May 13, 2022

Thought of the Week:

One of my closest friends is a pilot for United Airlines; he flies international routes to Europe and Asia out of Dulles International Airport in suburban Washington. Prior to his time with United, he was a naval aviator, and flew F-14 Tomcats off the USS Eisenhower during the Persian Gulf War. Coincidentally, the F-14 was the same plane used in the movie Top Gun. I’ve asked him multiple times, in all his years flying, whether he had ever come across an unidentified flying object (UFO) or some other unexplained phenomenon. His answer has always been, “No.” Still, the intrigue over UFOs has not dissipated in Washington, and next week, a House Intelligence subcommittee will hold open hearings on the subject. The hearings were fueled by last year’s Pentagon report indicating that 143 of 144 sightings since 2004 remain unexplained. Of those incidents, 18 “appear to demonstrate advanced technology” believed to be beyond what the U.S., China, or Russia currently possess. The focus of the hearings will be on the Pentagon’s work and the release of the report. Although officials maintain there is no non-terrestrial explanations, the goal of the hearing is to quiet concerns raised over “national security and flight-safety.” Congress holds a wide range of hearings every year—legislative, oversight, investigative, confirmation, and ratification. Hearing schedules are published weekly, and most are open to the public. Because it can take from two months to two years before the text of hearings are published, if your office has an interest in an upcoming hearing, please contact the Washington office. We can attend congressional hearings, and report directly on the discussion.

Thought Leadership—from our Associations, Think Tanks, and Consultants:

Climate Spending Realities Lead California to Re-evaluate Nuclear Reports the Eurasia Group. California’s request for federal funds to extend the lifetime of the Diablo Canyon nuclear power plant, originally scheduled to retire in 2025, points to possible changes in the national de-carbonization debate and risks for clean energy supply chains. A final decision to extend Diablo Canyon could affect the decision-making of other U.S. nuclear plants currently debating between decommissioning and lifetime extension requests. It could also spur additional federal funding for aging nuclear plants. The two most immediate concerns for the California grid are declining hydropower generation (caused by worsening droughts) and the availability and cost of solar and battery components for future renewable buildouts (caused by disruptions in supply chains). A grid failure this summer in California would worsen the already negative outlook for national climate action this year.

Supply Chain Action Will Only Offer Limited Inflation Relief Predicts the Observatory Group. In recent weeks, the Fed has become less confident that improved supply chain conditions will provide genuine inflation relief. Supply chains remain severely disrupted, with Chinese lockdowns associated with the Zero Covid policy just the most easily observed source.  The pace of broad supply chain improvement continues to be slow, and most Fed policymakers fear they are unlikely to resolve anytime soon. Policymakers increasingly acknowledge that supply dislocations may have already become part of the broad entrenched inflation dynamic. This has made the imperative to reduce aggregate demand more urgent, and policymakers acknowledge that if supply chain pressures do not ease soon, this will imply a need for a stronger monetary policy response. This was the case even before April’s strong CPI report, which showed worrisome price increases in services. The outlook for future monetary policy is now aligned with a view of a steeper and more prolonged rate cycle. As of the March Fed press briefing, Chair Powell signaled that a 50 bp rate hike is the baseline option at both the June and July meetings and suggested that after the July meeting, the outlook was much less certain. With policymakers becoming increasingly skeptical about real supply chain relief, if the next two months of inflation data are as disappointing as the April consumer data,   a 75 bp move at the July meeting would be on the table. Regardless of the July move, the policy outlook for the rest of 2022 will evolve toward not just arriving at neutral before year-end but moving the policy stance to the genuinely restrictive range by year-end. That in turn would require additional 50 bp hikes and keep 75 bps on the table as well.

Trade Analyst Laura Chasen: Japan’s Trade Minister Comes to Washington. Japanese Minister of Economy, Trade & Industry Hagiuda visited Washington last week, meeting with USTR Tai, Commerce Secretary Raimondo, and Energy Secretary Granholm. The visit was, in part, a meeting to prepare the ground for President Biden’s upcoming visit to Tokyo for bilateral meetings and the Quad Summit. It was also an occasion for the U.S. and Japan to consult over the shape of the Indo-Pacific Economic Framework (IPEF). Japan is the U.S.’s closest partner in wanting it to succeed and wanting it to be more robust than the Biden administration currently plans. In his meeting with Raimondo, Hagiuda called for quick IPEF finalization. Since there are no significant, or at least no high-profile, trade disputes between the U.S. and Japan at the moment, the trade minister was able to focus on positive aspects and common goals of the bilateral relationship. The main takeaways were commitments to intensify cooperation on semiconductors and energy. In terms of individual meetings, Hagiuda’s engagement with Tai was part of the U.S.-Japan Partnership on Trade (UJPT); with Raimondo, the two held the first ministerial meeting of the Japan-U.S. Commercial & Industrial Partnership (JUCIP). The UJPT and the JUCIP are similar to other arrangements the Biden administration has made in the economic and trade arenas with other allies, including the EU, UK, India, and Kenya. They should be looked at as consolation prizes for the U.S. refusal to negotiate more meaningful trade agreements, including, in Japan’s case, the CPTPP. However, they are vehicles through which Washington may wrest some concessions from trading partners and enhance cooperation in areas important to the U.S., while avoiding the political fallout that generally accompanies formation of new free trade deals. Most of the business community, of course, sides with U.S. trading partners, over the White House, in preferring full trade agreements.

In Other Words (Quote): 

“Both Russia and Ukraine believe they can continue to make progress militarily, we do not see a viable negotiating path forward, at least in the short term,” Director of National Intelligence Avril Haines.

“I think it’s important that, as we go forward, you’re gonna hear me talking more about not only what we’ve done, but what they’re trying to do. Under my predecessor—the great MAGA king—the deficit increased every single year he was president,” President Biden.

Did You Know:

House Speaker Nancy Pelosi is expected to announce a new minimum annual salary of $45,000 for House staffers. The change will go into effect on Sept. 1. The move comes after the emergence of the “Congressional Workers Union,” which, in part, aimed to correct a history of low pay. Legislative employees often had salaries as low as $29,000 a year.

GRAPH of the Week:

This year is on track for record lobbying spending. Collectively, lobbyists clocked the biggest first quarter haul in history, with more than $1 billion disclosed during the first quarter of 2022 alone. At the same point last year, 10,503 lobbyists had brought in $929 million across all industries. The federal budget was the most lobbied issue in the first quarter, with 3,394 clients paying for lobbying on the issue.

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