POLITICO NIGHTLY: The Fed's secret Santa gift for Biden

 

BY RENUKA RAYASAM Presented by Federal Reserve Chairman Jerome Powell testifies during a Senate Banking hearing. | Kevin Dietsch/Getty Images MORE MONEY, MORE PROBLEMS — The Federal Reserve acknowledged today what those of us in the midst of Christmas shopping already know — stuff is expensive! Fed officials said today that the central bank could raise interest rates three times in 2022, no longer calling inflation “transitory.” It’s an about face from the central bank and Chair Jerome Powell that comes as unwelcome news for Democrats and President Joe Biden — inflation has a tendency to take down the party in power. Democrats’ chances in Nov. 2022 could very well depend on Powell’s ability to keep prices in check while not choking off a fragile economic recovery. Nightly parsed the latest Fed tea leaves with economics reporter and Fed guru Victoria Guida over Slack today. This conversation has been edited. Will Powell be the Grinch who stole Biden’s Christmas? Haha. Right now, the Fed’s announcement is about giving itself as many options as possible to deal with an uncertain economy. That basically means that the central bank will be able to raise interest rates sooner, if it wants to. But it won’t do that until next year, so no — Christmas seems safe for now! Do Fed officials no longer believe inflation will be transitory? They now think these supply chain problems will last much longer than they thought — so this inflation might fade eventually, but transitory gives people the impression that it also won’t take that long. But also, the Fed is more open to the idea that inflation could start taking hold more broadly. Companies might start raising prices because they can, or because they’re worried they need to. And so part of this pivot is an effort to head off any change in expectations about inflation; the Fed doesn’t want people getting the idea that they’ll just let inflation stay this high because inflation can also be sort of a self-fulfilling prophecy. Is the Fed no longer concerned with virus trends? Powell said rising cases do pose a risk to the outlook, but people are learning to live with the threat of the coronavirus. Basically, the Fed is optimistic that things will continue improving for the economy, but they know that Omicron or some new variant could throw a wrench in things at any time. Our colleagues at Playbook highlighted a memo today that said voters’ views on the economy will harden by late summer, determining whether Democrats can stave off big midterm losses. Does anything from today’s announcement signal where things could be by then? It’s the conventional wisdom that presidents like the Fed to keep interest rates lower because it boosts the economy. But with inflation a big concern among voters, Democrats probably don’t entirely mind some of the tough talk coming out of the Fed. The Fed’s announcement today makes it a safer bet that inflation will be lower next summer, but I guess one question is how much lower it will need to be for voters to worry about it less. If there’s faster growth and a stronger job market, maybe they’ll mind less regardless. If the economy starts to slow, that’s a much bigger problem for the Democrats (and it’s not great for the rest of us either!) Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com. Or contact tonight’s author at rrayasam@politico.com, or on Twitter at @RenuRayasam. A message from Facebook: Why Facebook supports updated internet regulations, including Section 230 Aaron is one of 40,000 people working on safety and security issues at Facebook. Hear from Aaron on why Facebook supports updating regulations on the internet’s most pressing challenges, including reforming Section 230 to set clear guidelines for all large tech companies.   ON THE HILL MOURNING JOES — Tensions are boiling over as discussions drag on between Biden and Sen. Joe Manchin over how to finish Democrats’ $1.7 trillion domestic spending bill, Burgess Everett, Alex Thompson and Jonathan Lemire write. The legislation looks increasingly likely to stall over the impending holiday break, prompting Biden himself to bemoan the slow pace. And Manchin (D-W.Va.) grew frustrated today when questioned about whether he opposes a provision in the bill to extend the expanded child tax credit, deeming those queries “bullshit” and denying that he wants to end the $300 monthly check many families receive for children. That provision expires this month and Democrats had hoped it would drive a year-end deal. Instead, Biden and Manchin don’t appear particularly close to clinching anything and Manchin has suggested pulling the child tax credit from the bill, according to a source briefed on the conversations. Publicly, Manchin himself said he does not oppose the tax credit. “The talks between [Biden] and Manchin have been going very poorly. They are far apart,” the source said. Though Manchin and Biden developed a warm rapport this year and collaborated on several prominent pieces of legislation, the plodding pace of the talks between the two Joes threatens to strain their friendly relationship. While Biden likes Manchin personally, he’s grown tired of the elongated talks and will soon push him to make a decision and support the legislation, according to two White House sources.   DON’T MISS CONGRESS MINUTES: Need to follow the action on Capitol Hill blow-by-blow? Check out Minutes, POLITICO’s new platform that delivers the latest exclusives, twists and much more in real time. Get it on your desktop or download the POLITICO mobile app for iOS or Android. CHECK OUT CONGRESS MINUTES HERE.     WHAT'D I MISS? — Navy starts kicking out sailors for refusing the Covid vaccine: Overall, 5,731 active-duty sailors remain unvaccinated, and at this point Navy officials say they believe most of those will likely continue to refuse the order, weeks after the Nov. 28 deadline for full vaccination. — Blinken cuts foreign trip short over Covid concerns: Secretary of State Antony Blinken is cutting short his weeklong overseas trip and returning to Washington, D.C., for reasons related to Covid-19 , the State Department announced today. In a call with Thai Deputy Prime Minister and Foreign Minister Don Pramudwinai, Blinken “expressed his deep regret” that he would not be traveling on to Bangkok from Kuala Lumpur, Malaysia, State Department spokesperson Ned Price said in a statement.       — Senate sends $768B defense policy bill to Biden: The Senate overwhelmingly approved a compromise $768 billion defense policy bill today, sending a bipartisan rebuke of Biden’s original Pentagon plans back to him for his signature. The Senate voted 89-10 to pass the National Defense Authorization Act. The blowout comes just over a week after the House approved the final defense bill. Biden is expected to sign the measure, despite Congress’ endorsement of a $25 billion increase to defense spending the administration didn’t request. — DeSantis targets critical race theory with bill allowing parents to sue school districts: Florida Gov. Ron DeSantis today escalated his ongoing crusade against “wokeness” and “elites” by pushing a bill that would allow parents to sue school districts if they teach “critical race theory” in classrooms . The state’s Republican governor also wants the GOP-controlled Legislature to help employees at private corporations who are subjected to what he called “harassment” by being forced to undergo sensitivity and racial awareness training.   STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president’s ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.     AROUND THE WORLD British Prime Minister Boris Johnson addresses the nation during a Covid update in London. | Tolga Akmen - WPA Pool/Getty Image WAVE CRASHES OVER BRITAIN — Boris Johnson’s bracing Britain for a Christmas coronavirus tidal wave, Annabelle Dickson writes. The U.K. leader tonight urged the public to “keep giving Omicron both barrels” by getting a booster jab — as his top health officials warned “big numbers” of patients would be heading into hospital after Christmas. Britain reached a record 78,610 confirmed daily cases of Covid-19, and there were stark warnings today that the numbers are only heading in one direction. “I’m afraid we have to be realistic that records will be broken a lot over the next few weeks as the rates continue to go up,” England’s Chief Medical Officer Chris Whitty told a Downing Street press conference. That “substantial numbers” of patients would be going into hospital and intensive care units fairly soon after Christmas was a “reasonably nailed on prospect,” Whitty said. The senior medic sought to prepare the country for a “very sharp peak” which could see “significant problems” in staffing the U.K.’s already-stretched health and social care system. “We may end up with quite substantial gaps in rotas at short notice,” he said. NIGHTLY NUMBER 3.8 million The number of children the November monthly tax credit payment kept from poverty last month, the highest monthly anti-poverty seen to date, according to a report released this afternoon from Columbia University’s Center on Poverty and Social Policy. The final monthly CTC payment went out today to 35 million families. PARTING WORDS HEALTH SPENDING SPRINTS AHEAD — The rate of growth in U.S. health care spending more than doubled in the first year of the Covid-19 pandemic , leaving the medical system accounting for just less than one-fifth of the U.S. economy at the end of 2020, according to a federal report released today. Spending on health care rose 9.7 percent last year, up from 4.3 percent increase in 2019 — the fastest year-over-year jump since 2002, according to the Centers for Medicare and Medicaid Services’ office of the actuary. Nearly the entire increase came from the burst of federal spending as the government mobilized to contain the spread of the virus, Rachael Levy writes. The surge came while the overall economy contracted by 2.2 percent, the government researchers wrote in the journal Health Affairs. Federal spending in categories like assistance to health care providers, public health programs and Medicaid payments jumped 36 percent last year, accounting for nearly all of that increase. “The substantial growth in health care spending was … driven by the unprecedented government response to the global pandemic,” Micah Hartman, a statistician in the actuary’s office, said in a statement. A message from Facebook: Why Facebook supports updated internet regulations, including Section 230 Aaron is one of 40,000 people working on safety and security issues at Facebook. Hear from Aaron on why Facebook supports updating regulations on the internet’s most pressing challenges, including reforming Section 230 to set clear guidelines for all large tech companies.     Follow us on Twitter Chris Suellentrop @suellentrop Tyler Weyant @tweyant Renuka Rayasam @renurayasam Myah Ward @myahward   FOLLOW US

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