Inflation – Inflation is raging, as consumer prices rose 7.9% in February. One must travel back to 1982 to see anything like what consumers are experiencing now. A recent poll showed 50% of Americans say inflation and the economy are the top issues they want the federal government to address. The same poll also found a significant majority of voters, 63%, disapproved of President Biden’s handling of rising costs.
Unfortunately for the President, inflation is likely to get worse before it gets better. Treasury Secretary Janet Yellen all but confirmed this when she said, “We’re likely to see another year in which 12 months inflation numbers remain very uncomfortably high.” In other words, inflation isn’t transitory; it’s here to stay.
With COVID-19 cases and restrictions waning, some expected a “return to normalcy”—indeed, the Administration surely did, and so did many Americans. But few if any (maybe with the exception of Larry Summers) expected the other side of COVID would be sky-high inflation. Election Day is just 8 months away, and to say the least, this is not an environment favorable to vulnerable Democrats.
The bottom line is: American families and businesses are changing their spending habits, and, by extension, their long-term outlook of the economy, as they feel the pain daily when they buy gas and groceries.
And that pain may only intensify. According to Rystad Energy, a respected global energy consulting firm, depending on how and whether Europe and America continue to squeeze Russian oil via bans and sanctions, oil prices could reach $240 a barrel this summer. “Market volatility is at an all-time high,” Rystad noted, “with prices surging on the expectation that supply will further tighten due to restrictive sanctions on Russian energy from the West.” “Although fortunately not the most likely scenario,” they added, “traders, analysts and decision-makers alike should prepare for elevated prices based on the current landscape. This is the largest energy crisis in decades and the impact on the world’s most important commodity is going to be unprecedented.”
This is worst case stuff, to be sure, but Republicans are, and will be, relentless on the issue, noting that Democrats first dismissed early warning signs about inflation and now blame corporate greed, Big Oil collusion, and Russia’s invasion of Ukraine. These are all points, Republicans say, that Americans aren’t buying. As Senate Minority Leader Mitch McConnell (R-KY) said last week, “So, they want to blame 14 months of gas price increases on the last two weeks of turmoil. Washington Democrats’ war on domestic energy long predates Putin’s war on Ukraine.”
Republicans we spoke with also see massive political vulnerabilities tied to news that the Biden Administration beseeched Iran or Venezuela for oil. House Minority Leader Kevin McCarthy (R-CA) summed up GOP outrage when he asked, “Why would you take the billions of dollars you provide to [Russian President Vladimir Putin] and just give it to another dictator that funds terrorism around the world with Iran and Venezuela?”
Republicans have also pounced on reports that Saudi and Emirati leaders declined to take President Biden’s calls. For Republicans, these daily reports of foreign policy missteps, higher gasoline prices, and voter gloom about the future continue to weaken President Biden’s political standing, and hence only strengthen Republicans’ already favorable position in the midterms.
Congress – Now that the omnibus is finished, Congress turns to the fiscal year 2023 appropriations cycle. With the recent funding and policy-rider agreement, it may be easier to tackle the next round of appropriations work, which is the only must-pass legislation before the election.
The Senate will confirm Shalanda Young to be Director of the Office of Management and Budget this week and the President’s budget request to Congress will soon follow. The decision by House Democrats to jettison pandemic response supplemental funding from the omnibus will make for a war of words in the coming days, but Republicans see no incentive to walk back the agreement they made with Democratic leadership and will continue to insist that unused COVID-19 funds from states pay for new spending.
Ukraine and Russia-related legislation could also come up in the House and Senate this spring. Republicans will try to attach measures that encourage greater domestic energy production. Moreover, sanctions and other trade-related legislation could be in the cue: leaders of the House and Senate tax writing committees are working to strip Russia of its Permanent Normal Trade Relations status.
The Senate will also return to work on nominations, most prominently for Judge Ketanji Brown Jackson to the Supreme Court, which Senate Democrats would like to finalize before the end of this work period. The Senate could also go to conference with the House on China competitiveness legislation.
Other issues on the horizon worth mentioning:
- The moratorium on the 2% Medicare sequester is set to expire on March 31. A 1% sequester would return between April 1 and June 30, and the full 2% sequester would resume on July 1. Congress soon must decide if it will further extend the moratorium to the end of the COVID emergency, as many health groups want;
- The Senate Finance Committee and House Ways and Means Committee will have to address trade adjustment assistance, which will be fully phased out on June 30; and
- Several tax extenders will need to be worked at some point this year, with a December 31st deadline looming.
- Both the House and Senate are working towards advancing the biennial Water Resources Development Act (WRDA) 2022 with authorizing committees pledging to keep policies in WRDA exclusively on activities within the scope of the U.S. Army Corps of Engineers.