Dispatch from Washington: December 2023

Republican Presidential candidates, sans former President Trump, took to the debate stage for the last time this year. Former Speaker Kevin McCarthy resigns from Congress. The American economy defied expectations in 2023 and did not slip into a recession. Another government funding fight will greet lawmakers when they return from the holiday recess with the potential of a government shutdown looking large.  The House Select Committee on the CCP issues a wide-ranging, bipartisan report calling for a fundamental reset and full reappraisal of U.S.-China ties. The U.S. Supreme Court will decide whether former President Trump can be criminally prosecuted in the 2020 election interference case. Alabama Senator Tommy Tuberville (R-AL) partially ended his months-long hold on military promotions, freeing up hundreds of stalled nominees. Ukrainian President Volodymyr Zelensky visited Washington to lobby for additional assistance but left empty handed. House Republicans passed a resolution authorizing a formal impeachment inquiry into President Joe Biden. 

Last GOP Presidential Primary Debate of 2023

On December 6, four contenders for the Republican presidential nomination—Florida Governor Ron DeSantis, former New Jersey Governor Chris Christe, former South Carolina Governor and UN Ambassador Nikki Haley, and entrepreneur Vivek Ramaswamy—took to the debate stage at the University of Alabama in the final GOP presidential primary debate of the year. The debate came less than six weeks before the Iowa caucuses and was likely the last opportunity for the candidates to showcase their policy beliefs and explore major differences. This fourth debate proved quite feisty, with the candidates mostly focusing their attacks on each other rather than the GOP frontrunner, former President Donald Trump, who skipped this debate, as he has all others. According to most pundits, Haley—whose star has been rising—emerged largely unscathed, and did not make any notable mistakes, but was her weakest debate performance so far. Governor Ron DeSantis’ campaign has experienced some upheaval amid sliding poll numbers, and he delivered what many observed was his strongest performance to date. Chris Christie, who barely qualified to be on the debate stage, was the most direct in attacking the former President and has positioned himself as the most aggressively anti-Trump candidate in a race. Ramaswamy, who generated significant interest from early debate performances, now “seems more of an irritant than a serious candidate,” and the number of voters holding an unfavorable opinion of him has risen sharply in polls since the summer. In the end, Trump’s strategy of avoiding the debates has largely worked and he remains ahead by a significant margin in all polls.

Former Speaker McCarthy Resigns from Congress

 Former House Speaker Kevin McCarthy, who was removed from the Speakership in October, will resign from Congress at the end of the year. In an op-ed published in The Wall Street Journal, McCarthy wrote “I have decided to depart the House at the end of this year to serve America in new ways.” McCarthy had a turbulent nine-month tenure as the top official in the House and the announcement was a closing chapter to his fall from GOP leadership after securing the gavel in a historic 15-round vote earlier this year. The California Republican was the first Speaker in history to get sacked. Nevertheless, McCarthy said he would still be politically involved and that he plans to help recruit the “country’s best and brightest to run for elected office.” McCarthy was one of his party’s strongest fundraisers and still maintains a sizable campaign war-chest, and he now says he will be a “free agent” likely meaning his will exact revenge from the 8 House Republicans whose defections caused his downfall. Democratic California Governor Gavin Newsom can choose whether to call a special election or keep the seat vacant until the next election – with House Republicans enjoying a razor-thin majority already, a decision to leave the seat open will tighten the margins even further.

The (Economic) Year that Was – The Recession that Wasn’t

 In April 2022, the first month after the Federal Reserve started its current tightening cycle, a poll of economists showed the risk of a recession one-year out was 25%. In October of 2022, economists polled felt the risk of recession in the next year was 65%. Federal Reserve staff said that there was a “downside risk” of recession in the year ahead last fall, shifting to a “plausible” recession in December, to near certainty of a mild recession starting later this year” at the Fed’s March policy meeting. Their projections “continued to assume” the U.S. economy would be in recession by the end of the year in May and June. For the better part of a year, analysts, policymakers, and experts saw a recession as a near-certainty, but it never materialized.

While the U.S. economy shrank in the first half of 2022, amplifying predictions of a recession, the economy proved surprisingly resilient. By the third quarter of 2022, economic growth had bounced back to a 3.2% annualized rate. Over the next three quarters, growth remained above 2% and spiked to nearly 5% in the third quarter of 2023. The Congressional Budget Office now projects U.S. economic growth to slow to 1.5% in 2024. 

In an effort to counter inflationary pressures, the Federal Open Market Committee has embarked on a campaign of tightening monetary policy. From its peak of over 9% in July 2022, the latest Consumer Price Index (CPI) showed that inflation continued to cool in November, reflecting a 3.1% inflation rate over the prior year, a slight drop from October’s 3.2% rate. It now appears that hawkish monetary policy via interest rate hikes have taken inflation off its worst levels, but there is a question of whether the Fed can take inflation from its current rate to its 2% target. Nevertheless, there has been more dovish rhetoric from Federal Reserve officials as of late. After raising rates 11 times since March 2022, Federal Reserve policymakers have halted rate hikes since September. At the most recent FOMC meeting, the Fed extended the pause, announcing that they won’t raise rates, leaving the benchmark rate in the 5.25% to 5.5% range. Looking to 2024, future markets indicate that the Federal Reserve will ease rates, with respondents to the most recent CNBC Fed Survey predicting that the Fed will cut rates an estimated three times at 25-basis point increments with the median projection for December of next year at 4.6%.

Job growth is also soaring. The most recent data from the U.S. Department of Labor, reported on December 8, showed that employers added 199,000 jobs last month. This exceeded expectations as economists predicted the economy to add 185,000 jobs, and this is an increase from the 150,000 new jobs reported for October. The report also showed that the unemployment rate dropped to 3.7 percent, from 3.9 percent. Wages also increased 0.4 percent over the month, more than expected. This solid labor market is renewing optimism that the economy is on a glide path for a soft landing. 

The American economy defied recession fear this past year, managing to have both strong growth and progress in bringing down inflation without a spike in unemployment. While it seems that the U.S. economy will stick the “soft landing,” a possible government shutdown early in the new year would raise the odds of a recession (see next section).

(Another) Looming Government Shutdown Showdown

 In mid-November, lawmakers passed legislation to extend funding for federal agencies into the new year. The so-called “laddered continuing resolution” (CR) would fund part of the government—including the Agriculture, Transportation, Housing and Urban Development and Veterans Affairs departments—through January 19 and fund the Defense Department and other remaining parts of the government through February 2. The move sets up another funding showdown early in 2024 as deadlines loom to fund the government or enter a partial government shutdown—lawmakers will have ten days after returning from the holiday break to meet the first deadline. The “laddered” deadlines in the bill are designed to allow the House and Senate to pass and negotiate full-year spending bills, but Speaker Johnson faces continued calls from his hard-right flank to include draconian spending cuts and controversial policy provisions. When lawmakers return after their Christmas break, they will face a significant challenge as conservative deficit hawks and mainstream appropriators are worlds apart on spending levels in the House, foreshadowing problems in finding a compromise that both the House and Senate can accept. Earlier in the spring, during negotiations over the debt ceiling, the White House and Congress (including Speaker McCarthy, Johnson’s predecessor) agreed on overall spending levels for the fiscal year, but House Republicans now want to spend less than that and are calling for significant cuts. Johnson has said he will not bring up another short-term CR again. 

House Select Committee on the CCP Issues Report, Policy Recommendations

 In December, the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party (hereafter “China Committee”), led by Chairman Mike Gallagher (R-WI), issued a report calling for a full reappraisal of U.S.-China ties. The report, entitled “Reset, Prevent, Build: A Strategy to Win America’s Economic Competition with the Chinese Communist Party”, also offers a legislative roadmap for countering China. The wide-ranging bipartisan report, endorsed by both Republicans and Democrats on the China Committee, proposes over 130 policy recommendations for sweeping changes to how Washington engages with the world’s second biggest economy. Measures range from increasing duties on Chinese goods and significantly curtailing certain U.S. investments in China, to banning U.S. market access for companies including TikTok and cushioning the blow to U.S. companies and banks from the potential shock waves of a partial decoupling. Most significantly, related to foreign investment, the Committee deemed the regulatory approach of the Committee on Foreign Investment in the United States (CFIUS) insufficient to address the PRC’s Military-Civil Fusion. The committee report lays out a framework for unwinding some of the advantages afforded to China in the wake of its accession to the World Trade Organization in 2001 and puts forward measures to restore U.S. economic leverage to ensure the PRC abides by its trade commitments. The report is the culmination of months of investigation by the committee and its bipartisan backing underscores the strong support across the aisle for tighter controls over Chinese economic practices.


Trump’s Criminal Case Before the Supreme Court

In December, Special Counsel Jack Smith asked the United States Supreme Court to weigh in on former President Trump’s possible immunity from prosecution. Judge Tanya Chutkan, the federal judge overseeing Trump’s 2020 election interference case, has already ruled that the former commander-in-chief can indeed be prosecuted, writing that “former Presidents enjoy no special conditions on their federal criminal liability.” Trump’s legal team has appealed that ruling, arguing that he is immune from prosecution for actions taken while in office. Smith then filed an extraordinary request for “certiorari before judgement,” bypassing lower court consideration by asking the Supreme Court to weigh in to establish whether Trump is criminally culpable before voters decide whether to put Trump back in office. Trump’s legal team has until 20-December to respond and, if the Supreme Court decided to hear the case, oral arguments could begin as early as January.

Tuberville’s Hold on Military Promotions Somewhat Lifted

For nearly a year, Alabama Senator Tommy Tuberville (R-AL) held up hundreds of military promotions due to his opposition to a Defense Department policy to reimburse and provide leave for service members who need to travel to receive abortions. That blockade largely ended this month when Tuberville abandoned most of his holds and allowed for immediate confirmations. In lifting a portion of his holds, more than 400 senior military promotions advanced in the Senate. Nevertheless, officers nominated for the highest-level positions—four-star general or admiral—are still subject to the Senator’s block, including those nominated to lead multiple theater commands and take senior positions on the Joint Chiefs of Staff. One of the drivers behind Tuberville’s lifting of the military roadblock was the potential for a vote on the Senate floor that would have changed the rules of the chamber temporarily. The breaking point seemed to be when Alaska Senator Dan Sullivan (R-AK), a colonel in the Marine Corps Reserve and the Senate’s only serving military officer, announced that he had exhausted all of his options and that it was time to back the Democratic-led resolution, urging other Republican colleagues to join him.

Zelensky Visits Washington, Leaves Empty Handed

Ukrainian President Volodymyr Zelensky visited Washington in an effort to persuade Congress to approve more military help for Kyiv’s war effort but left without more clarity on whether the U.S. will continue sending weapons. Standing alongside Zelensky, President Biden vowed that his White House would remain steadfast in its support and expressed confidence that Ukraine could ultimately prevail. Zelensky called for “results” from Washington, not just rhetorical support. Ukraine faces entrenched Republican resistance to billions of dollars more in funding without meeting their demands on border security and immigration. Talks in the United States Senate have stalled and Senate Minority Leader Mitch McConnell (R-KY), who is one of the most vocal supporters of additional U.S. funding for Ukraine, said it’s unlikely to clear an assistance package before Christmas, meaning that the effort is likely to extend into 2024. Tying additional military assistance to the border and immigration debate makes passage of a measure exponentially more difficult. Comprehensive immigration reform has eluded Washington since 1986 and Republicans now feel as though they have maximum leverage to exact concessions; Democrats are also coming under increasing criticism from immigration rights advocates. 

House Formalizes Biden Impeachment Inquiry

House Republicans passed a resolution authorizing a formal impeachment inquiry into President Biden. An investigation, led by Chairmen Jordan (R-OH), Comer (R-KY), and Smith (R-MO), of the Judiciary, Oversight, and Ways and Means Committees respectively, has looked into Biden and his family for months but, thus far, has yet to find any direct evidence of wrongdoing. This authorization of an inquiry signals a more combative phase of their investigation. When responding to subpoenas and interview requests, the White House had argued that the House GOP’s impeachment inquiry is unconstitutional because it had not been formalized with a vote of the whole House. Now, Republicans hope that formally authorizing the inquiry will put more legal weight behind the probe and their ability to compel evidence. While some House Republicans justified support for the resolution to authorize an inquiry as a much different question than a vote on actual impeachment articles, officially sanctioning the inquiry injects a burst of momentum into the effort that would be difficult for Republicans to later pull back from.  Some House Republicans have predicted that articles of impeachment will be drafted by the spring. Regardless of any movement on in the House, the measure is dead on arrival in the Democratic-controlled Senate.

“Who’s Who” – Personnel Updates from the Biden Administration

Department of CommerceAlexander J. “Alex” Lasry is now a Deputy Assistant Secretary for Travel and Tourism in the International Trade Administration.

Department of Defense – The Senate confirmed more than 400 military nominees in December. 

Department of Housing and Urban DevelopmentVinay Vijay Singh is the Chief Financial Officer and Chief AI Officer.

Department of State Dr. Dafna Hochman Rand has been nominated as Assistant Secretary for Democracy, Human Rights and Labor. Kristen Joan “Kris” Sarri has been nominated as Assistant Secretary for Oceans and International Environmental and Scientific Affairs. The following Ambassadors have been confirmed by the Senate: Roger F. Nyhus for Barbados; Nathalie Rayes for Croatia.

Department of the TreasuryJeanette Quick is now a Deputy Assistant Secretary in the Office of Financial Institutions Policy.

The White HouseHarry Coker Jr. was confirmed as the National Cyber Director; Caroline Chang is now Deputy Assistant National Cyber Director for Stakeholder Engagement. John W. McCarthy is now Deputy Assistant to the President and Senior Advisor for Political Engagement. Chandresh Harjivan is now a Special Assistant to President and Associate Director for Domestic Preparedness and Response to Pandemic and Biological Threats. Ben Beachy is Special Assistant to the President for Climate Policy at the Office of Domestic Climate Policy. Miranda Summers Lowe is the Surge Director for Cyber and Emerging Technologies on the National Security Council Staff. Carolina Ferrerosa Young is the Chief Economic Advisor in the Office of the Vice President. Molly R. Opinsky is a Special Assistant to the Chair of the Council of Economic Advisers.



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Via Pattari, 6, 20122 Milano MI

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© 2022 Created by ABCPRODUCTION.digital