‘Economy is unwell’: GDP report underlines recession concern

President Joe Biden formally kicked off his 2024 reelection campaign this week by declaring, “I’ve never been more optimistic about America’s future.”

Wall Street isn’t sharing his enthusiasm.

Across the financial industry, the overwhelming consensus is that the economy will struggle this year, with more than a dozen big banks in recent weeks forecasting little or no growth — or even a recession — as the Federal Reserve drives up interest rates to kill inflation.

And fresh risks loom for Biden’s reelection campaign economy, including a potentially market-shaking fight over raising the debt limit and the risk of a banking industry meltdown that’s causing lenders to tighten up on credit.

"The U.S. economy is unwell, and it’s starting to show," Gregory Daco, chief economist at EY-Parthenon, tweeted Thursday morning.

The government’s latest GDP report Thursday underlined those concerns. The Commerce Department reported the economy expanded by just 1.1 percent in the first three months of the year, well below expectations of 2 percent growth and down from 2.6 percent in the fourth quarter of last year.

Biden’s bullish comments echoed President Ronald Reagan’s “Morning in America” reelection theme from 1984. Yet unlike then, the economy is clearly slowing now, presenting Biden with a potential hurdle to his securing a second term.

Still, the GDP report included some bright spots, including continued strong consumer spending, which drives about two-thirds of economic growth. And the economy has remained remarkably resilient, adding over 300,000 jobs per month in the first quarter, something Biden noted in comments on the growth figures on Thursday.

“Today, we learned that the American economy remains strong, as it transitions to steady and stable growth,” the president said in a prepared statement. “This past quarter, real personal disposable income increased and American consumers continued to spend, even as the overall pace of growth moderated.”

Yet most Wall Street banks and many economists — even left-leaning allies of Biden — predict a downshift once the impact of all the Fed rate hikes works through the system along with the fallout from tighter credit standards.

“We continue to expect economic growth to slow, and we are preparing for a range of scenarios,” Wells Fargo CEO Charlie Scharf said on the bank’s recent first-quarter earnings call.

Bank of America CEO Brian Moynihan said on a call last week: “We see and our experts see a mild recession coming.”

Similar comments are peppering earnings calls across the finance industry. Few executives are predicting a major decline in the economy, but many believe the long run of modest or better growth will finally come to a close with the jobless rate starting to rise again from record lows.

And even some Biden allies like former Treasury Secretary Larry Summers are warning that the economy will have to decline significantly to finally break the back of inflation.

“I think we’re going to have difficulty getting near a 2 percent inflation target until and unless the economy slows down substantially,” Summers said at an investment conference this week.

The latest reading on the economy was driven by a declining housing industry slammed by higher interest rates. Consumer spending remained resilient but is also likely to come under more pressure as Covid-era savings run out and inflation continues to pinch wallets. And the report showed inflation rising, not falling as the Fed expects, meaning another rate hike is likely when central bank policymakers meet next week.

“This morning’s data was the worst of both worlds, with growth down and inflation up,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said in a client note.

And even Biden, in his reelection announcement, acknowledged that while he envisions greater prosperity ahead, he is aware of the risks, including prices that remain too high.

“We’ve got a lot more work to do, though,” he told union workers. “I know folks are struggling with inflation," he said, but added that "it’s a global problem.”

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Wall Street gives administration earful over antitrust enforcement

Wall Street dealmakers have dialed up their complaints to the White House over the last year as the administration's top antitrust enforcers — FTC Chair Lina Khan and DOJ antitrust head Jonathan Kanter — knuckle down on merger activity they say would damage the economy, according to Biden officials and financial industry executives.

One senior administration official — who was granted anonymity to discuss private conversations with business leaders — told POLITICO that they view the objections as a sign that Biden’s competition policy and staffing choices are working.

The volume of M&A activity has fallen sharply over the last year and dealmakers say the effect of President Joe Biden’s antitrust crackdown has also been felt in ways that won’t show up in the data. It’s not just the deals they attempt to stop — it’s the deals that never get proposed to a corporate board, for fear of having to subject their transactions to combative regulators.

“It's been a sea change in the regulatory environment over the past two and a half years since the Biden Administration took office,” Roger Altman, the senior chair of investment bank Evercore, and a former Deputy Treasury Secretary under President Bill Clinton, said last month on CNBC. Antitrust officials have already stymied “a series of business combinations which would have gone ahead in a different environment.”

In the last two years, a string of high profile transactions have been abandoned after being challenged by the government. Those include Aon and Willis Towers Watson calling off their merger in 2021 after a DOJ lawsuit, as well as the abandonments of Lockheed Martin’s takeover of Aerojet Rocketdyne and Nvidia’s purchase of microchip designer Arm following FTC lawsuits.

And some companies are sometimes willing to sell at a lower price if they believe a higher offer will raise a deal’s profile and generate greater regulatory risk, according to one banker focused on the technology sector, who was granted anonymity to speak candidly.

Low interest rates and a flood of fiscal stimulus pumped mergers and acquisition activity and deal sizes to record heights in 2021. But the bonanza faded as inflation set in, prompting the Federal Reserve to quickly raise rates in an attempt to squash surging prices. Cheap financing, a critical lubricant to deal pipelines for large corporations and private equity shops, dried up as Khan and Kanter began cracking down.

So, while economic conditions played a significant role in the slowdown in M&A, the approach taken by Biden’s appointees created additional hurdles for companies that would otherwise expand through acquisitions, U.S. Chamber of Commerce Executive Vice President and Chief Policy Officer Neil Bradley said in an interview. Publicly traded companies are increasingly identifying the FTC, which also enforces consumer protection standards, as a public policy risk, according to the Chamber’s research.

There is “much greater uncertainty that [companies are] receiving from M&A attorneys about how long it will take — and the likelihood for — getting FTC sign off,” he said. Some chamber members have informed him that they’ve “walked away from deals because the uncertainty was too great.”

So far, the drop-off has had more of an effect on the whales than the minnows. A pause in so-called megadeals — which refers to transactions valued north of $10 billion — was the primary reason annual deal volume declined by more than a third last year, according to research compiled by Bain & Company.

“There's still some purchases going on,” the senior Biden economic official said, adding that the FTC and DOJ are ensuring “that M&A activity is actually promoting what is fundamentally an economy that's built on the idea of permitting competition and driving economic value.”

Nevertheless, the overall declines have been felt by major investment banks that count on underwriting and advisory fees. Goldman Sachs last week reported that its investment banking revenues had fallen by more than a quarter due to the global M&A slowdown. Morgan Stanley also reported declining profits as dealmaking slowed.

Kanter and Khan have embraced the mission set out by Biden in his 2021 competition policy executive order to hit pause on merger activity in a heavily consolidated economy.

Publicly, they have struggled in that effort, losing most of the legal challenges to deals, including lawsuits to block United Health Care’s $13 billion deal for health care technology firm Change, and Meta’s $440 million purchase of virtual reality developer Within Unlimited.

Kanter has said multiple times though that he measures success not just by whether his prosecutors win in court, but in the deals that either get abandoned during the investigative process are never signed at all. “The deterrent effect is powerful and the results are tangible. Simply put — most anticompetitive deals are no longer getting out of the boardroom,” Kanter said at an event last month.

The administration will be tested over the next year, as a number of high-profile merger challenges play out in court. Those include the FTC’s case to block Microsoft’s $69 billion takeover of Activision Blizzard and the DOJ’s case to block the merger between JetBlue and Spirit Airlines.

“Frankly, before the last two years, I never heard concerns about the idea that people were actually factoring in antitrust as they thought about doing some of these deals,” the official said.

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The old guard: Joe Biden seems like a spring chicken compared to some of these guys

The US president would be 86 at the end of his second term, and he wouldn’t be alone in leading a country at such an advanced age.

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Guardsman spoke of ‘murder,’ may still possess secrets: U.S.

WORCESTER, Mass. — The Massachusetts Air National guardsman accused of leaking highly classified military documents kept an arsenal of guns, talked of “violence and murder” on a social media platform and an “assassination van,” prosecutors wrote before Thursday’s hearing for 21-year-old Jack Teixeira.

The court filings raise new questions about why Teixeira had such a high security clearance and access to some of the nation’s most classified secrets. They said he may still have material that hasn’t been released, which could be of “tremendous value to hostile nation states that could offer him safe harbor and attempt to facilitate his escape from the United States.”

Teixeira entered his detention hearing in Worcester on Thursday in orange prison garb, smiling at his father in the front row. His handcuffs were removed before he sat down.

One possibility is that the judge could order Teixeira to be confined at his father’s home while awaiting trial, if not held in jail. Under questioning at the hearing, his father, Jack Michael Teixeira, said he was aware that if his son were to violate conditions of release or home confinement, he’d have to report him. The elder Teixeira said he owns firearms but no longer has any in his home.

Nadine Pellegrini, chief of national security division in the Massachusetts U.S. attorney’s office, told the judge the information prosecutors submitted to the court about the defendant’s threatening words and behavior “is not speculation, it is not hyperbole, nor is it the creation of a caricature. It is based on what we know to date ... directly based upon the words and actions of this defendant.”

Late Wednesday, the Air Force announced it suspended the commander of the 102nd Intelligence Support Squadron where Teixeira worked and the administrative commander “overseeing the support for the unit mobilized under federal orders,” pending further investigation. It also temporarily removed each leader’s access to classified systems and information.

Court papers urging a federal judge to keep Teixeira in custody detailed a troubling history going back to high school, where he was suspended when a classmate overheard him discussing Molotov cocktails and other weapons as well as racial threats. More recently, prosecutors said, he used his government computer to research past mass shootings and standoffs with federal agents.

He remains a grave threat to national security and a flight risk, prosecutors wrote, and investigators are still trying to determine whether he kept any physical or digital copies of classified information, including files that haven’t already surfaced publicly.

“There simply is no condition or combination of conditions that can ensure the Defendant will not further disclose additional information still in his knowledge or possession,” prosecutors wrote. “The damage the Defendant has already caused to the U.S. national security is immense. The damage the Defendant is still capable of causing is extraordinary.”

Teixeira has been in jail since his arrest earlier this month on charges stemming from the greatest known intelligence leak in years.

Teixeira has been charged under the Espionage Act with unauthorized retention and transmission of classified national defense information. He has not yet entered a plea.

His lawyers are urging the judge to release him from jail, arguing in court papers filed Thursday that appropriate conditions can be set even if the court finds him to be a flight risk — such as confinement at his father’s home and location monitoring.

The defense said Teixeira no longer has access to any top-secret information and accused prosecutors of providing “little more than speculation that a foreign adversary will seduce Mr. Teixeira and orchestrate his clandestine escape from the United States.”

“The government’s allegations ... offer no support that Mr. Teixeira currently, or ever, intended any information purportedly to the private social media server to be widely disseminated,” they wrote. “Thus, its argument that Mr. Teixeira will continue to release information or destroy evidence if not detained rings hollow.”

He is accused of distributing highly classified documents about top national security issues in a chat room on Discord, a social media platform that started as a hangout for gamers. The leak stunned military officials, sparked an international uproar and raised fresh questions about America’s ability to safeguard its secrets.

The leaked documents appear to detail U.S. and NATO aid to Ukraine and U.S. intelligence assessments regarding U.S. allies that could strain ties with those nations. Some show real-time details from February and March of Ukraine’s and Russia’s battlefield positions and precise numbers of battlefield gear lost and newly flowing into Ukraine from its allies.

Prosecutors wrote that Teixeira, who owned multiple guns, repeatedly had “detailed and troubling discussions about violence and murder” on the platform where authorities say he shared the documents. In February, he told another person that he was tempted to make a minivan into an “assassination van,” prosecutors wrote.

The Justice Department’s filing outlines a pattern of troubling behavior that officials say began well before he entered the military and continued in recent months, even as his position afforded him access to government secrets.

In 2018, prosecutors allege, Teixeira was suspended after a classmate “overheard him make remarks about weapons, including Molotov cocktails, guns at the school, and racial threats.” His initial application for a firearms identification card that same year was denied due to police department concerns over those remarks.

He applied again over the next two years, and cited in his 2020 application after joining the Guard “his position of trust in the United States government as a reason he could be trusted to possess a firearm,” prosecutors wrote.

The Justice Department said that it has also learned through its investigation that Teixeira in July used his government computer to look up a series of U.S. mass shootings and government standoffs, including the terms “Ruby Ridge,” “Las Vegas shooting,” “Mandalay Bay shooting,” “Uvalde” and “Buffalo tops shooting” — an apparent reference to the 2022 racist mass shooting at a Buffalo supermarket.

The searches of mass shootings on a government computer should have triggered the computer to generate an immediate referral to security, which could have then led to a more in-depth review of Teixeira’s file, according to Dan Meyer, a lawyer who specializes in military, federal employment and security clearance issues. The Air Force’s investigation will probably discover whether a referral was generated — and whether security officers did anything with the information.

Teixeira’s lawyers noted that he has no criminal history and would have no access to guns if he was released. The incident at his high school was “thoroughly investigated” and he was allowed to come back after a few days and a professional psychological evaluation, they wrote. That investigation was “fully known and vetted ” by the Air National Guard before he enlisted and when he obtained his top secret security clearance, they said.

Months later, after news outlets began reporting on the documents leak, Teixeira took steps to destroy evidence after news outlets began reporting on the documents leak. Authorities who searched a dumpster at his home found a smashed laptop, tablet and Xbox gaming console, they said.

Authorities have not alleged a motive. Members of the Discord group have described Teixeira as someone looking to show off, rather than being motivated by a desire to inform the public about U.S. military operations or to influence American policy.

Billing records the FBI obtained from Discord were among the things that led authorities to Teixeira, who enlisted in the Air National Guard in September 2019. A Discord user told the FBI that a username linked to Teixeira began posting what appeared to be classified information roughly in December.

Teixeira was detected on April 6 — the day The New York Times first published a story about the breach of documents — searching for the word “leak” in a classified system, according to court papers. The FBI says that was reason to believe Teixeira was trying to find information about the investigation into who was responsible for the leaks.

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House GOP passes its debt bill, upping pressure on Biden

House Republicans passed their sweeping debt-limit and spending-cuts plan after a tumultuous 24 hours. Now, they have to see if it will bring President Joe Biden to the negotiating table.

The vote followed a frantic day of eleventh-hour wrangling as Speaker Kevin McCarthy and his allies sought to lock down potential defectors ranging from conservatives to Midwesterners.

In the end, only four Republicans voted against the legislation — though the victory is merely symbolic given the bill’s DOA status in the Senate.

And it was a hard-fought victory, at that. The conference had been in talks over the bill for months, yet McCarthy was still negotiating with on-the-fence members shortly before the vote. Still, GOP lawmakers cheered the bill’s passage, hoping it will give them some leverage to force leading Democrats to back down from assertions they would not negotiate at all over the debt limit.

“I think everybody is focused on solving this problem and finally getting the president … to come to the table,” said Majority Leader Steve Scalise (R-La.), adding that Republicans want to give McCarthy the “opportunity to go and negotiate with the president.”

Reps. Andy Biggs (Ariz.), Ken Buck (Colo.), Tim Burchett (Tenn.) and Matt Gaetz (Fla.) were the Republicans who opposed the bill, along with all Democrats.

It's still far from clear that the House GOP plan will change the calculus either at the end of Pennsylvania Avenue or across the Capitol with Senate Democrats. Both have stressed for months, along with their less influential House colleagues, that they want a “clean” debt ceiling increase, with no spending cuts attached.

Senate Majority Leader Chuck Schumer lambasted McCarthy ahead of the vote on Wednesday, accusing him of having “capitulated to the hard right once again" as he worked to lock down the votes to pass the debt plan.

“It’s a bill that might as well be called the Default On America Act. Because that’s exactly what it is — DOA, dead on arrival,” Schumer said.

The House Republican bill combines across-the-board spending cuts with other conservative proposals, including stricter rules for social safety net programs and energy production incentives. But after vowing for days that they wouldn’t open the bill for negotiations, worried it would create a tidal wave of demands, Republican leadership cut a middle-of-the-night deal to try to win over two critical holdout groups: Midwesterners and conservatives.

For Midwestern members, GOP leadership agreed to kill changes to incentives structures for renewable diesel, second generation biofuel, carbon dioxide sequestration and biodiesel. For conservatives, they beefed up the work requirements and sped up the implementation timeline. Rep. Nancy Mace (R-S.C.), who flipped to backing the bill on Wednesday, also said McCarthy committed to working on balancing the budget in a conversation with her.

House Freedom Caucus Chair Scott Perry (R-Pa.) acknowledged that his conservative members weren’t sold on all the bill's provisions but argued that passing the proposal was crucial to keeping Republicans at the table.

“It is not perfect. It’s a step in the right direction. We’ve got to be in the arena and stay on offense,” Perry said.

The next phase won’t get any easier for Republicans, though, who barely scraped by this time on a 217-215 vote. McCarthy eventually needs to cut a deal with Biden and Senate Democrats that somehow would also win over both the centrist and conservative factions of his conference.

”It’s gonna have to be a conservative package if it’s going to win the support of the Republican conference, but I don’t think it serves anyone’s interest by talking about red lines right now,” said Rep. Dusty Johnson (R-S.D.), the chair of the business-oriented Main Street Caucus.

Driving the debt-limit talks is still relatively new for House Republicans, who largely left it up to Senate Minority Leader Mitch McConnell to negotiate agreements on the debt ceiling during the first two years of the Biden administration. Those deals sparked fierce pushback not only from House Republicans but also Senate conservatives.

And Republican senators are warning they aren’t preparing to step into the breach again, at least not yet. Plus, it’s far from clear that a Senate GOP negotiated deal would even find favor in the more raucous House GOP conference.

The House bill “forces the administration to come to the table,” Senate Minority Whip John Thune (R-S.D.) said Wednesday. “The pressure really ought to be on the White House.”

Sarah Ferris and Burgess Everett contributed to this report.

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Ex-Harvard prof sentenced, fined for lying about China ties

BOSTON — A former Harvard University professor convicted of lying to federal investigators about his ties to a Chinese-run science recruitment program and failing to pay taxes on payments from a Chinese university was sentenced Wednesday to supervised release and ordered to pay more than $83,000 in restitution and fines.

Charles Lieber, 64, was sentenced by Judge Rya Zobel in U.S. District Court in Boston to time served — the two days he spent in jail after his arrest — two years of supervised release — the first six months in home confinement — a $50,000 fine and $33,600 in restitution to the IRS, which has already been paid.

Lieber, the former chair of Harvard’s department of chemistry and chemical biology, was convicted in December 2021 of filing false tax returns, making false statements and failing to file reports for a foreign bank account in China.

“We are grateful for the court’s ruling,” said Lieber’s attorney, Marc Mukasey. “We think it was the appropriate decision so that Charlie can keep up his fight against his severe health issues.”

Prosecutors had recommended three months in prison, a year of probation, a $150,000 fine and restitution to the IRS of $33,600.

Prosecutors said Lieber knowingly lied to Harvard and government agencies about his involvement in China’s Thousand Talents Plan, a program designed to recruit people with knowledge of foreign technology and intellectual property to China, to enhance his career — including the pursuit of a Nobel Prize — and benefit financially.

Lieber denied his involvement during questioning from U.S. authorities, including the National Institutes of Health, which had provided him with millions of dollars in research funding, prosecutors said.

Lieber also concealed his income from the Chinese program on his U.S. tax returns, including $50,000 a month from the Wuhan University of Technology, some of which was paid to him in $100 bills in brown paper packaging, according to prosecutors.

In exchange, they say, Lieber agreed to publish articles, organize international conferences and apply for patents on behalf of the Chinese university.

Lieber’s case was one of the most notable to come out of the U.S. Department of Justice’s China Initiative, started during the Trump administration in 2018 to curb economic espionage from China.

But in February 2022 under the current administration, a decision was made to revamp the program and impose a higher bar for prosecutions after a review based on complaints that it compromised the nation’s competitiveness in research and technology and disproportionally targeted researchers of Asian descent.

Assistant Attorney General Matthew Olsen said at the time the department will still “be relentless in defending our country from China,” but would not use the China Initiative label, in part out of recognition of threats from other nations including Russia, Iran and North Korea.

The federal government ended up dismissing multiple cases against researchers or had them thrown out by judges.

Mukasey asked that his client, who retired after his conviction and has a form of incurable blood cancer along with a “destroyed immune system,” be spared prison time because of the dangers of getting sick behind bars, the extraordinary research he as done and the positive effect he has had on countless lives.

“In prison he will be a sitting duck for disease, and will not get the daily medical care that he needs,” he said.

Mukasey read from some of the more than 100 letters of support submitted to the court by Lieber’s family, friends, colleagues, and former students he has mentored. More than two dozen of his supporters crowded the courtroom, some of whom flew in from as far away as California to attend the hearing.

Anqi Zhang, one of Lieber’s former doctoral students who is now doing post-doctoral work in chemical engineering at Stanford University, thinks her mentor’s motives have been misrepresented by the government.

“He’s the best scientist and the best mentor in the world,” she said. “He’s a pure scientist, he worked very hard, and was focused completely on the science.”

Lieber, in a statement read to the court, accepted responsibility and said the last three years of his life have been “horrific.”

“I would like to express my sincere apologies and remorse for my actions,” he said.

Mukasey also stressed that Lieber was never charged with espionage-related offenses; was never accused of misusing grant money; there was no theft or trade of trade secrets or intellectual property; and he did not disclose any proprietary research to the Chinese government or university.

But prosecutor Jason Casey said in court that Lieber “was someone willing to lie and deceive to protect what mattered to him most — and that was his career.” His behavior was not an aberration, but occurred over a period of several years.

As a person of “extraordinary intellect and extraordinary education,” he had the capacity to understand the wrongfulness of his actions, Casey said.

Casey said a three-month period of prison time was appropriate despite Lieber’s health issues because he is in remission and can get proper treatment in a federal prison.

Mukasey called the government’s contentions “callous, misleading, naive and dangerous to (Lieber’s) health” and said his client has been punished enough because of his damaged reputation.

“Please don’t put him in prison where he can’t control his health,” Mukasey told the judge.

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More adults think access to abortion should be easier, Pew report finds

The number of adults living in states where abortion is banned or restricted who believe that access to abortion should be easier has grown since 2019, according to a new report from the Pew Research Center.

In states that implemented bans on nearly all abortions after the Dobbs decision last year, 43 percent of adults said they believe it should be easier to get an abortion where they live, compared to 31 percent in 2019. In states that have seen new restrictions, either implemented or tied up in legal disputes, 38 percent believe access should be easier, up from 27 percent in 2019. The numbers are also up in states without any new abortion restrictions, now at 27 percent compared to 24 percent in 2019.

The report, released Wednesday, included data from 5,079 respondents with a margin of error of +/- 1.7 percentage points. The survey was conducted between March 27 and April 2.

Overall support for abortion is also up since 1995, according to the report, but most of that change comes from an increase in support from Democrats and Democratic-leaning independents.

The percentage of adults who believe it would be somewhat easy or very easy to get an abortion where they live is down to 54 percent, from 65 percent in 2019. In 1995, 63 percent of Democrats and those leaning Democratic said abortion should be legal in all or most cases; in 2023, that number was up to 84 percent. Republican support for abortion saw a much smaller increase in support, up to 40 percent in 2023 from 39 percent in 1995.

Abortion access has become a defining issue in elections across the country, spreading into local races like the one for a Supreme Court seat in Wisconsin. As support for abortion access increases, lawmakers — particularly Republicans — have become more divided over how to handle the issue.

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