Fed hikes rates again even as inflation cools

The Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point, bringing policymakers another step closer to an expected pause in their inflation fight sometime this year.

For now, the central bank’s rate-setting committee signaled that borrowing costs will increase further, saying rate hikes will be "ongoing." But Wednesday’s move is the smallest hike since last March, a reflection of the fact that price spikes have been cooling for months.

"Inflation has eased somewhat but remains elevated," the committee said in a statement following two days of meetings. The Fed's main borrowing rate now sits between 4.5 percent and 4.75 percent.

Unemployment is still at modern lows, even after aggressive rate hikes for the past year by the Fed, feeding hopes that the U.S. may be able to avoid a recession — a crucial goal for President Joe Biden before the 2024 election. But that will hinge on how much more the central bank increases rates and how long it holds them at punishingly high levels.

Fed officials have signaled that they expect to raise rates to about 5 percent before stopping, but that will depend on whether inflation continues its downward trend. They're also closely monitoring worker pay, which grew about 5 percent in 2022. Chair Jerome Powell has said inflation probably won't be able to return to the Fed's 2 percent target without a deceleration in wage growth.

The economy grew at a 2.9 percent annualized pace in the last three quarters of the year, suggesting the U.S. is still far from dipping into a recession. But growth could slow further as the Fed's rate moves feed through to economic activity.

A closely watched survey from the Institute of Supply Management on Wednesday showed the manufacturing sector is contracting, and the housing market has been hammered for months by high mortgage rates, though the job market has remained resilient.

"The Committee is strongly committed to returning inflation to its 2 percent objective," the Fed said in its statement.

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Biden and McCarthy meet as White House aides envision a debt ceiling off-ramp

When President Joe Biden meets with House Speaker Kevin McCarthy on Wednesday to discuss the lifting of the nation's debt ceiling, it will kick off what’s likely to be a drawn-out fight over the nation’s fiscal path — one that could lead to an economic catastrophe.

The White House has insisted that it will not negotiate over the debt ceiling, warning that an extended stalemate could spark a financial crisis and push the U.S. to the brink of default. Republicans, meanwhile, view the debt ceiling as an opportunity to extract concessions from an administration dealing with a divided Congress for the first time in Biden’s presidency.

McCarthy signaled in the lead-up to the White House meeting that he would seek steep spending cuts.Yet it remains unclear what programs he proposes targeting, and the White House has shown little willingness to enter formal negotiations until he does so.

Instead, Biden officials have privately discussed the potential for a compromise that heads off a debt ceiling crisis while separately granting McCarthy small concessions that would allow him to save face with his party — such as creating a commission to study and propose future spending reforms.

But the White House is unwilling to touch entitlement spending or gut programs central to Biden's agenda. And while McCarthy has tamped down early talk of cuts to Medicare and Social Security, he is still likely to pursue major funding reductions across much of the government.

That means that any agreement the White House might consider supporting at this early stage, officials have concluded, is unlikely to appeal to the GOP.

“Every indication is that absent radical budget cuts and slashing some of the programs that Biden championed, the right wing of the House Republican caucus is not going to go along,” said one Biden economic adviser. “McCarthy has not yet demonstrated that he can get the maximalists in his party to agree to anything other than the maximal position."

Key to the discussions, the White House believes, is establishing some sort of baseline about what type of bill McCarthy could actually get through the House. The GOP has yet to consolidate behind a set of demands, and the White House is reluctant to lend McCarthy any preemptive help as he tries to wrangle his fractious caucus.

Biden officials have gleefully seized on signs of discord among House Republicans, highlighting GOP lawmakers' own frustration with the party's lack of a concrete plan.

The White House also views this initial meeting as the first of many over the next several months; an opportunity for both sides to size each other up and establish a starting point for talks that could drag well into the spring and summer.

Though Biden and McCarthy talked occasionally during the Obama era, the two men are not close. The early sitdown, some aides suggested, is part of an effort by Biden to build a relationship with a House speaker he'll need to work with on an array of priorities over the next two years.

"What you're not going to see is either party move their position," the Biden adviser said. "This is the meeting where folks scope things out and get a sense of where everybody is."

Senior White House officials sought to reinforce their position ahead of time, writing in a memo Tuesday that Biden would press McCarthy to commit to avoiding a debt default and to releasing a budget showing where the GOP wants to rein in funding.

“Any serious conversation about economic and fiscal policy needs to start with a clear understanding of the participants’ goals and proposals,” top economic adviser Brian Deese and Office of Management and Budget Director Shalanda Young wrote.

The White House plans to release its budget proposal on March 9, offering what officials hope will provide a clear contrast with Republicans’ demands and sharpen the public debate over lifting the debt ceiling.

The government hit its borrowing limit in January and estimates it may only be able to pay its bills into June without an increase. The U.S. has never intentionally defaulted, and Congress in recent years routinely voted to increase its borrowing limit under both the Trump and Biden administrations. Pointing to that track record, Democrats have insisted on passing a clean increase yet again, arguing the need to avoid economic catastrophe is too great to haggle over the debt ceiling.

The last time the U.S. came close to default, in 2011, the standoff rattled global financial markets and prompted a downgrade of the country’s credit rating. Should the government breach the debt ceiling this time, economists predict it would trigger an immediate recession and tank the stock market.

Still, House Republicans have relished a fight over the debt ceiling, fueled by a conservative faction that blocked McCarthy’s path to the speakership until he made a series of commitments that included using the debt ceiling to force spending cuts.

That stance has unnerved Democrats, who question McCarthy’s ability to negotiate on behalf of a GOP majority that includes lawmakers who have already indicated they won’t agree to raise the debt limit no matter what deal the two sides strike.

“I have a pretty strong suspicion that once the American people see what the Republican MAGA fringe is up to here, and what their hostage-taking demands are, there will be a sudden collapse [in support],” said Sen. Sheldon Whitehouse (D-R.I.), who chairs the chamber’s budget committee.

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House GOP vowed 11 bills in 2 weeks. It's voted on 6 of them.

It's a reminder the razor-thin margin of the House leaves almost no room for error.

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Blue Dogs say they're ready to help on eve of McCarthy-Biden debt talks

“It is our hope that these conversations result in good faith negotiations that avoid the partisan standoffs of the past,” the group said.

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Covid emergency’s end will mean new costs, hassles

The White House’s announcement that it will end the Covid-19 public health emergency — and a separate Covid national emergency — on May 11 will mean new costs and more hassles for Americans seeking health care.

It will also affect those receiving government nutrition assistance and could make it easier for immigrants to request asylum.

The end of the emergency also reinforces the conclusion President Joe Biden expressed last September, that most Americans have moved on from the pandemic despite the toll of more than a million lives, and that they have accepted the risks that come with the disease.

Key changes Americans can expect:

— Many will have to pay for Covid-19 vaccines, tests and treatments. People without health insurance will have to pay out of pocket, while those with private plans could see more costs depending on the terms of their insurance. Insurers typically cover the costs of preventive care, such as vaccines, but often charge deductibles or require cost-sharing for drugs.

— Medicare, Medicaid and Children’s Health Insurance Program beneficiaries could also face more cost-sharing for tests and some Covid antivirals, though vaccines will remain free.

— Employers will no longer be able to offer telehealth access as a premium, tax-free benefit separate from other health plans.

— Eased rules for prescribing controlled substances without an in-person doctor’s visit could also end unless the Drug Enforcement Administration moves to extend them. That could affect people seeking mental health care, transgender care, treatment for opioid use disorder, and even for severe coughs.

— Medicare coverage requirements that were waived during the emergency will now resume. For example, Medicare patients seeking admission to a skilled nursing facility will first have to spend three days in a hospital.

— The Medicare prescription drug benefit will no longer allow patients to get extended supplies of many drugs.

— Medicaid and CHIP coverage will change in some ways, as state and federal agencies made changes — such as boosting provider payments, increasing beneficiary access to medicines and expanding some covered services — to their programs because of the emergency. Some of those changes, though, can continue after the end of the emergency, depending on the state and policy.

— Hospitals will lose the 20 percent increase in Medicare payments they’ve received for treating Covid patients.

Nutrition assistance

— Work requirements for federal food assistance programs that were paused during the pandemic will return in more than two dozen, mostly Republican-controlled states that haven’t waived the requirements.

— Other administrative rules that helped people receive their Supplemental Nutrition Assistance Program benefits will also end.

Immigration

— The White House said the end of the emergency would also end Title 42, a health policy used at the start of the pandemic to shut down the southern border by denying immigrants the opportunity to request asylum. But Republicans in Congress have argued that the policy is not tied to the public health emergency.

What Biden’s decision on the emergencies won’t change:

— Medicare patients and people in high-deductible health plans will continue to have eased access to telehealth through the end of 2024 because of an extension Congress included in the year-end spending bill.

— Lawmakers also agreed in that legislation to wind down beginning in February extra SNAP food assistance that was offered during the pandemic.

— A requirement that states allow people to stay enrolled in Medicaid regardless of their eligibility for the program will end in April, allowing states to kick millions off the rolls. Many of those affected, whose incomes are now too high to qualify for Medicaid, will be eligible for low-cost Obamacare plans.

— The FDA will continue to have the power to authorize vaccines, tests and drugs on an emergency basis.

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FDA chief: No one getting fired over baby formula crisis

FDA’s major overhaul of its foods division won’t include reassigning or firing any employees involved in the agency’s delayed response to the babyformula crisis, Commissioner Robert Califf said Tuesday.

Califf rolled out his “new, transformative vision” of the main agency tasked with overseeing food safety in the U.S. He didn’t include any specific plans to address internal FDA breakdowns around infant formula, and instead focused on general restructuring to boost food safety efforts. But the FDA chief, asked during a press briefing, said he doesn’t have any plans to fire or reassign any FDA officials involved in the internal agency breakdowns as part of the larger reforms to the FDA's Human Foods Program.

Califf said there had been some “leadership changes.” His remarks come just days after senior FDA foods official Frank Yiannas’ resignation last week. In his resignation letter, Yiannas called for structural reforms at the troubled division.

“But the short answer is no one's going to be resigned or fired because of the infant formula situation,” Califf told reporters.

Scrutiny of the FDA's foods division increased after advocates and lawmakers accused the agency of failing to rapidly and effectively address an infant formula contamination event that had a major impact on U.S. supply. The actions unveiled by Califf on Tuesday follow an external review of the foods division that found “constant turmoil” within its ranks, and a complex leadership structure that left staff “wondering which program is responsible for decision-making.”

Baby formula supplies have bounced back since the widespread shortages triggered by a recall that sent parents scrambling for supplies last year. But some families — especially those with medically vulnerable children — are still struggling to find formula.

Top FDA officials were warned about food safety concerns at a key infant formula plant months before the agency’s inspectors found strains of a bacteria that can be deadly to babies. Months after those warnings, Abbott, the company at the center of the formula crisis, issued a recall of some formula products and shut down the facility, triggering widespread shortages across the country. The company, which maintains there is no connection between the bacteria found at the plant and the deaths of several babies, is now under criminal investigation by the Justice Department.

“Where there could have been better performance, that's reflected in the performance evaluation system. And, of course, that's confidential information between supervisors and employees,” Califf said in response to the question from POLITICO.

FDA Principal Deputy Commissioner Janet Woodcock told reporters on Tuesday that FDA’s formula response was “a systems problem, not an individual problem.” She also noted an internal review of FDA’s infant formula supply chain response last year. As POLITICO reported, the report didn’t name any specific teams responsible for breakdowns at FDA and surprised stakeholders with its lack of accountability.

“And so the system fixes that we are putting in place, both the information technology support as well as many of the changes, will address all the different issues,” Woodcock said.

“This was a failure of the systems — to the extent there was a failure — to provide the information to the right people at the right time,” Woodcock added.

Califf and other top FDA officials, despite acknowledging to lawmakers a string of internal breakdowns that contributed to the crisis, have pushed back against claims that there were any major failures at the agency. That includes a breakdown in internal FDA communication that some senior FDA officials said prevented them from knowing about the food safety issues until just weeks before the recall.

Califf and Yiannas said a whistleblower report alleging food safety problems at the plant, which was mailed in October 2021, did not reach the FDA’s highest ranksuntil mid-February 2022. Califf, in testimony to lawmakers, said senior officials didn’t receive the whistleblower report due to pandemic “mailroom issues.”

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Biden says Hudson River Tunnel project is finally full steam ahead

NEW YORK — President Joe Biden arrived in Manhattan Tuesday to deliver a message that elected leaders in New York and New Jersey have waited more than a decade to hear — the Gateway Program to improve the century-old rail link under the Hudson River is finally full steam ahead.

Biden visited the rail yard on Manhattan’s west side to formally announce a nearly $300 million grant for the decades-long project to build a new rail tunnel under the Hudson and repair the existing one that suffered significant damage in 2012 from Hurricane Sandy. The federal award will allow developers to install concrete casing in the area, preserving the right-of-way for the new two-tube tunnel to connect to Penn Station.

Tuesday’s event offered Biden, and his Transportation Secretary Pete Buttigieg, an opportunity to celebrate tangible wins from the $1.2 trillion bipartisan infrastructure law after a tumultuous few months of air travel meltdowns, supply chain woes and a narrowly averted rail strike that threatened to sink the economy. Biden also stopped in Maryland Monday to celebrate more than $6 billion in upgrades for the aging Baltimore and Potomac Tunnel.

But the president’s visit Tuesday was particularly symbolic for the New York and New Jersey politicians in attendance who have witnessed the $16 billion endeavor suffer several delays over the years. Biden's trip showed that after repeated setbacks, the critical infrastructure project finally has federal backing— even if it's still years in the making.

“All told, this is one of the biggest and most consequential projects in the country,” Biden said at an event in a 30-track rail yard in front of commuter trains emblazoned with the presidential seal. “But it’s going to take time. It’s a multibillion effort between the states and the federal government. But we finally have the money and we’re going to get it done, I promise you.”

In 2009, officials did a ceremonial groundbreaking for a previous version of the tunnel project that was intended to alleviate commutes for the 200,000 passengers who relied on it everyday. The 10 miles of track stretching between Newark, New Jersey and New York Penn Station are a common source of delays and service meltdowns.

Sen. Bob Menendez (D-N.J.) said he recalled the celebratory event that was over a decade ago “almost to the day.” Shortly after that, then-New Jersey Gov. Chris Christie pulled state funding for the project and workers who had started digging the tunnel entrance had to fill it back in.

“Our journey since that press conference has been long and winding. But today it brings me immense pleasure to say we’re finally getting it done,” he said.

The project was revived after Hurricane Sandy, which inundated the tunnel with seawater. Biden said signs of the damage remain.

“Today over 10 years later there’s still remnants of seawater in the tunnel eating away at the concrete, the steel and the electrical components within the tunnel,” Biden said.

New York Gov. Kathy Hochul said the storm underscored the need for the project, recalling how two hurricanes caused severe infrastructure damage when she first entered office.

“You need to have the redundancy, backups to make sure this region is never ever paralyzed because that’s exactly what would happen,” she said.

As elected leaders in New York and New Jersey tried to revive the tunnels after Christie killed them, they ran into opposition from then-President Donald Trump. Biden, a known Amtrak lover, made the project a priority when he entered office — approving a required environmental study that had languished.

Senate Majority Leader Chuck Schumer, a major backer of the tunnel, also celebrated the significance of Biden’s visit after years of disappointment.

“Finally, finally, finally, we can say Gateway will be built,” he said.

The federal award will defray half the cost of building concrete casing on the far west side of Manhattan, preserving the right-of-way for future trains to enter New York Penn Station. Amtrak and other local partners in the project are expected to pay for the rest of the work.

Construction is also underway on other components of the Gateway Program, including the planned replacement and expansion of the Portal North Bridge in New Jersey.

Workers are expected to begin digging the actual tunnels in fall 2024. The entire project isn’t scheduled to be completed until 2038 and will cost more than initial estimates due to delays.

Buttigieg said the project is long overdue, stating that “we cannot lead the world in this century if we depend on infrastructure from early in the last one.”

New Jersey Gov. Phil Murphy echoed the point about the tunnel that was first opened in 1910.

“One of these days we’ll get into the 21st [century], I hope sooner than later,” he said.

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