Credit where it’s due: As House Democrats and the White House face their most embittered period this year, a pair of leaders on each end of Pennsylvania Avenue has been trying to make progress toward a budget deal.
But an agreement — which would also lift the debt ceiling, removing a major threat to global financial markets — is far from done. A senior administration official, speaking on the condition of anonymity to The Washington Post on Wednesday, threw cold water on the work Speaker Nancy Pelosi (D-Calif.) has done with Treasury Secretary Steven Mnuchin, saying the two sides “have a way to go” to resolve their differences.
Mnuchin, for his part, told CNBC on Thursday morning the two sides have reached an agreement on top line budget numbers and are working on offsetting new spending. He said markets shouldn’t be concerned about the debt limit. See him here:
Pelosi said Wednesday she wants to reach an agreement by the end of this week, in time to put it to a vote in her chamber by next Thursday, a day before lawmakers quit town for the six-week August recess.
The administration official said that timeline “sounds like happy talk from the Speaker who has been absent from talks for the last three months and now is trying to create momentum after a bad couple weeks.”
President Trump, who has demonstrated his willingness to blow up a budget agreement at the last minute, remains a wild card.
Considering the toxicity of broader relations between House Democrats and the administration, the apparently productive negotiations between Pelosi and Mnuchin toward a deal should come as a happy surprise.
It may be cold comfort, however, for business leaders, investors and others starting to sweat the prospect of a federal debt default (the government bond market is already beginning to register nervousness). And the administration’s rejection to Pelosi’s cautious optimism Wednesday raises new questions about whether the clashes between the two camps on other matters are bleeding into consideration of must-pass items.
“Both parties want to avoid a crisis that could result in a technical default if the Treasury was unable to pay interest on its debt,” Capital Economics wrote in a Wednesday note. “But given the dysfunctional relationship between Trump and the House Democrats, we can’t rule out a failure to reach an agreement.”
The president, after all, threatened two months ago to quit working on legislative business with House Democrats if they didn’t stop investigating him. Pelosi and company haven’t heeded that demand. To the contrary, House Democrats voted Wednesday to hold Attorney General William Barr and Commerce Secretary Wilbur Ross in criminal contempt for withholding documents related to their push to add a citizenship question to the 2020 Census. Former special counsel Robert S. Mueller III is set to provide blockbuster testimony to the House Judiciary Committee next Thursday on his investigation of the president.
And House Democrats on Tuesday night capped an unusually turbulent two days over Trump’s racist tweets about four freshman Democratic lawmakers by voting to condemn his remarks. In heated floor debate over the measure, Pelosi set off a controversy-within-the controversy by calling Trump’s Twitter attack “disgraceful and disgusting, and those comments are racist.” The House parliamentarian concluded the speaker’s criticism violated the chamber’s rules of decorum, but Democrats voted to overrule the judgment.
Nevertheless, throughout the firestorm, Pelosi has continued negotiations with Mnuchin, conducted over a series of phone calls, that people with knowledge of the talks describe as professional and isolated from the party’s latest clash with Trump. The two spoke again Wednesday, with Senate Majority Leader Chuck Schumer (D-N.Y.) joining in, and Mnuchin connecting from Paris, where he’s attending a global summit of finance ministers.
Per The Post’s Erica Werner and Damian Paletta, Pelosi and the White House remain divided over $150 billion in spending cuts the administration wants to accompany spending hikes, “a goal that could be out of reach without slashing domestic programs that Democrats want to protect.”
In addition, the administration wants a guarantee from Pelosi that she won’t seek to add policy riders to future spending bills. “Both of those demands could jeopardize chances for a deal. And they are just two of a handful of areas where agreement has yet to be reached between Pelosi and the Trump administration as time grows short,” Erica and Damian write.
Behind the scenes, the more important differences may not be those between Pelosi and Mnuchin but between Mnuchin and White House acting chief of staff Mick Mulvaney. “That’s one of the biggest hangups right now: Has Mnuchin worked this with Mulvaney?” G. William Hoagland, a former top Senate budget aide now a senior vice president at the Bipartisan Policy Center, tells me. “The real risk here is the president and Mulvaney bull their necks and create a problem… You’ve got to have the White House agree to this, and this will become a test as to who sets fiscal policy in this country, the Treasury Secretary or the White House chief of staff.”
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— Stocks start earnings season down. WSJ's Asjylyn Loder and Lauren Almeida: "U.S. stocks fell as the start of earnings season exposed weaknesses in the growth outlook for some companies. Major indexes declined for a second straight day. The S&P 500 slid 0.7% to 2984.42, the Dow Jones Industrial Average slipped 0.4% to 27219.85 and the Nasdaq Composite retreated 0.5% to 8185.21. Executives reporting earnings have voiced concern about their growth prospects as they face a muddy economic picture and a high-profile trade dispute between the U.S. and China."
— Big banks get a boost from Trump tax cuts. NYT's Emily Flitter: "The five largest banks in the United States reaped tens of billions of dollars in profits in the first half of the year, thanks in part to a strong economy and to the lingering effects of [Trump’s] tax cuts. Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Wells Fargo have all seen their tax rates decline to 22 percent or less as a result of the cuts, compared with rates of around 30 percent three years ago, one of the most consistent sources of strength apparent in quarterly earnings reports issued this week...
"The reduced rates helped offset a general decline in Wall Street trading revenue and added some pep to what would have otherwise been unremarkable quarterly performances by most of the banks."
— No 'wei out: “Progress toward a U.S.-China trade deal has stalled while the Trump administration determines how to address Beijing’s demands that it ease restrictions on Huawei Technologies Co., according to people familiar with the talks,” the Wall Street Journal's William Mauldin and Chao Deng report.
“No face-to-face meetings have taken place and none has been scheduled since [Trump] and China’s President Xi Jinping met last month in Japan and agreed to resume talks . . . U.S. and Chinese trade negotiators spoke by phone last week to discuss next steps but officials didn’t cite any progress afterward. Though another call is expected this week, Beijing is waiting to see what the U.S. does on Huawei before making commitments, according to the people familiar with the talks.”
— China's economic model sputters. WSJ's Greg Ip: New data showing the toll trade tensions are taking on China’s economy are merely a symptom of a more serious malaise: The country’s state-led growth model is running out of gas. A recession or crisis may not be imminent, but the long-run implications are just as serious. Absent a change in direction, China may never become rich. The economy’s growth slowed to 6.2% in the second quarter, a near-three-decade low... Official statistics probably paint too flattering a picture." And Ip writes that China's growth trajectory is trailing that of countries it seeks to emulate: Taiwan, South Korea, and Japan.
— Foreign purchases of U.S. homes plunge: “Challenging conditions in the U.S. housing market, along with tighter currency controls by the Chinese government, caused a stunning drop in foreign demand for American homes,” CNBC's Diana Olick report.
“The dollar volume of homes purchased by foreign buyers from April 2018 through March 2019 dropped 36% from the previous year, according to the National Association of Realtors. The decline was due to a drop in the number and average price of purchases. Foreigners bought 183,100 properties with a total value of about $77.9 billion, down from 266,800 valued at $121 billion in the previous period.”
— New York, New Jersey get SALTy with the IRS: “New Jersey and New York, along with Connecticut, sued the Trump administration on Wednesday, challenging Internal Revenue Service rules that outlaw certain workarounds to the cap on state and local tax deductions,” Politico's Nick Niedzwiadek and Katherine Landergan report.
“The 2017 federal tax law imposed a $10,000 cap on state and local tax deductions, which officials in high tax states like New York and New Jersey say disproportionately impacts their residents. New York Gov. Andrew Cuomo, New Jersey Gov. Phil Murphy and others have argued this was an intentional act by Republicans in Washington to try to pay for other parts of the sweeping legislation by targeting blue-leaning states.”
— A deep dive into Raj Chetty and his research: “The work that has brought [Harvard economist Raj] Chetty such fame is an echo of his family’s history. He has pioneered an approach that uses newly available sources of government data to show how American families fare across generations, revealing striking patterns of upward mobility and stagnation,” Gareth Cook reports in this month's Atlantic.
“In one early study, he showed that children born in 1940 had a 90 percent chance of earning more than their parents, but for children born four decades later, that chance had fallen to 50 percent, a toss of a coin . . . Since then, each of his studies has become a front-page media event (“Chetty bombs,” one collaborator calls them) that combines awe — millions of data points, vivid infographics, a countrywide lens — with shock. This may not be the America you’d like to imagine, the statistics testify, but it’s what we’ve allowed America to become.”
— Amazon faces European probe: “Amazon.com Inc. faces a formal European Union antitrust investigation into its dealings with merchants that sell goods on its site, marking an expansion of a multipronged regulatory push that has ensnared other U.S. tech giants like Facebook Inc. and Google. Amazon Faces Probe in Europe Over Use of Merchant Data,” WSJ's Sam Schechner reports.
“The European Commission, the EU’s top antitrust enforcer, said Wednesday that its investigation will examine whether Amazon is abusing its dual role as a marketplace where independent sellers can offer products and as a retailer of products in its own right.” (Amazon CEO Jeff Bezos owns The Post.)
Trump questions Amazon's potential Pentagon contract. Bloomberg's Jennifer Jacobs, Naomi Nix and Steven Dennis: "Trump recently demanded more information about how the Pentagon crafted a massive cloud-computing contract it’s poised to award to Amazon.com Inc. or Microsoft Corp., in order to decide whether he should intervene. The Defense Department is set to give the contract, worth as much as $10 billion over ten years, to one of the two companies next month. Amazon, whose cloud-computing technology leads the market, is seen as the favorite.
"But Trump recently was made aware of letters Republican members of Congress have written to the White House and military leaders complaining that the contract’s terms froze some companies -- including Oracle Corp. -- out of the competition, according to two people familiar with the matter. Trump expressed frustration he wasn’t aware of the concerns and asked aides to show him the correspondence, the people said."
— Dems join GOP to kill Obamacare's 'Cadillac tax': "In a rare bipartisan moment, House Democrats joined with Republicans to repeal the “Cadillac tax” on high-cost employer health insurance that was supposed to help pay for the Affordable Care Act," my colleague Yasmeen Abutaleb reports.
"The 419-to-6 vote is a first step toward achieving a long-sought goal of employers, labor unions and health insurers who have been pushing for full repeal of the tax for several years. Repealing the unpopular tax is one of the few significant measures related to the landmark health law that has won overwhelming support from lawmakers of both parties."
— Facebook faces more Congressional pushback on Libra: “Facebook’s efforts to garner support for the launch of a global cryptocurrency, Libra, hit another snag during a contentious House committee hearing Wednesday,” my colleague Renae Merle reports. “What exactly is Libra, lawmakers wanted to know. Some compared it to a bank, a commodity or an exchange traded fund.”
“Facebook is facing increasing pressure on Capitol Hill, where a bipartisan chorus of lawmakers has questioned whether Libra would threaten government-backed currencies and jeopardize consumers’ data. [David Marcus, who heads Calibra, Facebook’s cryptocurrency subsidiary] defended the project before the Senate on Tuesday and faced equally skeptical House members on Wednesday.”
— Fannie, Freddie overhaul plan could be pushed to September. Reuters's Pete Schroeder and Richard Leong: "The Trump administration’s hotly anticipated blueprint for overhauling mortgage guarantors Fannie Mae and Freddie Mac may not be published until September as the U.S. Treasury juggles several other pressing issues, the housing regulator told Reuters. Mark Calabria, director of the Federal Housing Finance Agency, which oversees the government-sponsored enterprises, said in an interview it was his “hope” that they would have exited or be ready to exit conservatorship before his term ends in 2024. However, Calabria is not operating toward a hard deadline, he noted."
- Capital One Financial, Morgan Stanley, Novartis, Philip Morris International, UnitedHealth, Union Pacific and Honeywell are among the notable companies reporting their earnings, per Kiplinger.
- American Express and BlackRock are among the notable companies reporting their earnings on Friday, per Kiplinger