Congress Begins 2023 with Economic Uncertainty Clouding the Agenda
The House is in session today and will vote on several amendments and final passage of H.R. 21, the Strategic Production Response Act. The first attempt to allow an open rule for the first time in 7 years on the House floor has gone pretty smoothly and Members have given it positive reviews.
The Commerce Department reported yesterday that real gross domestic product (GDP) increased at an annual rate of 2.9% in the fourth quarter of 2022. Analysts had expected a rise of 2.8%. The real question and uncertainty is what comes next? The Federal Reserve has raised interest rates aggressively since March in an effort to bring inflation down and there is growing evidence they are making progress. But history shows that aggressive Fed moves like what we have seen usually lead to recessions. The housing market is already in a recession. The overwhelming majority of CEOs have indicated they expect a recession in 2023. Surveys of American voters consistently have indicated the majority believe we are already in or are headed towards a recession. But the labor market remains strong. The unemployment claims for the week actually fell and the unemployment rate is a strong 3.5%. Larger companies have announced layoffs, but small business continue to hire and are struggling to find workers. China is reopening which should increase U.S. exports. All of this is to say there is uncertainty about the economy's direction for the next few quarters.
The economy and where it is headed will provide a potent political backdrop to the early months of the 118th Congress. Republicans will continue to press the case that President Biden and congressional Democrats caused the inflation with excessive federal spending, making the approaching recession the fault of the Democrats. The White House will argue their economic plan is working – inflation is coming down; the job market is strong and the economy is growing. Whoever turns out to be right will gain political momentum and leverage in the upcoming fiscal fights later in the year.
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