US Government is open, but headwinds created

It was all over but for the fighting with the longest government shutdown in American history, 43 days to be exact, but the infighting after the standoff by the Democrats anxious to extend the federal subsidies for the Affordable Care Act, colloquially known as Obamacare, ended last Wednesday with defect eight Democratic senators voting with Republicans to end the shutdown after the GOP played its end game of refusing to budge on the expiring subsidies and blaming the Democrats.

For those living outside the Beltway, that might very well have been believed, but if belief is to be believed then the GOP did win the upper hand, and with so many unpaid government officials, especially the air traffic controllers, lines of cars at Washington area food banks of unpaid federal workers for groceries to  feed their families, this seemed to be a victory for the GOP; and President Trump, as he focused on foreign policy leaving Senate Majority leader John Thune to steer the ship, with Speaker of the House Mike Johnson as the ensign.

In the aftermath, while much of the Democratic base wailed and bemoaned at the defection, stagecraft was in play as those eight defectors, Sen. Dick Durbin leading, were not up for reelection, and they knew that they had no political capital to lose.

So there was no bright morning to wake up to for Senate Minority Leader Chuck Schumer to see, but there was plenty of rumor, and that he had secretly encouraged the defectors, but there is scant evidence of that, and in a town, and at a time, where political gamesmanship is key, married to innuendo, that is anyone's guess.

What remains is a party who lost the White House, is now facing growing anger by younger Dems, especially in the light of the mayoral victory of the 34-year-old Zohran Mandami in New York and a much younger cadre of progressive group of Democratic leaders inspired by his energy and what was his very successful campaign.

There was however internal dissension among Democrats on the best course of action in the shutdown debacle and now that is now out in the open, and there are those who are putting Schumer in the cross-hairs.

“This is likely going to be problematic for 2026 Senate candidates who are going to be asked whether or not they’ll vote for Schumer and whether or not they endorse his leadership,” said Rodell Mollineau, a former top aide to the late Senate Majority Leader Harry Reid (D-Nev.) and a partner at ROKK Strategies”, reported The Hill.

“It’s not the voters, it’s the groups,” he continued. “They’re very upset with Schumer because even though he voted the right way, they believe he had a hand in the agreement to end the shutdown.”

His vote in March to support the GOP continuing resolution, earned him enmity, and now that anger will be doubled.

“It’s becoming very clear who is running as institutionalists and who is running as an anti-institutionalist — establishment [and] anti-establishment,” one Democratic operative involved in Senate races this cycle. “My bet is the establishment feeling candidates are going to have a very hard time next year because every time something big happens, eventually Schumer and the establishment let down the base, and they will get their anger taken out on [them].”

What did the Democrats gain? Some say the spotlight on insurance in the ACA that has supported 64 percent of Americans, and the willingness of Trump and his party to see people go hungry, but it seems that they had looked at the calculus closely, and predicted the Dems would cave. And, despite the expansion of Medicaid to those low income people under 65, the GOP knew many of their supporters in those states on that and other public benefits, voted for Trump, so “win a few lose a few" seemed to be their mantra.

The falling poll numbers for the president, now with 40 percent support, according to Reuters might be a bellwether of things to come, notably the easing of tariffs on coffee and bananas, a teaser of sorts to keep the loyalists but, with the midterm elections in sight can the White House afford to give so little?

Enter the culture wars and the SNAP snafu, as Trump stated that people were leaving their jobs to get SNAP, while that is hardly the truth, he has established a pattern of throwing things to the wall, to see what sticks.

Notably, even old guard Republicans hated SNAP, what to mid century folks was known as food stamps, hated the very idea of them, going back to the Nixon administration, and with work requirements in place in some states, they are now looking at permanent cuts and USDA head Brooke Rollins has already made news saying that there is widespread fraud and hinting at even more stringent safeguards and program requirements for recipients.

Politico reported that “The Trump administration will require millions of low-income people to reapply for food stamps as part of an effort to crack down on “fraud,” Agriculture Secretary Brooke Rollins said.

Rollins told Newsmax on Thursday that she plans to “have everyone reapply for their benefits, make sure that everyone that’s taking a taxpayer-funded benefit through ... food stamps, that they literally are vulnerable and they can’t survive without it.”

“She did not provide further information on when or how people would need to reapply.”

We remember President Reagan and his speech about the “welfare queen” driving to the public aid office in her Cadillac to get food stamps; showing that in politics, the past is indeed prologue.

“SNAP fraud can occur when participants intentionally lie about their qualifications for the program, retailers exchange benefits for cash or criminals skim EBT cards for benefits, per USDA’s Food and Nutrition Service. But anti-hunger groups say there’s not nearly as much fraud as the Trump administration alleges and note that SNAP only issues about $6 a day in benefits to the average participant,” they added.

The cost of the program is $100 billion in fiscal year 2024 is low hanging fruit for an administration looking for ways to cut expenses.

Of course, the elephant in the room is the extension of the ACA subsidies, and while the GOP and the Speaker supported the White House and nearly every other official claiming that illegal immigrants were taking the benefits despite federal laws not permitting it, the claim was a constant talking point among administration officials.

However on Sunday there seemed to be a change of mind with “Dr. Mehmet Oz, the administrator for the Centers for Medicare and Medicaid Services (CMS), said Sunday the Trump administration is holding “discussions” on extending subsidies offered under the Affordable Care Act (ACA). 

“There are discussions around extending the subsidies, if we deal with the fraud, waste and abuse that, right now, is paralyzing the system,” Oz told host Dana Bash on CNN’s “State of the Union.”

Taking a wider lens there is the substantiated claim that “The majority of fraud that Oz is referencing concerns agents, brokers, web brokers and third parties that enroll individuals in the ACA marketplace, according to health policy research group KFF

Cynics might say that if this is known why didn’t the Trump administration examine this earlier rather than have some individuals and families paying on average, for the lowest plan an increase of $50 a month.

The Trojan Horse, for the Democrats, is the Epstein affair, and the files that have not been fully released, and the recent shot over the judicial bow was Trump ordering an investigation against, but unproven, for former President Bill Clinton but, on Sunday, as mounting pressure from his own party to release the files, he “called on House Republicans to vote to release files linked to convicted sex offender Jeffrey Epstein, reversing his previous position.

Trump’s announcement came amid signs that a vote this week on a measure forced by a discharge petition might have won dozens of Republican votes despite the president’s opposition,” according to a late Sunday report by The Hill.

“As I said on Friday night aboard Air Force One to the Fake News Media, House Republicans should vote to release the Epstein files, because we have nothing to hide, and it’s time to move on from this Democrat Hoax perpetrated by Radical Left Lunatics in order to deflect from the Great Success of the Republican Party, including our recent Victory on the Democrat ‘Shutdown,’” the president wrote in the Sunday night post on his Truth Social platform.”

Avoiding political embarrassment seems to be the goal, and considering, “the House would vote on the underlying measure forced by the petition this week. Several sponsors, including Rep. Thomas Massie (R-Ky.), predicted dozens of Republicans would vote for it on the floor. Massie specifically predicted 100 GOP members could back it.”

As the old cliche states, “it’s not over till it’s over.”

After second Fed rate cut, what is next?

We don’t normally think of the current US economy as predictable, but last Wednesday's announcement by the Federal Reserve to lower the interest rate by a quarter point percentage point, a move that was predicted last month, is now on that path to return to a more normal interest rate pattern.

Now that we have a range between 3.75% and 4%, “the lowest in three years” reported CNN the path ahead is still murky, with the “yo-yo” interest rates promulgated by President Trump which in turn has created uncertainty among employers and as KPMG senior economist Diane Swonk recently stated, no employer wants to pull the trigger on hiring with constant market uncertainty.

“The decision drew two dissents; one from Fed Governor Stephen Miran, who backed a larger, half-point cut; and another from Kansas City Fed President Jeffrey Schmid, who preferred to hold borrowing costs steady,” they added.

Whether we are examining trade, immigration, or tariffs, these all affect not only what hiring managers will do, or won’t do, but creates a path of unpredictability that does not match the pattern of hope that some observers feel that the Fed reached last week

A significant factor is the lack of data from the Bureau of Labor and Statistics for September which created a vacuum for the Fed that doesn’t guarantee certainty in its changes while it tries to tread a path of  normalcy that can be dramatically altered at any time by the president.

Contained within the recent moves on Wednesday Powell did predict a break in a pattern previously thought possible in July and August, but also a December rate cut.  This said the chair “is not a foregone conclusion,” at a news conference, noting there were “strongly differing views” among policymakers on how to move forward

Powell is referring to two dissents: “one from Fed Governor Stephen Miran, who backed a larger, half-point cut; and another from Kansas City Fed President Jeffrey Schmid, who preferred to hold borrowing costs steady.”

He also noted in a Times piece that, ““If you keep policy this tight for a long period of time, then you run the risk that monetary policy itself is inducing a recession,” he said in an interview on Friday. “I don’t see a reason to run that risk if I’m not concerned about inflation on the upside.”

Politics, as we noted before, is holding steady since Miran is a Trump appointee who reflects the president’s goal of a cut of at least 3 percent.

While not a deterioration of the American labor market the August report reported a slow down in non-farm jobs that caused worry over what future reports would show.

With the latest Consumer Price Index, inflation is not as bad as others thought because manufacturers, producers and others have not passed the costs of tariffs onto customers, but that may not hold for much longer

What was shown was “persistent price pressures that could worsen because of Trump’s tariffs. Trump met with his Chinese counterpart Xi Jinping late Wednesday, and in a changed maneuver made allowances, termed some observers, for China to buy soybeans central to their pork industry and while a relief to farmers in the Midwest, it was according to The New York Times, “solving a crisis of his own making”, after China retaliated for Trump’s tariffs placed on Chinese products in April.

China has crucial plans to enlarge manufacturing and technology improvements that have caused worry in Washington, but this was not on the president’s agenda and we may witness another change in the coming months on trade relations with the world's second largest economy,

Closer to home, Powell also noted “that there will be some additional increased inflation because it takes a while for tariffs to work their way through the production chain and, finally, get to consumers.”

Hopes could be dashed due to the October CPI, scheduled for November 13, if it isn’t released and the shutdown continues and it’s worth noting that “Fed officials normally look to the Personal Consumption Expenditures price index, widely known as their preferred inflation measure, but that figure also hasn’t been released due to the shutdown,” according to CNN.

Many economists have turned to the ADP report on private employment, which showed weakened hiring, but that is a different type of report using different methodology than the BLS, so at this point caution is the watchword.

Data and lack of it are holding back accurate predictors after the government shutdown and the earlier firing of the BLS commissioner by the president, but, “There will also be reports from S&P and the Institute for Supply Management on both the manufacturing and service sectors, and those include surveys of hiring. The Fed also has its own surveys of regional economic conditions that are used to compile its "beige book” report on the economy, reported US News and World Report.

With no end in sight of the government shutdown and with the partisan battle lines holding firm, tracking the direction of the US economy, and the labor market, is the great unknown, and it’s reasonably clear to some despite Treasury Secretary Scott Bessent assurances that broadly felt recessions are likely, but according to Axios, when: “Asked if the U.S. risks a recession if the Fed doesn't keep cutting rates, Bessent told CNN's Jake Tapper, "I think we are in good shape, but I think that there are sectors of the economy that are in recession."

And, in a jab at Powell, he added, "The Fed has caused a lot of distributional problems with their policies."

Assessing the US job market without Labor Dept. report

One of the hazards of the current government shutdown in the United States is the lack of a Labor Dept. report from the Bureau of Labor Statistics for September, a recognized tool by government business leaders, and investors on the predictions for the American economy, not simply a job numbers report but a valued decision making tool; and,its absence was sorely missed, although there has been some reported chatter that the Trump administration might recall some furloughed workers back to issue a report.

There was also a change of heart by the administration on who President Trump might have chosen to lead the department, after his first choice E.J. Antoni withdrew due to widespread criticism of his lack of statistical experience, and his partisan criticism of established methodology used by the BLS; but, it's worth noting that the commissioner merely “blesses” the final product, not researching it and writing it. As of this date, the position is vacant and it's a guessing game on who might be nominated.

Private employment also faces a downturn

What we do have is the ADP report which bundles statistical date for private employers, and while some economists have given less weight to it, than others, based on methodology, and accounting for its usual non alignment with the BLS, nevertheless it is all that we have right now, and at this moment in time, it seems that the starts might be aligning with what has been garnered in part at least from other data sets.

As seen in the August BLS report, US employment has taken a downturn, some say inevitable, after earlier highs post COVID, but also by the “on again-off again” tariffs promulgated by Trump, and which has created a great deal of uncertainty for employers, since they don’t want to hire based on a guess or a maybe; and, with so many industries dependent, on parts from other countries, this is a risk not worth taking.

For private employers, the ADP showed a loss of 32,000 jobs, a significant drop, and reflects in large part tariff uncertainty with some of the largest losses in key areas of trade, transportation, and utilities, causing many to wonder what the future might hold, a concern for market analysts worried about a pending recession.

In one of those economic conundrums, consumers, the main drivers of the American economy have continued to spend albeit with steady wage increases, averaging 4.5 percent, coupled with lowered inflation, but there are also fears of stagflation hovering on the horizon.

Retail, which had been considered hardy, lost 19,000 jobs and may be attributable to consumer uncertainty, especially from those that have been laid off from federal jobs in the early months of the Trump administration.

Recent college graduates face uncertain job market

College graduates with the ink barely dry on their diplomas are facing hurdles that even a decade ago were unheard of, and taking in the analysis by The Carlyle Investment group which has reported job growth at 1.7 percent, there is cause to worry which adds to those concerned whether the cost of a 4 year degree is worth it, and with an uncertain future, and a future saddled with school debt, this group is facing an uphill struggle; and, especially noting that there is a 7,18 percent in new job openings that the BLS reported in August supports their concern.

One area of growth shown by the ADP was ironically, education, but that might be more of an outlier, rather than an indicator; but another side of private employer growth is health care, and as we’ve seen over the last several months, that may be attributable to the increasing longevity, and care of older Americans.

Of ever increasing concern is the threat of AI taking jobs that once were populated by researchers, together with call center agents who handled complaints, both online and by phone, and now are likely to be answered by generative AI; and, while some praise the efficiency of such models others fear displacement.

Whether AI will necessitate re-calibration, or taking a directive role is open to debate and once again takes us back to education, where educated employees are required, but  recent statistics only show that 34 percent of all Americans hold an undergraduate degree, with those in the sciences, even less, and as research funds have been cut by the Trump administration, the need for such roles have been diminished and many of statisticians, researchers, and tech people are moving to the more receptive areas of Europe.

Interest cuts projected to continue despite criticism

September brought an interest rate by the Federal Reserve's Open Market Committee who cut its benchmark interest rate by a quarter of a point to the new rate of 4.00 to 4.25 percent, a move that had been long predicted, and was based on the August Jobs Report by the Labor Dept., that showed non farm jobs drifting downward to 22,000.

“There’s very little growth, if any, in the supply of workers. And at the same time, demand for workers has also come down quite sharply, to the point where we see what I’ve called a curious balance,” Powell said.

This was not enough for President Trump who has long called for a greater cut, of at least 3 percent, but which economists have warned could lead to inflation. And, it’s well known that, in this desire, the president has verbally pummeled Fed Chair Jerome Powell, and wants to have greater control over the Federal Reserve, an independent entity founded in 1913, whose twin mandate is full employment and 2 percent inflation.

Trump has tried to chip away at the board by attempting to fire governor Linda Cook on an alleged fraudulent mortgage claim, that, on appeal, she is allowed to continue to serve; but, Trump wants a ruling, in his favor by the US Supreme Court.

As reported, “Powell said that while the Fed expects inflation to increase due to Trump’s tariffs, the bank is seeing the labor market take far more damage under the weight of higher import taxes and steep cuts to immigration.'

“Our policy had been really skewed toward inflation for a long time. Now we see that there’s downside risk, clearly, in the labor market, so we’re moving in the direction of a more neutral policy.”

That weakening jobs report was an important factor in the interest rate cut, and with the current inflation rate at 2.9 percent, better than its high of 3.0 percent, but not low enough to meet the mandate. And, to that effect, two more rate cuts have been penciled in for the rest of the year.

Friday night massacre decimates federal workforce

In what was seen by many as a calculated move by the president: 4,100 federal employees were laid off on Friday, and some may be permanently fired as Trump faces a loss of tax revenue from his tax cuts.

As of publication date, there is no real guarantee they will be repaid when the government reopens, despite a law signed in 2019 by Trump himself.

The job “cuts”, however they are termed, have been significant and of those,Treasury alone had a loss of 1,446, with Health and Human Services between 1,110 and 1,200, and Education totaling 466.

Also on Friday it was also reported that staff members and scientists of the Centers for Disease Control were cut, and as MSNBC reported, “Health Secretary Robert F. Kennedy Jr. moved one step closer to his goal of dismantling the nation’s premier public-health agency by dismissing more than 1,000 scientists, doctors and public health officials from the Department of Health and Human Services late Friday night.”

“The firings ran across more than a dozen CDC divisions and centers, wiping out entire offices and teams that investigate disease outbreaks, manage infectious disease responses, collect data, publish scientific reports and communicate with global partners and Congress,” they added.

More alarming was that, “In a move that may alarm lawmakers, the CDC’s entire Washington office was also cut. That office served as the agency’s conduit to Congress and to the broader Washington, D.C., public health community.”

After a New York Times report on the firings, some key scientists were rehired, and, “The Trump administration on Saturday raced to rescind layoffs of hundreds of scientists at the Centers for Disease Control and Prevention who were mistakenly fired on Friday night in what appeared to be a substantial procedural lapse.

Among those wrongly dismissed were the top two leaders of the federal measles response team, those working to contain Ebola in the Democratic Republic of Congo, members of the Epidemic Intelligence Service, and the team that assembles the C.D.C.’s vaunted scientific journal, The Morbidity and Mortality Weekly Report.”

In what some are calling The Friday Night Massacre, "The agency’s entire Washington office, which was laid off on Friday, will not be rehired. Nor will employees of the office of the director of the center for injury prevention, or those at the division of violence prevention policy.

“This is going to be devastating to Americans and to the global community,” said Dr. Debra Houry, who served as the agency’s chief medical officer before she resigned in August in protest against the administration’s policies.

“They are dismantling public health,” she added,” reported the Times.

That aside, working families of the CDC and military service members will not be paid threatening mortgages, groceries, children’s education, and as previously mentioned that backbone of the American economy, consumer spending.

On Saturday media reported Trump saying he had ordered Department of War Director Peter Hesgeth to find money to pay the service members

Meanwhile, more layoffs were made: ”Current and former employees at the Substance Abuse and Mental Health Services Administration (SAMHSA) told NPR about the layoffs, which were part of a government-wide reduction in force. The sources, who were not authorized to speak publicly about the agency, said the layoffs came late Friday, as the nation's government shutdown dragged on,” reported NPR. more than 100 employees were affected, and many more are expected.

Less than 10 days before, there were news reports that 300,000 less workers were expected through federal job cuts by December, more than were cut in January, which prompted unions representing those workers to preemptively sue the Trump administration, “claiming that it did not have the legal authority to conduct mass layoffs under cover of a shutdown,” reported the Times.

Partisanship kills jobs in Democratic led cities

Political retribution towards large Democratic cities such as New York, seems to be in order for the president and he has made moves, according to the Times, “to cancel $26 billion “in previously approved funds across a wide range of programs, describing the money as wasteful or in need of further review.”

For two major projects - counterrorism protection and New York tunnels and subway improvements were projected to lose $187 million and $18 billion respectively, affecting protection of threats from foreign adversaries, and infrastructure that limits the movement of commuters and the local economy, not to mention the hundreds of employees, including first responders, and increased tax revenue.

Local media reported that it was later decided to reverse the cuts to

counterrorism, after a call to the president from New York Governor Kathy Hochul, and reported by Republican lawmaker Nicole Malliatoakis: “President Trump confirmed the restoration on Friday in a post to Truth Social, saying: “I am pleased to advise that I reversed the cuts made to Homeland Security and Counter terrorism for New York City and State. It was my Honor to do so. Thank you for your attention to this matter!”

What remains clear is the cut “impacts the Hudson Tunnel Project, a centerpiece of the broader Gateway Program, and the Second Avenue subway extension,” and the jobs of trade workers destined to do the work, and the loss of income will affect the livelihoods of hundreds of workers, and their families.

It’s almost impossible to discuss the American economy, and jobs, without addressing the political divide, and now entering the third week of the US shutdown, it may be equally impossible to predict what will, or won’t happen.

A long time coming, Federal Reserve cuts interest rates

The long anticipated day finally came on Wednesday that had long been sought, the Federal Reserve's Open Market Committee cut its benchmark interest rate by a quarter of a point to the new rate of 4.00 to 4.25 percent, a move that had been long predicted, and was based on the August Jobs Report by the Labor Dept, that showed non farm jobs drifting downward to  22,000.

“There’s very little growth, if any, in the supply of workers. And at the same time, demand for workers has also come down quite sharply, to the point where we see what I’ve called a curious balance,” Powell said.

Of course this is not enough for President Trump who has long called for a greater cut of at least 3 percent, but which economists have wanted could lead to inflation. And, it’s well known that in this desire the president has pummeled Fed Chair Jerome Powell, and wants to have greater control over the Fed, an independent entity founded in 1913, and has tried to chip away at the board by attempting to fire governor Linda Cook on an alleged fraudulent mortgage claim, that, on appeal, she is allowed to continue to serve; but, Trump wants a ruling, in his favor by the US Supreme Court.

All politics being local “The president frequently accused Powell — a lifelong Republican who was first appointed to his position by Trump — of waging a political battle against his trade policy. Trump also claimed the Fed should help him reduce the costs of paying down the national debt through lower interest rates, triggering alarm among fiscal experts and Fed historians", according  to The Hill.

Wednesday’s decision was characterized by Powell as “risk management”, and underscores the fact that the US economy faces uncertainty with the on again/off again tariffs by Trump, but also is a leverage point in the balancing calculation that the FOMC faces in meeting its twinned mandate, full employment and keeping inflation at 2 percent.

Notably, as they reported, “Powell said that while the Fed expects inflation to increase due to Trump’s tariffs, the bank is seeing the labor market take far more damage under the weight of higher import taxes and steep cuts to immigration.

“Our policy had been really skewed toward inflation for a long time. Now we see that there’s downside risk, clearly, in the labor market, so we’re moving in the direction of more neutral policy.”

That weakening jobs report was an important factor as is the current inflation rate at 2.9 percent, better than its high of 3.0 percent, but not low enough to meet the mandate. And, to that effect, two more rate cuts have been penciled in for the rest of the year.

“Even if inflation remains high … Powell seemed to be willing to give that the benefit of the doubt and, instead, focus on the risk that any incipient weakness in the labor market might gain momentum and prove harder to arrest over time,” economists at LHMeyer/Monetary Policy Analytics wrote in an analysis.”

To note, job growth in the last three months has only been 29,000 and added to the August report was a call to action for the FOMC. but there was one naysayer, Stephen Miran, a Trump appointee, on loan from the chair of the White House Council of Economic Advisors, to fill a recent vacancy, and he did vote no on the current cut, wanting, as did Trump a much larger cut, a half point at least, and would, and will. In the future undoubtedly ask for increased cuts later this year to meet the president’s goal.

Dissension is not unknown in Washington, and Powell, in a news conference said, “There are no risk free paths here,” showing both tact and restraint, but undoubtedly, was discreetly referring to the continued rise, at least for the moment, of increased tariffs but added, “It’s not incredibly obvious what to do.”

The New York Times reported that, “Powell’s final question [from the media] was whether the debate over Fed independence is putting pressure on inflation expectations. He says the market is not factoring in those concerns right now in terms of setting interest rates. He added that surveys have shown that longer-term inflation expectations have been “rock solid” in terms of running at 2 percent over the longer run, but added, “We don’t take that for granted.”

They also reported, “Powell says a quarter point cut in itself won’t “make a huge difference to the economy,” but that the whole path of rates will influence expectations, which will influence the market in turn. It starts with a 25 basis point rate cut, but the market’s also pricing in a rate path, he said. “I’m not blessing what the market’s doing at all. I’m just saying it’s not just one action.”

As we have noted previously, over the tenure of Powell, he is data driven and sees not politics, but data points in chairing the FOMC, and its care of the US economy, a distinction of the American central bank leadership.

In a nod to economic reality, the chair said to the media after the meeting,“Labor demand has softened, and the recent pace of job creation appears to be running below the break-even rate needed to hold the unemployment rate constant,” and added, “I can no longer say” the labor market is “very solid.”