POLITICO Nightly: Those stubborn recession fears

BY VICTORIA GUIDA Federal Reserve Chairman Jerome Powell speaks at the Thomas Laubach Research Conference on May 19. | Win McNamee/Getty Images ‘AREAS OF PRECARITY’ — Optimism is blossoming on Wall Street and among CEOs that the economy won’t dip into a downturn, at least for the next couple of years. But those recession fears you keep hearing? They’re not going to go away entirely, no matter how good the data looks. (Sorry, Mr. President.) Before we get into why, let’s talk about just how well things have gone over the past year. Annual inflation has dropped from over 9 percent last July to 3 percent in June, as measured by the consumer price index. The national average gas price peaked at $5.01 in June 2022, and was $3.71 this month, according to AAA. Growth of GDP, which measures the size of the economy, actually accelerated in the second quarter of the year to a pace that, if sustained for a year, would clock in at 2.4 percent. That would be faster than growth in 2019, when the economy was pretty healthy. Meanwhile, unemployment is at 3.6 percent, which is exactly where it was when the Federal Reserve started its aggressive interest rate hike campaign. And wage growth is elevated but has been slowly decelerating, which is exactly the kind of thing that makes the Fed less worried about a resurgence in inflation. “Talking to our customers, they have been very worried about a downturn and over-hiring into a downturn,” said Julia Pollak, chief economist at ZipRecruiter. “Yet what we’ve often found is they’ve decided to be lean and conservative and then so many customers have come through the door that they’ve had to revise that plan.” “The economy is just stronger than management and leadership anticipated,” she added. So, all of this data makes some people ask, why do news outlets keep writing about a recession that never comes? The answer really comes down to the Fed. Even if economic trends are positive, central bank officials are determined to bring inflation back to their 2 percent target over the next couple of years. So they might hike rates further, if inflation doesn’t keep slowing, and even holding rates at current punishing levels will extract more and more pain over time. Take the corporate sector. A lot of businesses locked in low rates during the pandemic, but a lot of that debt is going to be coming due over the next couple of years, and they’ll suddenly be paying a lot more to borrow. That’s money that can’t go into investing in new equipment or facilities, or hiring new people. The same goes for consumers who had built up tidy savings buffers thanks to stimulus checks, breaks on student loan payments and other aid. As those savings dwindle, higher borrowing costs will bite more and more. “Look at the demand side effects of rate hikes, whether it’s higher mortgage rates cooling housing demand, stronger dollar cooling [foreign] demand [for U.S. goods], lower [stock] prices cooling consumer demand, you know, all those things have kind of either stabilized in the case of mortgage rates, or reversed in the case of the dollar and equities,” said Michael Feroli, chief U.S. economist at JPMorgan Chase. “But on the supply side, i.e. the cost channel, those effects probably build over time, rather than diminishing,” he added. Another prominent fear: something could break in the financial sector. Already multiple midsize banks failed earlier this year. And Pollak pointed out that banks aren’t the only firms holding assets that have declined in value, thanks to rising rates: insurance companies hold them, too. “Everything will be fine if they don’t have huge weather-related losses and need to pay these astronomical replacement costs for cars and houses that have become more expensive,” she said. Otherwise, property damage means those companies will have to sell assets at a loss to pay out claims, which could spell trouble. That doesn’t even get to a host of other threats, like how geopolitical events might affect food and energy prices. The upshot: “There are a whole lot of areas of precarity where everything will be okay if we’re lucky, and things could get pretty ugly if we’re not.” Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com . Or contact tonight’s author at vguida@politico.com or on Twitter at @vtg2 .   YOUR TICKET INSIDE THE GOLDEN STATE POLITICAL ARENA: California Playbook delivers the latest intel, buzzy scoops and exclusive coverage from Sacramento and Los Angeles to Silicon Valley and across the state. Don't miss out on the daily must-read for political aficionados and professionals with an outsized interest in California politics, policy and power. Subscribe today.     WHAT'D I MISS? — Georgia judge skewers Trump’s bid to derail potential charges: A state judge in Georgia has rejected Donald Trump’s bid to derail his potential prosecution for attempting to subvert the 2020 election results. In a nine-page ruling, Fulton County Superior Court Judge Robert McBurney said it’s simply too soon for Trump or his allies to seek to prohibit Georgia prosecutors from continuing to investigate him — in large part because he hasn’t been indicted yet. — Massachusetts DA calls on DOJ to probe Florida migrant flights: The Massachusetts district attorney who represents the wealthy enclave where Florida Gov. Ron DeSantis flew 49 migrants last September is now calling on the federal Justice Department to investigate the transport . Cape and Islands District Attorney Robert Galibois sent a letter to Attorney General Merrick Garland today asking DOJ to investigate allegations that the migrants were misled into getting on the planes that took them from Texas to Martha’s Vineyard. — Biden reverses Trump, keeps Space Command in Colorado: President Joe Biden has determined that Colorado Springs will be the permanent headquarters of U.S. Space Command , reversing a Trump administration decision to move it to Alabama, according to two people with knowledge of the ruling. The decision will only intensify a bitter parochial battle on Capitol Hill, as members of the Colorado and Alabama delegations have spent months accusing each other of playing politics on the future of the four-star command. NIGHTLY ROAD TO 2024 RFK JR.’S HAUL — A super PAC supporting the presidential ambitions of Robert F. Kennedy Jr. raised $6.47 million in July from a mix of major donors from both parties , according to a press release from American Values 2024 today. About $5 million of that haul came during his testimony in front of the House Judiciary Select Subcommittee on the Weaponization of the Federal Government, POLITICO reports. DESANTIS ROLLS OUT ECON PLAN — Florida Gov. Ron DeSantis unveiled a new economic plan today as part of his 2024 presidential bid that includes a goal of easing the path for student loans to be discharged through bankruptcy, reports POLITICO. DeSantis’ “declaration of economic independence” includes 10 pillars that he says will “reverse the decline of our nation’s struggling economy and fight for the middle class.” The economic plan is the third major policy announcement DeSantis has made since launching his campaign — following his plan to secure the border and a plan for a “mission first military” — and comes as he continues to lag in polls. ALL COMES DOWN TO TURNOUT — Democrats are worried about a potential drop next year in turnout among Black voters, the party’s most loyal constituency, who played a consequential role in delivering the White House to President Biden in 2020 and will be crucial in his bid for reelection. Their concern stems from a 10 percentage-point decline in Black voter turnout in last year’s midterms compared with 2018, a bigger drop than among any other racial or ethnic group, according to a Washington Post analysis of the Census Bureau’s turnout survey . In key states like Georgia, the center of Democrats’ plans to mobilize Black voters in large margins for Biden in 2024, turnout in last year’s midterms was much lower among younger and male Black voters, according to internal party analysis. DESANTIS TAKES A HIT — A top anti-abortion group today called DeSantis’ failure to support federal abortion restrictions “unacceptable” — a blow for the Florida Republican, who has passed one of the most restrictive abortion laws in the country, POLITICO writes. Susan B. Anthony Pro-Life America was responding to DeSantis’ recent interview with conservative commentator Megyn Kelly, in which the governor said abortion policy would be best decided by the states. “I’ve been a pro-life governor,” said DeSantis, who signed into law a controversial six-week ban on the procedure in Florida. “I’ll be a pro-life president and I’ll come down on the side of life.” DeSantis told Kelly he would “be a leader with the bully pulpit to help local communities and states advance the cause of life,” but that he lacked confidence that Congress would do “anything meaningful” on the issue. In response, Marjorie Dannenfelser, president of SBA Pro-Life America, criticized the governor, saying that calling for abortion restrictions despite obstacles in Congress “is where presidential leadership matters most.” AROUND THE WORLD Supporters of the Nigerien defense and security forces attack the headquarters of the Nigerien Party for Democracy and Socialism in Niamey on July 27, 2023. | AFP via Getty Images DON’T CALL IT A COUP — The Biden administration is refusing to call the military-backed ouster of Niger’s president a “coup,” knowing that doing so could trigger an end to U.S. security aid to a country that’s key to battling terrorism and curbing Russian influence in Africa, write Nahal Toosi and Lara Seligman . The reluctance is the latest example of President Joe Biden’s struggle to balance a stated reverence for democracy with the harsh reality of geopolitics, especially when it comes to partner nations tackling challenges such as extremism. Niger, one of the world’s poorest countries, just recently transitioned to democracy in a region where coups have become frequent. Pressed on the hesitation to use the label for Niger, State Department spokesperson Matthew Miller insisted today that the situation is “fluid” and still an “attempt” at removing Niger’s president, Mohamed Bazoum. “We are watching and monitoring the situation and trying to prevent President Bazoum from being removed from office,” Miller said. Over the weekend, Secretary of State Antony Blinken warned that the U.S. “economic and security partnership with Niger, which is significant, hundreds of millions of dollars” was in “clear jeopardy.” Reports from Niamey, Niger’s capital, show that Bazoum was taken captive by his bodyguards last week. The country’s military then endorsed the ouster, and Gen. Abdourahmane Tchiani, who oversees the presidential guards, declared he was leading a transitional government. The exact reasons for the coup are unclear, but Tchiani has spoken vaguely of the need to stop the country’s “demise.” But labeling the events “coup” — a legal determination, not simply a matter of using a word — could spur an end to U.S. military equipment and training, and potentially economic aid. Traditionally speaking, a coup d’etat is defined as an illegal seizure of power, often by a country’s military. KINGPIN ARRESTED — The leader of the European division of the Mexican Los Zetas drug cartel was arrested by Spanish authorities in Madrid today, writes Laura Hülsemann . The accused, who goes by the name of “Said,” is Moroccan and 54 years old, El Mundo reported. Four more cartel members were also apprehended. “A total of five people have been arrested in addition to the seizure of 400kg of narcotic substances and 220,000 euro in cash,” the Spanish National Police wrote. The cartel had been trying to establish a base in Spain and posting agents across Europe, especially the Netherlands, according to local media. The Spanish authorities collaborated with U.S. Homeland Security Investigations and the Colombian National Police in what constitutes the second biggest blow against the Zetas in Spain. In 2016, the Spanish police arrested Said’s predecessor, Juan Manuel Muñoz Luévano over money laundering and drug trafficking, El Pais reported.   HITTING YOUR INBOX AUGUST 14—CALIFORNIA CLIMATE: Climate change isn’t just about the weather. It's also about how we do business and create new policies, especially in California. So we have something cool for you: A brand-new California Climate newsletter. It's not just climate or science chat, it's your daily cheat sheet to understanding how the legislative landscape around climate change is shaking up industries across the Golden State. Cut through the jargon and get the latest developments in California as lawmakers and industry leaders adapt to the changing climate. Subscribe now to California Climate to keep up with the changes.     NIGHTLY NUMBER 60 percent The percentage of Americans who expressed “a great deal” or “quite a lot” of confidence in the American military according to a new Gallup poll , the lowest percentage in over two decades. That’s down from 64 percent who said the same last year. After the 9/11 terrorist attacks, military confidence shot up and remained high at mostly above 70 percent for two decades before dipping to 69 percent in 2021. The confidence level has further declined since then — potentially linked to the U.S.’s rocky exit from Afghanistan. RADAR SWEEP POUR IT UP — Just because you have to be 21 to legally drink alcohol in the United States, that doesn’t mean you have to be that age to serve it to customers. Some states allow for 18-year-olds to serve. Now, though, across the countries there are new regulations being considered to lower that age even further . In Wisconsin, they’re talking about allowing 14-year-olds to work behind the bar. It’s a funny idea, a 14-year-old pouring someone a beer. But it’s also sparked a debate over both decades-old child labor regulations and the value of having a job as an adolescent. Wilfred Chan reports on the phenomenon for The Guardian. PARTING IMAGE On this date in 1969: Sen. Edward Kennedy walks into the Senate, his first time back at the Capitol since the accident on July 18, 1969 in Massachusetts on Chappaquiddick Island. Senator Kennedy was driving a car which went off a bridge, killing passenger Mary Jo Kopechne. | Henry Burroughs/AP Photo Did someone forward this email to you?  Sign up here .   Follow us on Twitter Charlie Mahtesian @PoliticoCharlie Calder McHugh @calder_mchugh Katherine Long @katherinealong   FOLLOW US

POLITICO, LLC 1000 Wilson Blvd. Arlington, VA, 22209, USA