Thought of the Week:
I have a friend who is a lobbyist for one of the major U.S. airlines. After reading in one of Washington’s political blogs this week that she and her team suffered a few setbacks, not the least of which was failing in an attempt to insert language that would expand the number of flights into Reagan National Airport in the House’s version of the FAA reauthorization bill, I called to offer my condolences (Congress has special authority to determine the number of flights into and out of Reagan National). She told me that the blog didn’t tell the full story and failed to put things in proper context, most importantly that there was still a Senate version in the works, and both bills would have to go through Conference. She said it was a long shot but was working with two Senate offices on inserting a manager’s amendment that would deliver at least a partial win for her side. Because House and Senate appropriators are on a collision course—the Republican controlled House wants to cut funding below agreed upon levels while the Democratic Senate wants to increase funding above those same levels—with at least a short-term continuing resolution, or CR, appearing to be in Congress’ immediate future, just about all of her team’s proverbial eggs are in the reauthorization basket. In fact, time is running short for lobbyists to move individual priorities as there are just four legislative days left before the six-week August and Labor Day recess begins. Although the intricacies surrounding the regulation of commercial air travel may not be of keen interest, the case study does offer a sample of the terminology you may hear over the next two months as Congress struggles to pass legislation before the end of the federal government’s fiscal year on September 30. With that in mind, here’s a cheat sheet of some of the terms you’re most likely to hear:
- Authorization bills: laws that establish, continue, or modify federal programs, and are a prerequisite under House and Senate rules for Congress to appropriate budget authority for programs.
- Appropriation bills: the twelve standard bills that allocate discretionary funding for the federal government for one fiscal year; mandatory spending, such as for Social Security, is spent automatically according to formula.
- Conference Committee: a provisional panel of House and Senate conferees formed to reconcile differences in legislation that has passed both chambers.
- Continuing Resolution: a temporary spending bill that allows federal government operations to continue when final appropriations have not yet been approved; without final appropriations or a continuing resolution (CR), a lapse in funding could result in a government shutdown.
- Earmark (Congressionally Directed Spending): any congressionally directed spending, tax benefit, or tariff benefit that benefits a specific entity, state, locality, or congressional district other than through a statutory or administrative formula or competitive award process.
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Thought Leadership from our Consultants, Think Tanks, and Trade Associations
Eurasia Group’s Ian Bremmer on Biden ’24. More chatter than expected has come from Democratic leaders—both in office and out and close to the Biden team—hoping President Biden bows out of the 2024 race. Persistently low approval ratings, among the lowest in post-war history; concern about the president’s health/age on the campaign trail; and the added vulnerability of an extremely unpopular vice president are what’s defining the panic that has overtaken Democrats at this stage of the campaign cycle. In fact, real vulnerability exists, and there has been serious effort to draft a new candidate (mostly around Governors Newsom and Whitmer). However, it’s getting late quick, and absent a dramatic health turn, Biden isn’t going anywhere. He is the incumbent, and his view is that he has solid policy wins to run on, not to mention inflation turning down, that give his team optimism that the overall environment come election time will be more favorable. What’s more, there’s no real answer to VP Harris not getting the nod if he were to withdraw, and the White House has been resolute in promoting her through the campaign cycle. In other words, the rumors aren’t going anywhere. More relevant is the emergence of a serious third-party candidate. With recognition that both nominees are going to be historically unpopular, and accordingly a large vote either up for grabs or not turning out at all, there’s incentive for serious outsiders to make a run. The most significant being Senator Manchin (D-WV). Although he hasn’t tipped his hand, even to his closest colleagues, word is it’s feasible (say 20-30%). If that happens, Manchin’s chance of winning is lower than tipping the election to former President Trump (who has the most committed base of the three).
Global Policy Group Foresees a Difficult Fall. The House and Senate have a week bfore they leave Washington for their annual six-week August recess. Lawmakers are trying to make progress on this year’s National Defense Authorization Act (NDAA) and on appropriations legislation to fund federal programs during the upcoming fiscal year, hoping to set the stage for negotiations between the House and Senate over final legislation this fall. In terms of the spending bills, which Congress must pass by September 30 to avoid a partial government shutdown, the Senate is moving ahead on a largely bipartisan basis as appropriators consider legislation based on the spending limits set through the debt-ceiling agreement between President Biden and House Speaker McCarthy (R-CA). In contrast, House Republicans are advancing appropriations bills largely on party-line votes that would cut spending beyond the levels set in the debt-ceiling deal. As a result, lawmakers can look forward to what will likely be a contentious process this fall when the House and Senate try to reach agreement on final spending legislation—all with the risk of a government shutdown if they fail to reach a deal (or pass a stop-gap funding measure) before the new fiscal year starts on October 1. In terms of the NDAA, the annual bill authorizing defense programs that almost always passes with broad bipartisan support, the House passed its version on a largely party-line vote after adopting amendments on abortion and other issues advanced by the conservative Freedom Caucus. The Senate version of the NDAA will not include the conservative amendments added by the House, which on its own, could set the stage for a challenging and potentially contentious House-Senate conference in the fall.
The Observatory Group’s Preview of the July Federal Reserve Meeting. Investors should expect the FOMC to raise the target range for the Fed Funds rate by 25 bp next week and to provide guidance similar to May’s, noting that additional policy firming may be appropriate depending on economic developments. The outlook for another rate hike after next week will be entirely contingent on developments between the July and November meetings. Therefore, plenty of time exists before the November 1 meeting to gather more evidence of slowing to the recent core inflation reports and infer that core inflation is on a consistent deceleration path. If the evidence points to consistent deceleration, analysts expect that the FOMC will not deliver a second rate hike, which is now reflected in the median FOMC policy projections; however, there is no reason for the FOMC to say that now. At the press briefing, Chairman Powell will have the luxury to sound more optimistic about inflation, and be more expansive than the FOMC statement that will continue to say inflation remains elevated. While saying that too, Chair Powell will be able to acknowledge the recently better core CPI and PCE data and characterize it as encouraging. Still, the recent core inflation readings have not been sustained long enough for the policy statement to explicitly refer to core inflation ‘easing in recent months,’ but this is something that could be seen in the September policy statement if the data cooperate.
“Off the Record”
Appropriators in Denial of Conservative Shutdown Threat? House GOP appropriators look like they may be in for a rude awakening. The general consensus on Capitol Hill is that a government shutdown is likely at some point this fall. But appropriators say a shutdown is off the table, even as conservatives demand steep spending cuts that the Senate will never support. With a September 30 deadline looming, Speaker McCarthy acquiesced to demands to fund the government at FY2022 levels, $130 billion less than agreed to in the debt-limit compromise with the White House. Meanwhile, Senate appropriators are generally marking up their bills at levels mandated in the Fiscal Responsibility Act and have said they won’t go along with the House’s cuts. Conservatives vow not to back down, setting up a showdown in September. Although some Republicans argue they’re not threatening a shutdown, others have openly embraced the idea. And while the Speaker has vowed to get all 12 appropriations bills through the House, the Appropriations Committee might not even be able to bring two controversial bills—Labor-HHS and Commerce-Justice-Science—up for a full committee vote. Democrats are already blaming any potential shutdown on Republicans. Our take: both a continuing resolution (CR) and a government shutdown are on the table.
In Other Words
“I know Zelenskyy very well, and I know Putin very well, even better. And I had a good relationship, very good with both of them. I would tell Zelenskyy, no more. You got to make a deal. I would tell Putin, if you don’t make a deal, we’re going to give him a lot. We’re going to [give Ukraine] more than they ever got if we have to. I will have the deal done in one day. One day,” Former President Trump
Did You Know
Mei Xiang, a giant panda currently living at Washington’s Smithsonian National Zoo, is celebrating her 25th birthday Saturday—and it might be her last in D.C. A three-year deal to lease a pair of adult giant pandas for $500,000 per year expires December 7, meaning Mei Xiang and male panda Tian Tian would have to return to China if the deal isn’t renewed.
Almost half of U.S. voters, 47%, say they would consider voting for a third-party candidate for president next year, signaling a dissatisfaction with a potential Biden/Trump rematch.
Graphs of the Week
Global Economic Forecast Update. Global real GDP is forecasted to grow 2.6% in 2023, down from 3.3% in 2022, with further slowing to 2.4% in 2024. Economic growth is moderating under the weight of continued high inflation and monetary policy tightening. Rather than a global recession, corporations should expect a relatively subdued economic outlook. Growth is generally strongest in emerging Asian economies, and weakest in Europe and the US. Deeper dives by region can be obtained from the Washington office.