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."