Thought of the Week:
This will be the last The Washington Connection for 2024; we will pick up again on January 10, 2025, with outlooks on the incoming Trump administration and 119th Congress. Keeping in mind that “you can’t really know where you‘re going until you know where you have been,” I thought it would be instructive to look back on our top, bottom, and still-to-see predictions from the past year.
Top Predictions:
- Excitement around Vice President Harris will subside, the race will tighten, and the election may come down to a referendum on one candidate or the other (July 26).
- Like many Washington insiders, I’m placing the odds of a Trump victory at near 75% (July 19).
- Democrats pushed things too far in convicting former President Trump—angry voters are motivated voters (June 7).
- Tester (D-MT) and Brown (D-OH) are in for the political fights of their lives (May 31).
- A tax bill will not pass until 2025, well after the elections (April 5).
- Regardless of which candidate eventually claims the White House, the opposing party is going to find themselves knee-deep in situational irony with millions of voters contending they should have known better than to run who they did (March 8).
- For Chief of Staff: Susie Wiles; for Vice President: JD Vance (R-OH) (January 19).
- My gut tells me we’ll see a Trump victory, and the Senate will flip to the GOP (October 25).
Worst Predictions:
- As a result of the bridge collapse, Maryland is likely to elect either former Governor Hogan (R) or Rep. Trone (D) to replace retiring Senator Cardin (D).
- Vice President Harris will win the popular vote, and Democrats will narrowly take the House (October 25).
- For Defense Secretary: former Secretary of State Mike Pompeo; for Treasury or Commerce Secretary Virginia Governor Glenn Youngkin (January 19).
- President Biden will lead his party into the Democratic National Convention (March 8).
We’ll have to See:
- There may be a method to President-elect Trump’s trade policy madness. (November 22).
- We’ve got good news: two more 25 basis point cuts to come before year-end; and we’ve got bad news: a less favorable economic environment next year, and the prospect of markets being less forgiving of budget imbalances than they have been (October 11).
- President Trump will use the CRA as a political “mulligan.” (May 3).
- The progressive movement seems to be at an impasse, and the mood among ordinary Democrats has moderated considerably; a Trump win may allow progressives to regain momentum. (May 24).
- The longer the delay, the greater the chances that the necessary legislative changes to save Social Security will be disruptive not just to beneficiaries but the broader economy as a whole (June 14).
Thought Leadership from our Consultants, Think Tanks, and Trade Associations
Conference Board Upgrades its U.S. Economic Outlook on Consumer Strength. U.S. economic activity is poised to moderate slightly over the coming quarters, but less than previously forecasted. Real GDP grew at a robust 2.8% pace in the third quarter, largely due to outsized consumer spending. The healthy spending trend continued into the fourth quarter, prompting an upgrade to the forecast for the final quarter of the year: from 0.9% to 2.0%. This raises the annual growth rate for 2024 from 2.6% to 2.7%. Going forward, few signs that firms are willing to reduce payrolls suggests a healthy labor market in 2025 that should continue to support consumer spending and thereby real GDP growth. Against this backdrop the real GDP growth rate for 2025 has been raised from 1.7% to 2.0%. Other changes to the 2025 GDP forecast include: upgrades to nonresidential investment as interest rates fall, upgrades to imports and inventories early in the year as companies rush to avoid potential tariffs, and reduced trade activity later in the year given anticipation of some trade skirmishes and consequently a stronger dollar. Key inflation gauges are expected to stabilize at the Fed’s 2% target by end-2025 instead of by mid-2025. The delay reflects slower-than-expected cooling in shelter costs, ongoing upward pressures from wages and insurance premiums, and the potential for international trade actions (e.g., tariffs, export controls) that might stoke inflation. The new inflation trajectory suggests the Fed may reduce the pace at which rate cuts occur, with the federal funds rate target reaching its terminus in October 2025 instead of July 2025. The ultimate target range may still be slightly above 3%. In 2026, GDP growth is projected to converge toward its long-term potential of 1.8%. Inflation should remain near to the Fed’s 2% target and the Fed Funds rate should hold at just above 3%.
Eurasia Group Confirms that a 2028 Run by Trump is Off the Table. Former Trump adviser and MAGA staple Steve Bannon has floated the idea of a 2028 presidential run by President-elect Trump. Despite Bannon’s remarks, the president-elect is exceedingly unlikely to try to run, let alone be the Republican nominee, in 2028. The 22nd Amendment clearly prohibits an individual from being elected to the presidency three times, and amending the Constitution to allow a third term would require the assent of two-thirds of both the House and Senate as well as three-quarters of the state legislatures—impossible bars to clear. Trump has remade the Republican Party in his image, and it is likely that the 2028 nominee will come from his wing of the party rather than the fading Bush-Romney wing. Vice President-elect Vance will be the early frontrunner for the nomination, a view reflected by Senator Mitt Romney (R-UT) during a recent interview.
Eurasia Group Believes U.S. Ambassador to Japan is Likely to Double Down on Defense Spending. President-elect Trump has chosen businessman George Glass to be his ambassador to Japan. Glass served as the ambassador to Portugal under the first Trump administration and will easily achieve Senate confirmation. As ambassador to Portugal, Glass criticized China’s growing involvement in Portugal’s strategic infrastructure. Speaking on a podcast earlier this year, he also noted that the experience taught him how to get NATO countries “to live up to” their commitments of spending 2% of gross domestic product on defense. Glass’s hawkish views on China and emphasis on dealmaking should be no surprise and signal that Trump is likely to double down on the U.S.’s partnership with Japan in formulating a strategy to counter China while putting pressure on Tokyo to assume more of the defense burden. Japan is currently on track to spend 2% of its GDP on defense by 2027. However, this is unlikely to satisfy Trump officials, who are likely to raise their demands in negotiations over the level of Japanese assistance for the roughly 55,000 troops stationed in the country.
“Inside Baseball”
According to Politico, the Biden administration has released a long-awaited report that could make it harder for the incoming Trump administration to expand U.S. natural gas exports—it’s the latest attempt by President Biden to Trump-proof his legacy. While the Energy Department’s report stops short of recommending that the U.S. cap exports, as environmentalists had demanded, it recommends that regulators take a much stricter line in determining whether the U.S.’s soaring gas permits are benefiting or imperiling the national interest. That advice could give opponents of the growing LNG trade a new tool to challenge any new liquefied natural gas plants that the energy industry seeks to build on President-elect Trump’s watch. And it could hand Trump’s critics new legal tools to file challenges that frustrate his wishes. What’s more, the Biden administration’s report warns that plans to increase exports of U.S. natural gas risk driving domestic energy prices higher.
In Other Words
“MAGA is the Republican Party, and Donald Trump is the Republican Party today. And if you were to ask me who the nominee will be in 2028, it’ll be JD Vance,” Senator Mitt Romney (R-UT).
“I think there is an opportunity there for that initiative to promote some radical and positive change in the way the U.S. does business, and I think the best target is permitting,” Business Roundtable CEO Josh Bolton signaling an openness to work with Elon Musk and Vivek Ramaswamy on shared goals via DOGE.
Did You Know
A Democrat is a top contender to take a prominent role in the next Trump administration. Rep. Jared Moskowitz (D-FL) is being considered to lead the Federal Emergency Management Agency (FEMA). Before his election to Congress, Moskowitz served as director of Emergency Management under Florida Governor DeSantis.
Graph of the Week
As usual, Congress has picked up the legislative pace in the waning days of the lame duck. But with only 150 bills enacted so far, this Congress look like it is going to fall far short of even the least-productive Congresses in recent memory. According to GovTrack, the fewest bills enacted in the last 50 years came during the 112th Congress (284 bills) and the 113th Congress (296 bills).
