May 24, 2024

Thought of the Week:

Every Good Boy Does Fine; FACE. Good Boys Do Fine Always; All Cows Eat Grass. No, The Washington Connection does not engage in steganography, which is the practice of concealing coded information within ordinary messages often written in plain sight. Rather, if you ever took music lessons as a kid, you might recognize these mnemonics as aids for remembering the notes associated with the Treble and Bass Clefs, respectively. Starting around 4th grade, my mom signed me and my sister up for piano lessons with Mrs. Broughton. Our lessons were during the week and came right before football, baseball, or basketball practice. We used the Michael Aaron Piano Course lesson books for sheet music, and although it’s been a while, I think I could still pound out the intro to Beethoven’s Fur Elise if I had to. Although she said I would regret it someday, my mom agreed that when I made it through Grade 4 of the lesson series I could drop piano to focus on sports. As the pieces associated with each step of the lesson plan increased in difficulty, Mrs. Broughton often brought out a metronome as a training tool for me to maintain timing and tempo. Like pendulums, metronomes swing back and forth, left to right, at varying speeds. And while many political analysts employ the Pendulum Theory as a metaphor when describing political swings, driven by popular demand, in one direction until a tipping point is reached that inevitably causes a swing back in the opposite direction, I’ve always pictured the prop as a metronome rather than pendulum clock. This week, we may have just witnessed one such tipping point. Consider that the results of the congressional primaries in Oregon point directly to a subdued progressive left, San Francisco Mayor Breed has moved far to the center in her effort to retain office in November, and Senator Fetterman (D-PA) has publicly broken with the progressive-left over Israel. In fact, eight years removed from former president Trump’s ascension, the progressive movement seems to be at an impasse, and the mood among ordinary Democrats has moderated considerably. To date, Democratic politicians have rejected calls to defund the police, and despite his promise to be the “most progressive” president in history, President Biden is now staking out more moderate policy positions on crime, the border, and the economy as he struggles to close polling gaps with former President Trump. Looking ahead, a pair of progressive incumbents seem to be in danger—Reps. Bush (D-MO) and Bowman (D-NY) face serious primary challengers. Things have gone so far that in speaking about the progressive losses in Oregon this week an anonymous Biden administration official said, “Particularly right now, Americans don’t want to feel like things are out of control, well-meaning ideas have gone too far, and we need a sensible approach.” What’s more, unlike the base-centric members of the Republican Party, progressive Democrats have not seized the reins of power in the same way, and liberals could see their influence further diminish even if the House flips to Democratic control next year. Most astonishing, may have been comments Rep. Auchincloss (D-MA) made directly to members of the Washington office this week. Invoking the memory of President Reagan, the Massachusetts congressman said that Democrats need to lean into the pro-growth coalition, abide by the rule of law, and offer regulatory certainty. No doubt, progressives would likely regain some momentum if former president Trump wins in November; a Republican-controlled environment is arguably a more auspicious one for progressives than a center-left Democratic presidency. Regardless, at this moment in time, not only does the Biden administration seem vindicated in its approach of aiming for the political center, but so do moderate Democrats like Auchincloss. No secret messages were sent in the publishing of this blog post…or were they.  

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

Capital Alpha Predicts that a President Trump Would Not Implement a 10% Tariff. If former President Trump is reelected, he will not impose a 10% universal baseline tariff In fact, the office of the president has no statutory authority to do so and Congress has major tax legislation to deal with in 2025. It is extremely unlikely that Congress would raise taxes and tariffs at the same time. The top trade priorities for 2025 will be China and USMCA, which is up for review in 2026. Anything else is largely a distraction. On the campaign trail and in television interviews, former President Trump has taken to mentioning a 10% tariff imposed on all goods imported into the U.S. It doesn’t matter what country the goods come from, everything would get a tariff. However, the President of the United States has no statutory authority to levy a tariff on all countries just because. An across-the-board tariff would be the exclusive purview of Congress, and the president would need authorization from Congress to impose it. While there are certain tariff authorities that the president can exercise at his discretion, such as Section 232 of the Trade Expansion Act of 1962, Congress has not authorized blanket tariffs. In addition, the Supreme Court is expected to curtail its historical policy of Chevron deference sometime by July. Although it is unclear exactly where the Court will come down, it will not come down in the direction of making a blanket tariff imposed by presidential proclamation more likely. What’s more, Congress will be facing a fiscal maelstrom in 2025—key provisions of the Tax Cuts and Jobs Act of 2017 will expire, there will be spending issues, the debt limit, and extension of Affordable Care Act tax credits; a corporate tax increase may be in the cards no matter who wins the election. This is not an environment in which Congress will be levying tariffs across the board. The 10% tariff is a shiny object that Trump likes to talk about, but there hasn’t been a single piece of paper explaining how it would be implemented. Like on most issues, take Trump seriously, not literally.

Conference Board Sees Progress on Inflation Resuming as Retail Sales Growth Cools. The new Consumer Price Index (CPI) and retail sales data for April revealed a cooling consumer environment, which is a welcome relief for the Federal Reserve after months of hotter-than-expected trends. In fact, the data may signal that disinflation is back. The CPI rose 0.3% month-over-month (m/m) and 3.4% year-over-year (y/y) in April—down from 0.4% m/m and 3.5% y/y in March. For the first time in 2024, inflation is moving in the right direction as services and shelter costs eased a bit in April, partially offsetting rises in gas prices. Core CPI, which excludes food and energy, fell to 3.6% y/y—the lowest since Q2 2021. Much of the progress can be attributed to the stagnation of retail sales. Nominal retail spending stalled at 0.0% m/m in April, and Q1’s hot spending growth was revised lower. Adjusted for CPI inflation, real spending fell to −0.3% m/m. Going forward, the latest data demonstrates that the Fed’s tight monetary policy is weighing on consumer spending on goods—especially interest-rate sensitive categories. With wage gains slowing, savings shrinking, and debt loads growing, businesses should expect spending to continue to soften—but not fall apart—as disinflation may finally allow the central bank to cut rates starting in November. 

Eurasia Group Says Trump is Still the Favorite for November. Despite a favorable environment for President Biden since the State of the Union address in early March that shifted the focus away from his age and toward former president Trump’s legal troubles, Biden’s reelection prospects have not improved; he still faces 40% odds of securing a second term. Three pieces of polling information suggest that Biden continues to face an upward battle: (1) his approval rating (still below 40%); (2) head-to-head polling in the swing states; and (3) top-issue polling. Voters are still smarting over inflation, worried about the economy, and doubtful about Biden’s ability to finish out a second term. The Trump-dominated news cycle has done little to benefit Biden, as Trump’s ongoing trial in a Manhattan courtroom—likely the only trial he will face his year—has not pushed independents meaningfully toward Democrats. The dominant feature of the 2024 election thus far appears to be its structural stability, with Biden’s unpopularity the ongoing story and both candidates’ support having changed little since the campaign began.

“Inside Baseball”

According to Punchbowl News, Democratic Frontliners* are gradually starting to break with President Biden and the White House. Frontliners, largely vulnerable House Democrats, are increasingly finding ways to distance themselves from President Biden. During a presidential election year, Frontliners realize that much of their success may be tied to the top of the ticket, but they also have self-preservation instincts, and that means taking shots at some of the president’s unpopular policies. In recent weeks these swing-seat Democrats have become more vocal about the administration’s handling of the southern border, the Israel-Hamas war, and energy policies. Polls have Biden trailing former President Trump in several key swing states where many Frontliners reside. Although few Democrats will publicly sound the alarm on the party’s leader, their willingness to criticize the White House is a good indicator that these vulnerable members are feeling the heat. *Frontline is the Democratic Congressional Campaign Committee’s (DCCC) program to provide Democratic Members of Congress from competitive seats with the resources needed to execute effective reelection campaigns. This cycle, there are 29 incumbent Members in the program.

In Other Words

“He has talked tough for years about how only guilty people and mobsters take the Fifth. Now it appears he’s going to do that himself, and we wanted to remind him of that and see if we could taunt him into testifying—frankly, because it might not go well for him if he did that,” Matt Bennet, co-founder of the Democratic group Third Way.

“We’ll be resting pretty quickly, meaning resting the case. I won’t be resting. I don’t rest. I’d like to rest sometimes, but I don’t get to rest,” former President Trump.

Did You Know

This week, voters in California’s 20th District filled the vacant seat of former Speaker McCarthy (R); Vince Fong (R), a state representative and McCarthy’s former district director, won a special election. Upon Fong’s swearing-in, the House will have 218 Republicans, 213 Democrats, and 4 vacancies.

Professional linestanders are making up to $1800 for holding an early spot to get into the Manhattan courthouse for former President Trump’s hush-money trial. In Washington a line-stander (a job I once held part-time while in college) can earn $60 an hour/3-hour minimum for holding a spot outside of high-profile congressional hearings or oral arguments at the Supreme Court.

 Graph of the Week

 U.S. Border Patrol logged a sharp increase in crossings by Chinese nationals over the past year, prompting Republicans to sound the alarm over security risks while Democrats caution against dangerous rhetoric. The agency recorded more than 27,000 Chinese citizen arrivals along the southwest border since October, a staggering rise over the past decade. The crossings are now the latest flash point in Congress with Republicans channeling them into an attack against President Biden ahead of November elections. Republicans and former President Trump frame the crossings as a threat to national security, while Democrats accuse the GOP of alarmism and xenophobia.

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