Biden and McCarthy Dive Into Debt Talks

After Meeting With Biden, McCarthy Says He Can See Finding ‘Common Ground’ on Debt Limit

The debt ceiling dance has begun.

President Joe Biden and House Speaker Kevin McCarthy (R-CA) met at the White House for more than an hour on Wednesday, as the two set out on talks about raising the federal borrowing limit and averting a potentially calamitous default later this year.

McCarthy emerged from the meeting sounding optimistic that the two could eventually work out a deal. Calling his talk with Biden a "very good discussion," he said the two had reached no agreement but would keep talking.

"We walked out saying we would continue the discussion, and I think there is an opportunity here to come to an agreement on both sides," McCarthy told reporters. "We have different perspectives, but we both laid out some of our vision of where we want to get to, and I believe after laying both out, I can see where we can find common ground."

Asked if he would accept a commission to identify spending cuts, McCarthy seemed to dismiss the idea.

"Look, I don’t need a commission to tell me where there’s waste, fraud and abuse," he said. "I don’t need a commission to tell us where we’re spending too much. I don’t need a commission to tell us we’re a $31 trillion debt. Nobody needs a commission in the American public to tell us we have spent too much."

McCarthy later told reporters that he informed Biden that the House would not pass a clean increase of the debt ceiling, but that he was encouraged by the meeting. "The only thing I heard for the last month was I'm not gonna negotiate with you," he said. "I just spent an hour sitting with the President in the Oval Office talking about what can we do on a debt ceiling. So … that's different than what the last month was."

The White House, meanwhile, said that Biden and McCarthy "had a frank and straightforward dialogue" and that the president "underscored that he is eager to continue working across the aisle in good faith, after passing historic bipartisan laws during his first two years in office."

At the same time, the White House maintained its position that Congress must raise the debt limit without conditions, pushing back on Republican efforts to link the debt ceiling and spending cuts.

"President Biden made clear that, as every other leader in both parties in Congress has affirmed, it is their shared duty not to allow an unprecedented and economically catastrophic default. The United States Constitution is explicit about this obligation, and the American people expect Congress to meet it in the same way all of his predecessors have. It is not negotiable or conditional," the White House said in a readout of the meeting. "The President welcomes a separate discussion with congressional leaders about how to reduce the deficit and control the national debt while continuing to grow the economy."

What it means: For all the post-meeting optimism, each side’s talking points reinforced their prior positioning.

McCarthy has been looking to force Biden into a negotiation. "We’re eventually going to have to dance together. So when do you want to play the music, now or later?" he told Punchbowl News.

On the other side, the White House continues to insist that the president won’t negotiate over the debt limit and to point out that Republicans boosted the debt limit three times when Donald Trump was president without requiring concessions in exchange. Some Biden officials reportedly are also skeptical that McCarthy could line up members of his party to pass any deal they might strike.

The bottom line: This is going to take a while to play out.

Fed Hikes Rates Again, Says More Increases Likely Even as Inflation Eases

The Federal Reserve took another step forward in its battle against inflation Wednesday as it raised a key interest rate by 25 basis points, to a range between 4.25% and 4.75%.

The widely expected move was the eighth rate hike since last March, but also the smallest of the bunch, down from a 50-basis-point increase in December and four consecutive 75-basis-point hikes stretching back to June.

In a statement, the Federal Open Market Committee said the U.S. economy shows signs of "modest growth in spending and production," even as the job market continues to be robust and inflation "remains elevated," despite easing "somewhat."

The Fed signaled that more rate increases are likely ahead. "The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time," the committee said.

At the same time, Fed Chair Jerome Powell told reporters the bank recognizes that inflation appears to be cooling. "We can now say for the first time, the disinflationary process has started," he said – a shift in language and attitude that delighted Wall Street, sending stocks sharply though briefly higher as investors contemplated the odds of the Fed halting its tightening campaign sooner rather than later.

Powell, though, made it clear that it’s too early to pop the champagne corks. "We will need substantially more evidence to be confident that inflation is on a long, sustained downward path," he said. "It would be very premature to declare victory or think that we really got this. We have to complete the job."

While many on Wall Street are hoping for just one more rate hike of 25 basis points at the next FOMC meeting in March before the Fed pauses its anti-inflation effort, Powell said it could take a "couple more" increases to bring rates to the proper level.

What the experts are saying: Some economists think that the Fed has a real shot at reducing inflation without causing a recession. "There has been a significant deceleration in inflation in the second half of 2022, and simultaneously, productivity rebounded. That opens the door for the FOMC to scale back its rate increases to increments of 25 basis points," said Boston College economist Brian Bethune. "In view of this, there is a strong chance the FOMC could engineer a soft landing."

Fed officials themselves may have the same idea. "It confirmed our suspicion that they are becoming much more optimistic about the ‘soft landing’ scenario," economist Tim Duy told The Washington Post, referring to Fed policymakers. "They’ll have a lot more information by the time of the March meeting. But the recent inflation data has made them more optimistic."

The increasing optimism, however, has raised concerns that the Fed will halt its campaign before bringing inflation all the way back down to 2%. "I’m somewhat worried that the market view is based more on hope," Karen Dynan, an economist at Harvard University, told The Wall Street Journal. "Labor markets still look really tight."

Kathy Bostjancic, an analyst at Nationwide, said in a research note that the labor market is still too strong for the Fed to achieve its goal. "The pace of increase in employment costs remains high and is not consistent with a 2 percent inflation rate that the Fed targets, which means Fed officials have more work to do," she wrote.

Powell echoed that sentiment at his press conference. "Reducing inflation is likely to require a period of below-trend growth and some softening of labor market conditions," he told reporters, once again emphasizing that the Fed intends to maintain its anti-inflation effort for as long as it takes.

For Joseph Brusuelas, chief economist at RSM, that means two more rate hikes and a long period of holding rates at their peak. "We expect rate hikes of 25 basis points at both the March and May meetings," Brusuelas wrote Wednesday. "That underscores our forecast that the central bank will most likely be on pause until early next year."

Number of the Day: $57 Billion

Drug giant Pfizer on Tuesday reported record 2022 revenue of $100.3 billion, up $19 billion from 2021. Reported net income jumped 43% to $31.4 billion. The results were fueled by nearly $57 billion in combined sales of Pfizer’s Covid-19 vaccine and Paxlovid antiviral treatment.

But the Covid boom is over for the company, which told investors that it expects sales of those products to fall to a combined $21.5 billion, with revenue for the vaccine projected to drop 64% and Paxlovid sales projected to be down 58% from 2022. The company said it expects 2023 total revenue in the range of $67 billion to $71 billion — though it added that it expect revenues from Covid-19 products to grow in 2024 after falling to a low point this year due to significant government supply on hand to start the year. "The company’s COVID-19 windfall shows just how reliant it was on federal government contracts," Nathaniel Weixel writes at The Hill.