POLITICO NIGHTLY: Recession? What recession?

 

View in browser   BY BEN WHITE With help from Ari Hawkins President Joe Biden speaks on the January jobs report in the Eisenhower Executive Office Building on the White House complex, Feb. 3, 2023. | Manuel Balce Ceneta/AP Photo BLOWOUT — So a funny thing happened on the way to that recession everyone keeps talking about. The U.S. economy gained over half a million jobs in January, blowing out expectations, crushing (for now) the idea of a cooling labor market and getting the economics world abuzz about the possibility that this time really could be different. Usually when someone says that, it’s almost a guarantee it won’t be different. But there are multiple reasons to at least entertain the idea that the current round of aggressive Federal Reserve rate hikes meant to beat back super high post-pandemic inflation really may not lead to recession and higher unemployment, which is usually what happens. There is also at least some reason to believe that all those voices who assured people inflation would be “transitory,” including Fed Chair Jerome Powell, might have been kind-of-sort-of right, though the transitory period was just longer and uglier than expected. That is certainly the White House view of things . Privately, many in the West Wing were looking for a good, but not great number. Because a great number could cause Powell and his colleagues to get even tougher with rate hikes. The central bank noted in raising rates another quarter point on Wednesday that it had made some progress bringing down inflation in some areas of the economy, but not on rising wages. Usually rising wages are a good thing . But not when there is so much pressure on employers to pay more to attract workers that they have to jack up prices to consumers. That can turn into the dreaded “wage-price spiral” that haunts all central banker’s nightmares. Such a death spiral can only be broken if you possess the One Ring (hello Tolkien fans) or if you jack interest rates ever higher. Which brings us to the absolute marvel of today’s January employment report that showed not only a face-melting 517,000 jobs against expectations of under 200,000, but a slight decline in the pace of wage gains to 4.4 percent annually from 4.8 percent in December. That’s still higher than the Fed’s comfort zone of around 2 percent, but it’s quite amazing and somewhat confounding that the labor market remains super-tight by many measures and yet wage pressure seems to be easing. To be sure (and there are more “to be sures” to come), one cannot base anything off a single jobs report — they carry a margin of error of plus or minus 100,000 jobs. January reports are notoriously plagued by seasonal adjustment issues. But it seems more likely that talk of recession and headlines about tech industry layoffs and the like spooked many Americans who had been holding out for more money to simply take available jobs. It also looks like the retail and leisure and hospitality industries — long beset by a lack of available workers following the pandemic — simply kept on many part-time workers hired for the holidays. Some Americans also now appear willing to take jobs for slightly less money if they come with good benefits and the option to work remotely. That phenomena could help keep wage pressure in check without the Fed having to do all that much more. And it’s not inconceivable that a good bit of the record inflation run that peaked at over 9 percent last June was in fact driven by pandemic supply-chain problems and a hangover effect among workers. Now for all the other “to be sure” warnings. The Fed is going to keep hiking because even the giant headline number will be scary to them. They could easily hike too much and cause recession. Consumers could finally stop pouring all their cash into the economy. There’s that scary debt limit fight hanging out there. Most corporate executives still assume recession is coming, driving down their spending. But today’s report was pretty much dazzling across the board . Outgoing White House chief of staff Ron Klain emailed POLITICO after the number dropped: “Sometimes good news is just good news. And this time it’s great news.” President Joe Biden said it showed his critics are simply “wrong.” Even Larry Summers, the former Treasury secretary and thorn in many Democrats’ sides with his dire and ultimately correct predictions on inflation, largely embraced the number in a conversation with POLITICO. “No question this was a good number,” he said. But then Summers offered the most important ‘to be sure’ of all on inflation: “We are still at levels that would have been deeply alarming two years ago.” Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com . Or contact tonight’s author on Twitter at @morningmoneyben .   STEP INSIDE THE WEST WING : What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president’s ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today .     WHAT'D I MISS? Rep. Victoria Spartz (R-Ind.) listens to proposed amendments as the House Judiciary Committee holds its first meeting under the Republican majority, Feb. 1, 2023, at the Capitol. | J. Scott Applewhite/AP Photo — New U.S. aid package includes longer-range bombs for Ukraine: The Biden administration is providing Ukraine with a new longer-range bomb as part of the $2.2 billion aid package announced today , but the new weapon likely won’t arrive until much later this year. The weapon, the Ground-Launched Small Diameter Bomb, is made up of a precision-guided 250-pound bomb strapped to a rocket motor and fired from a ground launcher. It’s normally launched from the air and the ground-launched version does not yet exist in U.S. military inventory. It could take up to nine months for U.S. defense contractors to do the necessary retrofits. — Spartz won't seek elected office in 2024: Rep. Victoria Spartz (R-Ind.) delivered a surprise announcement today, saying she would not seek Indiana’s open Senate seat or reelection to the House next year. Spartz’s announcement removes another obstacle to Rep. Jim Banks’ (R-Ind.) quest for the open Senate seat being vacated by Sen. Mike Braun (R-Ind.) , who’s running for governor of their home state. Her decision was one of the biggest remaining open questions in a Senate field that winnowed earlier this week when former GOP Gov. Mitch Daniels passed on a bid. — Progressive Rep. Delia Ramirez set to give State of the Union response: Rep. Delia Ramirez, a first-term Democrat from Illinois, is set to give the progressive response to the State of the Union address next week . Her speech on Tuesday, given on behalf of the liberal Working Families Party, is expected to address Biden’s speech and rebut the Republican responses given by Arkansas Gov. Sarah Huckabee Sanders and Rep. Juan Ciscomani (R-Ariz.). AROUND THE WORLD BALLOON DIPLOMACY — Secretary of State Antony Blinken postponed a visit to China earlier today after American military officials said a “high-altitude surveillance balloon” was flying across the continental U.S. The suspected Chinese spy balloon was identified in Montana, a development that has reignited concern over potential risks to national security. The disclosure on Thursday prompted a bipartisan response from lawmakers. The leaders of the House select committee on China, Mike Gallagher (R-Wis.) and Raja Krishnamoorthi (D-Ill.) issued a joint statement that said that China should “not have on-demand access to American airspace.” “This incident demonstrates that the [Chinese Communist Party] threat is not confined to distant shores—it is here at home and we must act to counter this threat,” the statement also read. NORAD and the U.S. Northern Command issued a statement that said the balloon does not pose a “military or physical threat to the people on the ground,” and top U.S. military officials advised against shooting the vessel down because of concerns over falling debris. To better understand the national security implications of the discovery and its ramifications on U.S.-China relations, Nightly’s Ari Hawkins spoke to Tom Karako , senior fellow for the International Security Program and Missile Defense Project director at the Center for Strategic and International Studies. This interview has been edited. Beijing has expressed regret over the discovery and claimed the balloon had “deviated far from its planned course.” Is that a plausible answer? Yeah, no. The response from China is highly unlikely and contradicts credible assessments from sources like the Pentagon and Canada’s Department of National Defense. China has a track record of denying efforts to infiltrate western countries and this balloon appears to have the characteristics of a deliberate surveillance operation. Pleading ignorance is not a credible response. The balloon was called an “intelligence-gathering” airship by the Pentagon. Is this a standard tool that nations use? How significant are the national security concerns here? The U.S. military saw the balloon coming for some time now. It's unfortunate that we didn't take it down while it was over water or over fairly uninhabited territory. That seems like a pretty big missed opportunity. Not knowing the exact payload, there is a range of possibilities regarding what the balloon is trying to capture. It could have cameras, infrared imaging, or some other means of signals collection, for instance. There’s certain things you can’t do from orbit, that benefit from being closer to the target, the sort of things that gobble up electronic beeps and squeaks. How commonly does China use such a tactic? Is there precedent for this type ofairship surveillance? Balloons, aerostats, and the aerospace technology related to them has been around for a long time and used for military surveillance purposes for hundreds of years, including in the American Civil War. What’s peculiar in this case, is their use of the balloon to fly over American territory during peacetime. It’s a provocation, and a useful reminder that the U.S. and China remain at odds in various ways. As a result of this airspace violation, Secretary of State Antony Blinken postponed a trip to Beijing earlier today. How does this incident play into the broader state of U.S.–China relations? That’s the critical context here. Antony Blinken was supposed to be meeting with the Chinese this week. Canceling is an entirely appropriate step. It would be, frankly, pretty embarrassing to have gone over there while this thing was hovering somewhere over Indiana. But canceling the trip isn’t enough. This violation of American airspace is an insult, and should be treated as such. If we can bring it down safely or capture it, that would be a nice step. Conversely, inaction on our part won’t go unnoticed by China, and could just encourage them to engage in further shenanigans down the road. It’s also a chance for Washington to show resolve. China’s regime is known to be building its military, pushing around its neighbors and aggressively fighting back against its strategic competitors. As silly as balloon diplomacy might sound, it is important to convey that this isn’t cool.   JOIN POLITICO ON 2/9 TO HEAR FROM AMERICA’S GOVERNORS: In a divided Congress, more legislative and policy enforcement will shift to the states, meaning governors will take a leading role in setting the agenda for the nation. Join POLITICO on Thursday, Feb. 9 at World Wide Technology's D.C. Innovation Center for The Fifty: America's Governors, where we will examine where innovations are taking shape and new regulatory red lines, the future of reproductive health, and how climate change is being addressed across a series of one-on-one interviews. REGISTER HERE .     NIGHTLY NUMBER $3,300 The amount that individual donors can now give per candidate per election. The amount represents a $400 increase from the $2,900 limit during the 2022 election cycle. The announcement from the Federal Election Commission raising contribution limits reflects an historic eight percent inflation rate last year. Donors can now also give a candidate up to $6,600 between the primary and general elections — or $9,900 if a race goes to a runoff. RADAR SWEEP BACK FROM THE DEAD — Hunted to extinction by British colonialists on the Australian southern isle of Tasmania, the thylacine, aptly named the Tasmanian tiger, was last seen alive in the 1930s. Bioscience professor Andrew Pask at the University of Melbourne has taken his interest in the species to greater lengths as he attempts to be the first to resurrect an extinct creature, Mary Ann Jolley reports for Al Jazeera. The fall of the thylacine remains a hot topic for those on the island, Jolley writes, with hotels branding themselves after the extinct species and residents claiming to have spotted one out in the wild. But Pask hasn’t found validity in those claims, and is now working with Colossal, a biotechnology and genetic engineering company, to use leftover thylacine DNA in hopes of bringing it back. While critics believe this is a feat too big to tackle, Pask remains determined. “The fact that it’s an incredibly amazing, beautiful marsupial that was brutally hunted by humans to extinction, we actually owe it to those species to apply the time and the money to return them back to the ecosystem and restore some of these wrongs that we’ve done in the past,” he said. PARTING WORDS Trump supporters clash with police and security forces as people try to storm the U.S. Capitol on Jan. 6, 2021. | Brent Stirton/Getty Images SORRY NOT SORRY — A Jan. 6 defendant’s boast in an interview this week that he had no regrets about his role in the Capitol riot — just days after he acknowledged his guilt in a federal courtroom — may upend the man’s efforts to resolve the criminal case against him , write Josh Gerstein and Kyle Cheney . U.S. District Court Judge Amit Mehta issued an order today instructing defendant Thomas Adams Jr. and prosecutors why the guilty findings the judge entered on Tuesday following a brief, “stipulated” bench trial should not be overturned in light of Adams’ comments to a reporter the following day. The judge also attached a copy of the news report. “I wouldn’t change anything I did,” Adams told the State Journal-Register Wednesday outside his home in Springfield, Ill. “I didn’t do anything. I still to this day, even though I had to admit guilt (in the stipulation), don’t feel like I did what the charge is.” Judges handling Jan. 6 cases have been repeatedly and increasingly irked by defendants appearing to be apologetic and contrite in court, only to make public statements days later minimizing their guilt and sounding cavalier about their actions. And judges are loath to accept what effectively amounts to a guilty plea from any defendant who doesn’t sincerely believe in their own guilt. The FBI appears to have zeroed in on Adams after he said on the day after the Capitol riot that he enjoyed the experience. “It was a really fun time,” Adams told reporters. He has since said he did not know of the violence taking place elsewhere in the building and on the Capitol grounds. Did someone forward this email to you? Sign up here .   Follow us on Twitter Charlie Mahtesian @PoliticoCharlie Calder McHugh @calder_mchugh Katherine Long @katherinealong Ari Hawkins @_AriHawkins   FOLLOW US

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