release of final bill text and a floor vote;

* Standalone votes for the 12 annual appropriations bills and separate votes on earmarks along with an agreement that any debt ceiling hike would be paired with spending cuts;

* A House push to cap fiscal year 2024 spending at 2022 levels, including a roughly $75 billion cut to national defense spending, which would go from about $857 billion for fiscal 2023 back to about $782 billion, according to Bloomberg;

* Resurrecting a rule allowing members to propose cutting the salaries of specific federal workers or funding for specific programs;  

* A McCarthy-aligned super PAC agreed to not spend money in open-seat primaries in safe Republican districts;

The fiscal concessions were crucial in winning over holdouts, but they could face serious pushback from other lawmakers and could portend a dangerous fight when Congress must raise the nation’s borrowing limit later this year. For two years in a row, defense hawks in Congress have provided billions more for the Pentagon than the Biden administration has requested amid bipartisan concerns about competition with China and Russia’s aggression. “China and Russia are watching. If @GOPLeader agreed to weaken our national defense for his own personal gain, that will be his legacy, and our nation will suffer,” former GOP Rep. Liz Cheney tweeted.

Defense spending changes for next year would need to be approved by the Senate, which Democrats control.

What it means: McCarthy still needs to secure a couple more votes. Even if he can do that tonight, his long fight for the gavel will have real repercussions for the House over the next two years.

Asked how he expects to govern if it took this long to accomplish what should have been the easy part, McCarthy put a positive spin on his long fight. “See, this is the great part – because it took this long, now we learned how to govern, so now we’ll be able to get the job done,” he said.

But the deal he cut will affect how the House functions, how legislation moves to the chamber floor and how crucial budget and debt limit fights will play out. Rep. Matt Gaetz (R-FL), a leading McCarthy opponent and one of the final six holdouts, said that McCarthy would have to govern with a “straightjacket.”

The next two years are likely to be as rocky as these past four days have been.

‘Goldilocks’ Jobs Report Boosts Hopes for Soft Landing

The latest jobs report shows that the U.S. labor market is still going strong, even as slowing wage growth bolsters hopes that the Federal Reserve can bring inflation under control without pushing the economy into a recession.

U.S. employers added 223,000 jobs in December as the labor market continued its impressive run of growth, the Bureau of Labor Statistics announced Friday, and the unemployment dropped a tenth of a point to 3.5%, matching a 50-year low.

At the same time, while robust by historical standards, job growth fell to a two-year low. Wage growth cooled, too, with average hourly earnings rising 4.6% in December, less than the 5% many analysts had expected to see and the smallest increase in more than a year.

The data may be just what the Fed wants to see as it attempts to reduce inflationary pressure while bringing a roaring economy in for a soft landing. “Employment report was about as close to a Goldilocks scenario as the Fed could have hoped for,” said Diane Swonk, chief economist at KPMG.

Treasuries rallied on Wall Street, sending interest rates lower, and stocks soared as investors embraced the hope that the Fed would ease up in its war on inflation in the coming months.

Randall Kroszner, a former Fed governor who teaches at the University of Chicago Booth School of Business, told Bloomberg that the report could push the Fed to raise rates by less than the 50 basis points most analysts are expecting. “It’s not that the Fed wants fewer jobs,” Kroszner said. “What they want is lower wage growth, more because they’re worried about persistent inflation.”

So, no recession? Some analysts say the data confirms that the U.S. economy is still very strong. “Unemployment is down a tick to 3.5%, near 50-year lows,” wrote economist Justin Wolfers. “Anyone who thinks this economy is in a recession is bananas.”

Julia Pollak, chief economist at ZipRecruiter, said in a note that the report confirms that “the labor market was robust and resilient in 2022.” Even so, with the three-month moving average increase in wages, annualized, coming in at just 4% in December, the report eases concerns about a burgeoning wage-price spiral. “San Francisco Fed President Mary Daly has said that the Fed believes wage growth in the 3.5%-4% range would be consistent with its inflation target of 2%, so today’s report showing moderating wage growth should calm markets and assure the Fed,” Pollak said.

Still, most economists expect to see a recession at some point this year, even if it’s a shallow one, as the Fed maintains its effort to tighten monetary conditions. Joseph Brusuelas, chief economist at RSM, told The Wall Street Journal that he expects “the economy to slow noticeably by June, and in the second half of the year we’ll see a greater pace of slowing if not outright contraction.”

Brusuelas also said he wouldn’t be surprised if recent data led the Fed to soften its stance at least to some degree. “We’re closer to the peak in the Fed policy rate than we were prior to the report, and the Fed can strongly consider a further slowing in the pace of its hikes,” he said. “We could plausibly see a 25-basis-point hike versus a 50-basis-point hike at the Feb. 1 meeting.”

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