February 16, 2024

I don’t know whether it was the release of Special Counsel Hur’s report on President Biden’s unauthorized retention of classified documents, former president Trump’s most recent comments about NATO and/or his continuing legal troubles, the outcome of the special election to replace former Rep. Santos (R-NY), the House’s impeachment of Homeland Security Secretary Mayorkas, or the countdown to Super Tuesday on March 5, but I’ve received more calls, texts, emails, and direct questions than usual this week asking me who will win the election in November. The truth is at this stage of the campaign, before the conventions, before accurate state polling is available, before we know the extent third parties may play, and before many have even begun to focus on the election, there’s no way to gauge with any degree of certainty how things will eventually shake out. Although no one can be certain at this stage who may win the election in November, probably the worst kept secret in Washington is how Democrats plan to run their campaigns. Their effort to turn Washington blue in November will revolve around five primary arguments:

• The economy is good…well, it’s going to be good. Because inflation remains above 3%, and Americans feel the squeeze of high prices, Democrats can’t win by telling voters to celebrate the economy when voters don’t think the economy is good. Expect House Democrats to talk about all the cost-lowering legislation they could pass with a majority.
• Voters gave the GOP a shot; it hasn’t gone great. Even die-hard conservatives recognize that the Republican House has been chaotic, a critique House Democrats will exploit. However, the danger of focusing on congressional dysfunction is that Democrats control the Senate and the presidency. Republicans will hit back by pointing out that they only control one chamber, by a razor-thin margin.
• Given the chance, Republicans will ban abortion. Abortion was top of mind for women in 2022. Democrats are banking on a continued backlash to help them this November. While swing-district Republicans are distancing themselves from talk of an abortion ban, Democrats are working to connect them to staunch anti-abortion advocates in their party.
• Not all Democrats are Biden, but all Republicans are Trump. The 2024 general election is likely to be a Biden-Trump rematch—and both have low favorability ratings. Democrats’ messaging will tie even moderate Republicans to Trump, while arguing they are the “big tent party” that can withstand differences on policies such as aid to Israel.
• Democrats didn’t fix the border, but at least they tried. While Republicans make border security their No. 1 issue in 2024, Democrats want to not just neutralize the point but turn it against the GOP. Their argument: Republicans rejected the Senate-negotiated border bill, which paired immigration policy changes with foreign aid, because they want to run on the issue instead of fixing it.

Thought Leadership from our Consultants, Think Tanks, and Trade Associations

Eurasia Group Says Democrats have Few Options as Biden’s Age Moves Front and Center. President Biden’s campaign got no respite from a special counsel’s decision not to prosecute him for mishandling classified documents. While the report alleges that the president has significant memory issues, his mix-up of the presidents of Egypt and Mexico in a press conference meant to counter the memory allegations only exacerbated the issue. The charge that President Biden is not mentally fit for office strikes at the heart of his appeal, which is that he is the “most qualified” man for the job. The odds that Biden will be the nominee remain at 90% because Democrats have no mechanism for replacing him at the top of the ticket without him voluntarily stepping aside. What’s more, ballot access deadlines for Democratic primaries have already passed, and Biden controls important parts of the party apparatus, including the chair of the DNC. Rep. Phillips (D-MN) remains the only Democratic elected official at the national or gubernatorial level to publicly question the president, and there is no codified process for Democratic elites to oust the sitting president as the party’s presumptive nominee. While superdelegates helped steer the election to Hillary Clinton in 2016, Democrats have changed the rules to reduce their influence. Vice President Harris is the strong favorite to replace Biden if he exits the race or is somehow forced out. Harris’s status as the current vice president, as well as the first woman, Black American, and Asian American to hold the role, makes her nearly impossible to dislodge without creating major fractures in the party. The State of the Union, scheduled for March 7, will be a crucial signal for Biden’s capacity. His performance will be judged in detail, and if he loses his train of thought during the speech or cannot maintain his energy throughout, what is currently a trickle of public concern about his ability to lead the party may become a torrent.

Observatory Group Asks: “Will Biden Drop Out?” Answers: “Not So Fast.” Last week, Special Counsel Hur announced that President Biden would avoid prosecution for mishandling classified material. However, the report, which is required as part of the Special Counsel regulations, created a political firestorm by seeming to confirm voters’ views that Biden is too old to be president. Hur’s characterization of Biden as a “well-meaning, elderly man with a poor memory” who could not remember when his term as Vice President began or ended and had trouble remembering when his son died set off a flurry among Washington’s chattering class who speculated whether Biden could/would step down as the Democratic nominee for President. While it’s true the report increased the possibility of Biden stepping down, it’s not probable; the chances of Biden dropping out have gone from 10% to 15%. The mechanics of Biden dropping out are clear—he would have until mid-September to do so. However, the politics of Biden dropping out are riskier than propping him up then transitioning power to Vice President Harris at some later date. As the “Biden is too old to be President” theme has taken hold, his presidency is now under an increased microscope going forward. One fall, untimely pause, or unfortunate medical episode could rapidly change the election’s dynamic (just as a Trump trial or medical episode could rapidly change things). While a third-party candidate becoming a viable alternative remains the longest of long-shots, those odds are not as long as they were a week ago. No Labels will have the opportunity to offer a ballot line to a center-left candidate should Biden remain the Democratic nominee but become politically unviable. Investors and corporations should expect political volatility to be the theme in 2024 as there will be predictable and unpredictable curveballs throughout the campaign with the potential to redefine the political outlook and set a new baseline for the presidential election. In contrast, despite his own mental slipups and shocking behavior, there is nothing short of incapacitation that could force Trump out of the race. He has been convicted civilly of sexual abuse, indicted on 91 felony counts, invited Russia to invade European allies, criticized active military members currently serving abroad, and is himself elderly—still, polling suggests he is leading Biden in the critical swing states of Pennsylvania, Michigan, Wisconsin, Georgia, Arizona, and Nevada.

Politico Reports that Hotter-Than-Expected Inflation Poses a New Challenge for Biden. While President Biden said this week, “Prices are still too high,” unfortunately for him, this week’s inflation report came in hotter than expected, ensuring that one of his toughest political problems isn’t going away. The Labor Department said the January Consumer Price Index was up by 3.1%, a decline from December’s 3.4% but higher than the economists’ projected 2.9%. The report could put pressure on the Fed to keep interest rates higher for longer, creating a potential drag on consumers and businesses. It also comes as the fight over high prices enters the 2024 campaign lens. Although the strength of the economy under Biden’s watch is indisputable, with economists scaling back their forecasts for a recession this year, Republicans are focusing their critiques on the persistence of higher prices. While inflation has risen faster than average weekly earnings ever since Biden was sworn in, the biggest impact of this inflation report is that the Fed may take longer to cut rates. Fed Chair Powell signaled that a March rate cut is off the table, and the latest inflation news means the anticipation of a May move may shift to June or later. The latest CPI report provides more fodder for Republicans who argue that Democrats are out of touch when it comes to the pain of elevated prices, and, barring an economic cataclysm, broad-based deflation isn’t happening in the run-up to Election Day. A majority of economists expect the CPI to remain elevated, with two-thirds believing it’s likely or very likely to stay above 2.5% through the end of the year.

“Off the Record”

Just this week, Speaker Johnson:

• Saw Democrats win a special election in New York, narrowing the GOP majority.
• Lost a rule vote over the state-and-local tax (SALT) deduction.
• Pulled a bill to overhaul FISA due to Republican infighting.
• Witnessed a fourth committee chair announce their retirement.
• Decided against putting a bill on the floor providing aid to Israel.
• Offered no insight to members on how to handle the Senate’s foreign aid package.
• Heard Intelligence Committee members issue warnings about national security threats.

According to Punchbowl News, this is the most chaotic, inefficient, and ineffective majority in decades. While it started under former Speaker McCarthy, it has gotten worse under Johnson, and things aren’t about to get easier. The House has left Washington for a 13-day Presidents Day recess, but when members return, there will be just three days to fund the federal government or face a partial shutdown (a second shutdown deadline will come a week later). Fair or not, there’s a tremendous amount of criticism of Speaker Johnson right now. One is that Johnson keeps his own counsel, and his leadership often begins the week having no idea what the Speaker is thinking or what he hopes to achieve. What’s more, the power centers in the GOP conference seem more eager to buck Johnson than help him. There’s one charitable explanation: Johnson does have the smallest Republican majority in contemporary times.

In Other Words

“We have also considered that, at trial, Mr. Biden would likely present himself to a jury, as he did during our interview of him, as a sympathetic, well-meaning, elderly man with a poor memory,” Special Counsel Hur in his report not to prosecute President Biden.  

“I would not protect you. In fact, I would encourage them to do whatever the hell they want. You’ve got to pay. You’ve got to pay your bills,” former president Trump recalling his response to one president of a NATO member country who had asked if the U.S. would defend it in the event of a Russian attack.

Did You Know

On May 22, 1849, Abraham Lincoln received Patent No. 6469 for a device to lift boats over shoals, an invention that was never manufactured. However, the granting of the patent would make him the only U.S. president to hold a patent.

Graph of the Week

The January Consumer Price Index (CPI) showed that inflation rose 3.1% from a year earlier, while core CPI, which excludes food and energy prices, rose 3.9% from a year earlier. While year-on-year price inflation was tame, prices rose more than expected on a month-on-month basis. Although headline inflation has fallen dramatically since earlier in 2023, the latest reading shows a bump in month-on-month terms. Given the CPI’s signals and Fed Chair Powell’s previous statements, the Federal Reserve will likely hold rates steady at the conclusion of its March meeting. However, as inflation rates slow over the next several quarters, expect the Fed to begin cutting rates in June. Provided inflation settles around 2% before year end, we’ll see steady rate cuts of 25 basis points at subsequent FOMC meetings, pushing the Fed Funds rate to nearly 4% by year end. Further interest rate reductions are also expected in early 2025.