POLITICO NIGHTLY: The Fed’s fav inflation gauge: The good, the bad and the cloudy

View in browser   BY BEN WHITE Presented by CONFUSED MUCH? If you are not quite sure what to think about the state of the U.S. economy, inflation, the Federal Reserve’s strategy and the whipsaw stock market, don’t be ashamed. Because pretty much everyone is confused by the economic data these days. A normally obscure but suddenly relevant reading on inflation that came out today — the Personal Consumption Expenditures Price Index, or “PCE” — didn’t clear things up much. More on that later. The economic picture remains … muddled, cloudy, mixed, uncertain. Choose your cliche and it probably applies. And a number of things are true at the same time. The unemployment rate is very low, jobs for now remain plentiful and wages are rising pretty sharply. But (and there are a lot of buts) inflation — what stuff costs to buy — remains historically high, wiping away the impact of wage gains and making everyone miserable from the gas pump to the grocery store. The Federal Reserve is bent on bringing down on inflation even if it means forcing a short and shallow recession. It’s slightly too much to say Fed Chair Jerome Powell and his colleagues are completely freaked out by the persistent run up in prices. But they are close. And few allegedly strong economies are as widely hated as this one. Just 20 percent of Americans in the latest AP/NORC poll out this week rated the economy as “good” while 79 percent called it “poor.” The dismal view crosses party lines. It’s not terribly surprising that 90 percent of Republicans dislike the economy under a Democratic president. But 67 percent of Democrats hate it too. That hatred itself could help tip the economy toward recession, but we’ll get to that later. Let’s get back to that obscure and wonky corner of the economic world, our friend PCE. Wall Street and policymakers always watch this number as it’s the Fed’s favorite inflation gauge and the most influential indicator in determining the path of interest rate policy. In normal times, ordinary people can safely ignore it. But these are not normal times. And everyone is watching each piece of inflation data very closely. The latest PCE report, covering the month of May , came in very mixed. There was good. There was bad. And there was something for everyone in the political world to craft talking points around. The good stuff (favorable to President Joe Biden and Democrats panicked about the aforementioned poll numbers): The annual rate of so-called headline inflation remained at 6.3 percent in May. That’s a very high figure but another data point for those who argue price increases have already peaked and will head down on their own without a big boot kick from the Fed in the form of higher rates. So-called core inflation, which strips out highly volatile food and energy prices, dipped a bit from a 4.9 percent annual rate in April to 4.7 percent in May. Again, still way high. But in line with a general trend lower. Spending on services, after adjusting for inflation, rose 0.3 percent in May from April, another sign that after a couple of years of pandemic-induced stagnation, people are spending again on travel, hotels, bars, restaurants and the like, and not just constantly ordering durable goods (furniture, toaster ovens, etc.) over the Internet. The bad stuff (favorable to Republicans ripping what they call “Biden-flation”): Overall real consumer spending fell 0.4 percent over the month as services spending did not keep up with a big 3.5 percent monthly drop in durable goods, largely a result of lower auto sales. Car makers continue to be plagued by supply chain problems. The dip feeds into fear among economists that consumers — stretched by higher prices and seeing their Covid-era savings evaporate — will finally, truly tighten their wallets and trigger an economic downturn. Consumer spending is around 70 percent of all economic activity. So if it drops a lot … well … that would be quite bad. Republicans like Rep. Kevin Brady (R-Texas), ranking member on the House Ways and Means Committee, leapt on the spending decline to once again rip Biden. Brady called it a “very cruel” economy in an interview with Yahoo Finance. And after rising sharply during Covid, the household savings rate is once again at multidecade lows. The bottom line : The latest inflation report was a bit more good than bad when you fully pick it apart. It should ease a little bit of the Fed’s worry, though not a lot of it. The big question for Fed watchers is whether the central bank will raise its target for interest rates by another hefty three quarters of a point in July or back off to a half-point hike. Today's numbers tilt the scale a little toward half a point. But the disconnect between what many numbers tell us about the economy (things are still good!) and how people feel about it (everything stinks!) could itself push us toward recession. For now, Americans are still spending like they believe the economy is OK, no matter what they tell pollsters. But that could easily change. “It could really become a self-fulfilling prophecy if consumer and business sentiment just continues to fall off a cliff,” Peter Essele, head of portfolio management for Commonwealth Financial Network, told Nightly. “The numbers across the board — hiring, job openings, manufacturing orders — look really good. But sentiment continues to collapse. And that means a significant recession is definitely a possible outcome here.” Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com. Or contact tonight’s author at bwhite@politico.com on Twitter at @morningmoneyben. A message from Meta: Doctors can practice high-risk situations risk-free in the metaverse In the metaverse, future surgeons will be able to practice advanced procedures hundreds of times before seeing real patients – helping them gain experience and master their skills. The metaverse may be virtual, but the impact will be real. Learn how Meta is helping build the metaverse.   SCOTUS A woman protests against climate change after the Supreme Court's EPA decision today. | Jacquelyn Martin/AP Photo EPA’S HANDS TIED ON CLIMATE — The Supreme Court’s decision today restricting the Environmental Protection Agency’s power to confront climate change sparked an uproar among climate hawks in Congress, environmental activists and the clean energy industry, write Zack Colman, Kelsey Tamborrino and Josh Siegel. But it also left them facing big questions about what their Plan B will be, amid Democrats’ struggles to push Biden’s climate agenda in Congress. A White House spokesperson said its lawyers will “study the ruling carefully and we will find ways to move forward under federal law. At the same time, Congress must also act to accelerate America’s path to a clean, healthy, secure energy future.” Congressional Democrats whose efforts to pass legislation to fight climate change have been blocked for years — both by Republicans and, more recently, by Democrats’ own troubles unifying their razor-thin Senate majority — said their party must take action in response to the Supreme Court’s decision. However, the party has so far failed to garner the 50 votes in the Senate needed to move climate legislation amid resistance from West Virginia Sen. Joe Manchin, and supporters see the next few weeks as the last chance to pass a measure. Read more on the Court’s decision: Supreme Court handcuffs Biden’s climate efforts REMAIN … IN U.S.? — The Supreme Court has cleared the way for the Biden administration to stop sending migrants back to Mexico — for now. In a 5-4 decision, the justices ruled that federal immigration law does not mandate that the Biden administration send asylum applicants back to Mexico despite his predecessor’s “Remain in Mexico” program, write Josh Gerstein and Sabrina Rodriguez. The decision also leaves intact, for now, the federal government’s authority to release or “parole” foreign citizens into the U.S. as they await immigration court hearings. The decision did not rule out the possibility that other legal challenges to the Biden administration’s move to wind down “Remain in Mexico” might eventually succeed, so this decision may not be the final word. There’s more: Just after releasing its final opinions of the term today, the Supreme Court announced it would take up the closely watched case Moore v. Harper, brought by North Carolina’s Republican state House speaker, who challenged the state Supreme Court’s decision to throw out the Legislature’s congressional maps over partisan gerrymandering. The case promotes a controversial legal theory that would consolidate elections power in the hands of state legislatures.   DON'T MISS DIGITAL FUTURE DAILY - OUR TECHNOLOGY NEWSLETTER, RE-IMAGINED:  Technology is always evolving, and our new tech-obsessed newsletter is too! Digital Future Daily unlocks the most important stories determining the future of technology, from Washington to Silicon Valley and innovation power centers around the world. Readers get an in-depth look at how the next wave of tech will reshape civic and political life, including activism, fundraising, lobbying and legislating. Go inside the minds of the biggest tech players, policymakers and regulators to learn how their decisions affect our lives. Don't miss out, subscribe today.     WHAT'D I MISS? — Justice Ketanji Brown Jackson sworn in to Supreme Court: Jackson was sworn in by Chief Justice John Roberts, who administered the constitutional oath, and Justice Stephen Breyer, the justice for whom Jackson once clerked and whose seat on the bench she has taken over. — Migrants who died cleared inland checkpoint, U.S. official says: The tractor-trailer at the center of a disastrous human-smuggling attempt that left 53 people dead had passed through an inland U.S. Border Patrol checkpoint with migrants inside the sweltering rig earlier in its journey, a U.S. official said today. The truck went through the checkpoint on Interstate 35 located 26 miles northeast of the border city of Laredo, Texas. It was unclear if agents stopped the driver for questioning at the inland checkpoint or if the truck went through unimpeded. HUH? THE US IS GOVERNED BY CLARENCE THOMAS' IGNORANCE?  — Clarence Thomas suggests Covid vaccines are derived from the cells of ‘aborted children’: The conservative justice’s statement came in a dissenting opinion on a case in which the Supreme Court declined to hear a religious liberty challenge to New York’s Covid-19 vaccine mandate from 16 health care workers. The state requires that all health care workers show proof of vaccination. “They object on religious grounds to all available Covid–19 vaccines because they were developed using cell lines derived from aborted children,” Thomas said of the petitioners. None of the Covid-19 vaccines in the United States contain the cells of aborted fetuses. — Florida’s new abortion law halted as DeSantis vows to fight on: In a stinging defeat for Gov. Ron DeSantis and the Republican-controlled Legislature, a Florida judge said today he will temporarily block a new law that would prohibit all abortions in the state after 15 weeks of pregnancy. The ruling by Circuit Judge John C. Cooper will be based entirely on whether the law ran afoul of a provision in the state Constitution that bars the government from intruding on people’s personal lives. Cooper, who announced his decision from the bench, said he plans to make it official by early next week.   A message from Meta:     AROUND THE WORLD President Joe Biden arrives on the South Lawn of the White House today at the conclusion of his trip to Germany and Spain. | Evan Vucci/AP Photo BACK TO REALITY — The days Biden spent at the G-7 gathering in Germany and the NATO summit in Spain provided a brief oasis for the president. And despite the domestic turmoil, and dismal poll numbers, Biden rejected the notion that the nation was being doubted on the world stage, writes Jonathan Lemire. But the trouble Biden left behind across the Atlantic was what dominated the news conference he held at the end of the trip. The summits had undeniable successes — including an agreement to admit two new members to NATO — yet they struggled to break through a domestic news cycle back home. White House aides have long conceded that Biden’s handling of the war in Ukraine, no matter how vital to global security, will win the president and his party few votes back home. And there is growing concern that patience for sustaining the war effort — both among European allies and American voters — could fade if the conflict stretches into next year, exacerbating record inflation by sending energy and food prices soaring. But for this week, the United States was once again the indispensable nation. In the stunning Bavarian Alps, Biden led the leaders of the six wealthiest democracies to push for a measure to cap Russian oil prices while also unveiling a global infrastructure plan meant to pull some of the developing world out from the influence of another authoritarian regime, China. And in sun-splashed Madrid, Biden publicly declared the U.S. would stand with Ukraine while he worked behind the scenes to assuage Turkey’s concerns to pave the way for both Finland and Sweden to join NATO. More from Biden’s press conference today: — Biden: War ‘will not end with a Russian defeat of Ukraine in Ukraine’ — Biden says he supports a filibuster carve-out to restore abortion rights — Biden will not directly ask Saudis to increase oil production during visit   Industry Leaders at One-Day Tech Event on July 21: The American dream is a MerITocracy – powered by policy and technology as they relate to education and workforce, global competitiveness, security and privacy, and citizen services. On July 21, join tech industry visionaries from Dell, Google Cloud, DocuSign, and Consumer Technology Association, in addition to Hill and Biden Administration leaders as they discuss the future of tech innovation, regulation, and outcomes for America at MeriTalk’s MerITocracy 2022: American Innovation Forum. Sign up here.     NIGHTLY NUMBER 181 The number of abortion rights protesters Capitol Police arrested today, including Rep. Judy Chu (D-Calif.), after they blocked an intersection near the Supreme Court and Senate office buildings. It’s one of the larger mass arrests by the department in recent years. Chu, the lead sponsor of Democrats’ signature abortion rights legislation that has stalled out in the 50-50 Senate, called for more action on abortion rights in a statement on her arrest. PARTING WORDS CONFESSIONS FROM A REPUBLICAN CAMPAIGN HIT MAN — The post-Trump era has produced a library’s worth of books from people who had access to the rooms where decisions were made but kept quiet about the rotten things they witnessed. The volumes mostly read as after-the-fact justifications for morally debatable behavior spiced up with a few damning anecdotes that feel too-little-too-late. Tim Miller’s Why We Did It: “A Travelogue from the Republican Road to Hell” is not one of those books, writes Michael Kruse. Before he became a committed Never Trump contributor to The Bulwark and MSNBC, before he was even a top aide to Jeb Bush during the 2016 presidential campaign, Miller was a self-described GOP “hit man” for the Republican National Committee and an opposition research firm he helped start. Along the way he got quite comfortable operating within the trollish zero-sum norms of “the Game,” inflaming voters who weren’t in on the joke. What distinguishes Miller’s book from many other insider accounts is his willingness to put his own behavior under the microscope, specifically how as a closeted gay man he was able to ignore the sometimes-explicit homophobia of his clients to help push the parts of their agenda he found more palatable. It made him, he says, a “championship-level” compartmentalizer. But this confessional tone gives the book its distinctive oomph and affords Miller the license to dissect with mordant wit the many varieties of rationalization that his colleagues in the GOP employed to justify their fealty, even servility, to Trump. Read Kruse’s interview with Miller. Did someone forward this email to you? Sign up here.  A message from Meta: The metaverse may be virtual, but the impact will be real Meta is helping build the metaverse so aviation mechanics will be able to practice servicing different jet engines – preparing them for any complex job. The result: A more skilled workforce. Learn how Meta is helping build the metaverse.     Follow us on Twitter Myah Ward @myahward Naomi Andu @naomiandu   FOLLOW US

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