U.S. House Passes Debt Ceiling Bill

Senate to consider bill on Thursday with June 5 Treasury Department deadline looming.




The House of Representatives late Wednesday night passed The Fiscal Responsibility Act by a bipartisan vote of 314 to 117, setting the stage for the federal debt ceiling to be suspended until January 2025.

The bill, H.R. 3746, was supported by a majority of members from both parties (149 to 71 among Republicans, 165 to 46 among Democrats). The bill makes certain cuts in discretionary spending, rescinds unobligated funds and expands work requirements for some federal programs.

The Democrat-controlled Senate is scheduled to consider the bill on Thursday with the goal of sending it to President Joe Biden for his signature before June 5, the date on which the Department of the Treasury has said the U.S. would no longer be able to pay the government’s bills.

In exchange for suspending the debt ceiling until 2025, House Speaker Kevin McCarthy, R-California, negotiated increased work requirements for federal benefits programs, including food stamps (the Supplemental Nutrition Assistance Program) and welfare (Temporary Aid to Needy Families).

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The House-passed bill also includes a streamlined permitting process for energy projects and prevents a further pause on student loan repayments past September. It also claws back unspent COVID-related funds and about $20 billion of the $80 billion in additional spending that had been authorized for IRS enforcement efforts.

The Congressional Budget Office, in a May 30 letter to McCarthy about the bill’s impact, projected the bill would reduce federal budget deficits by “about $1.5 trillion over the 2023-2033 period relative to its May 2023 baseline projections.”

Overall, the CBO wrote, “Reductions in projected discretionary outlays would amount to $1.3 trillion over the 2024–2033 period. Mandatory spending would, on net, decrease by $10 billion, and revenues would, on net, decrease by $2 billion over the 2023–2033 period. As a consequence, interest on the public debt would decline by $188 billion.”

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Bernanke: 4.3% Jobless Rate Needed to Get Inflation Back to Pre-Pandemic Level

Former Fed chief puts a number on the level of employment-related pain needed to hit price-rise target.




After the global financial crisis, U.S. inflation was tame, at around 2%. Then came the COVID-19 pandemic, when goods and labor shortages and federal stimulus spending combined to pump up prices to 7.5% in early 2022. Now, amid a host of economic uncertainties, the Federal Reserve is trying to restore the old inflation level by raising interest rates.

 

But restoring 2% inflation would entail higher unemployment. How high? According to a paper co-authored by former Fed Chair Ben Bernanke, an economist, 4.3% or higher.

 

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Getting to 2% inflation (as measured by the Fed’s favorite inflation metric, the personal consumption expenditure price index) “would require an unemployment rate above [4.3%] for a period of time,” the paper argued. As of April, the jobless rate was at a low 3.4%. 

 

Cooling the economy by throwing more people out of work, of course, involves a lot of pain. The last time the jobless rate was at 4.3% was in 2017, when the economy was doing well; unemployment fell to 3.5% right before the pandemic appeared, then spiked at 14.7% in April 2020. Next came the rapid recovery and burgeoning inflation, which only lately has dipped to the (still high, in the Fed’s eyes) 4.4%.

 

The paper, issued by the Brookings Institution, where Bernanke is now a senior fellow, argued that “labor-market balance should ultimately be the primary concern for central banks attempting to maintain price stability,” namely around the Fed’s target of 2%. The report was co-written with C. Fred Bergsten, a senior fellow at the Peterson Institute for International Economics.

 

The Bernanke-Bergsten paper delved into the intricacies of the Phillips curve, an economic model which posits that inflation and unemployment have an inverse relationship. Thus far, the Fed’s higher interest rates seem to have tempered inflation somewhat but have had little effect on joblessness.

Related Stories:

How Realistic Is Getting Inflation Back to Near 2%?

Inflation, Duration and Frustration: Investing in a Risk-Filled Fixed-Income Climate

U.S. Asset Managers Fear Federal Reserve Rate Hikes Will Cause Recession

 

 

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