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    U.S. Added 339,000 Jobs in May Despite Economic Clouds

    Employers added 339,000 workers in May, the Labor Department said, though the report also offered signs of shakiness.American employers added an unanticipated barrage of workers in May, reaffirming the labor market’s vigor.Defying expectations of a slowdown, payrolls grew by 339,000 on a seasonally adjusted basis, the Labor Department said on Friday. The increase, the largest since January, suggested that the job market was still piping hot despite a swirl of economic headwinds.But below the surface, the report also offered evidence of softening. The unemployment rate, while still historically low, jumped to 3.7 percent, the highest level since October. In a sign that the pressure to entice workers with pay increases is lifting, wage growth eased.The dissonance offered a somewhat muddled picture that complicates the calculus for the Federal Reserve, which has been raising interest rates for more than a year to temper the labor market’s momentum and rein in price increases. Fed officials have indicated that the jobs report will be an important factor as they decide whether to raise interest rates again.“We’re still seeing a labor market that’s gradually cooling,” said Sarah House, an economist at Wells Fargo. “But it’s at a glacial place.”President Biden hailed the report, saying in a statement that “today is a good day for the American economy and American workers.” The S&P 500 index rose more than 1.4 percent as the data portrayed an economic engine that was running strong but not overheating.Looming over the report is the debt ceiling deal approved by Congress, though economists largely expect the spending caps and cuts to have only marginal impact on the labor market going forward.The hiring numbers suggest that employers remain eager for workers even in the face of high interest rates and economic uncertainty. Many are still bringing on employees to meet consumer demand, especially for services. The only major sectors to lose jobs were manufacturing and information.A slight reversal for manufacturing in MayChange in jobs in May 2023, by sector More

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    Unemployment dropped among Hispanic men and women in May but rose for Black workers

    Overall, the unemployment rate among Latinos decreased in May.
    Meanwhile, unemployment for Black workers overall increased in May.
    The monthly jobs report is made up of two surveys: the payroll survey of employers and the household survey.

    Steve Debenport | E+ | Getty Images

    The U.S. unemployment rate rose in May, but declined for Hispanic workers, according to the latest nonfarm payrolls report.
    The overall unemployment rate last month was 3.7%, a gain of 0.3 percentage points from the prior month. However, Hispanic or Latina women saw their unemployment rate fall to 3.4% last month, down 0.7 percentage points from 4.1% in April, the U.S. Department of Labor reported Friday. The unemployment rate for Hispanic men ticked lower to 4% from 4.1% in April. Overall, the unemployment rate among Latinos decreased to 4% in May from 4.4% in the prior month.

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    “This is a historic low,” said Carmen Sanchez Cumming, a research associate at the Washington Center for Equitable Growth, of the overall decline in the Hispanic unemployment rate. “The only other time that it’s been this level was in November 2022 and September of 2019 … For both Hispanic workers and for Black workers, at least in the first half of 2023, this recovery has been especially strong.”
    Meanwhile, unemployment for Black workers overall rose 0.9 percentage points to 5.6% in May from 4.7% in April. Among Black men, the rate was 5.6% in May, compared to 4.5% in April. The unemployment rate also ticked higher for Black women, rising to 5.3% in May from April’s rate of 4.4%.

    “Economic research and empirical data shows that for Hispanic workers and for Black workers, their outcomes are much more sensitive to fluctuations in the business cycle,” Cumming said. “So, when the labor market is really strong, Latino workers and Black workers benefit disproportionately, but when the labor market is weak, Black and Latino workers [are] hurt disproportionately, too.”

    Monthly volatility vs. longer-term trends

    The monthly jobs report is made up of two surveys: the payroll survey of employers and the household survey. There is a lot of volatility on a monthly basis that comes into play when looking at smaller demographic groups in the household survey, Cumming warned.
    That volatility is the big story in the May jobs report, said Elise Gould, senior economist at the Economic Policy Institute.

    “It’s important when we look at something like that to pay attention to the longer-term trend, because every month there can be a lot of movement,” Gould said.
    “The longer-term trend suggests that the Black unemployment rate has been coming down,” she added. “So it’s about where it was three months ago. Yes, it was lower last month. It ticked up, but I think that probably it will resolve down again next month.”

    The labor force participation rate for the overall population held at 62.6% in May. This metric measures the percentage of people who are either working or actively seeking employment. For Black men, the labor force participation rate ticked up to 68.2%, an increase from 67.8% in April. For Black women, the rate held steady at 63.9%.
    Meanwhile, the labor force participation rate for Hispanic men was 79.5% in May, up from 78.9% in April. The rate stayed the same for Hispanic women at 61.2%. More

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    For Turkey, Erdogan Victory Brings More Risky Economic Policy

    The Turkish lira has hit a new low, and analysts see few improvements ahead as re-elected President Erdogan pursues unconventional economic policies.Since winning re-election, President Recep Tayyip Erdogan of Turkey has publicly doubled down on his idiosyncratic economic policies.“If anyone can do this, I can do it,” he declared in a victory speech last Sunday, referring to his ability to solve the country’s calamitous economic problems.His brash confidence is not widely shared by most analysts and economists.The Turkish lira dropped to a record low against the dollar this week, and foreign investors have been disheartened by the president’s refusal to stray from what is widely considered to be an eccentric economic course.Instead of combating dizzying inflation by raising interest rates and making borrowing more expensive — as most economists recommend — Mr. Erdogan has repeatedly lowered rates. He argues that cheap credit will boost manufacturing and exports.But his strategy is also fueling inflation, now running at an annual rate of 44 percent, and eroding the value of the Turkish lira. Attempts by the government to prop up the faltering currency have drained the dwindling pool of foreign reserves.As the lira’s value drops, the price of imported goods — like medicine, energy, fertilizer and automobile parts — rises, making it more expensive for consumers to afford daily costs. And it raises the size of debt payments for businesses and households that have borrowed money from foreign lenders.The national budget is also coming under increasing strains. The destructive earthquakes in February that ripped up swaths of southern Turkey are estimated to have caused more than a billion dollars in damage, roughly 9 percent of the country’s annual economic output.At the same time, Mr. Erdogan went on a pre-election spending spree to attract voters, increasing salaries for public sector workers and payouts for retirees and offering households a month of free natural gas. The expenditures pushed up growth, but economists fear that such outlays will feed inflation.President Erdogan in Istanbul last month. Foreign investors have been disheartened by his refusal to stray from what is widely considered to be an eccentric economic course.Sergey Ponomarev for The New York TimesAn effort to encourage Turks to keep their savings in lira by guaranteeing their balances against currency depreciations further adds to the government’s potential liabilities.Critics of the president’s economic approach were somewhat heartened by reports that Mr. Erdogan is expected this weekend to appoint Mehmet Simsek, a former finance minister and deputy prime minister, to the cabinet. Mr. Simsek is well thought of in financial circles and has previously supported a tighter monetary policy.“What Turkey really needs now is more exports and more foreign direct investment, and for that you have to send a signal,” said Henri Barkey, an international relations professor at Lehigh University. One signal could be Mr. Simsek’s appointment, he said.Mr. Barkey argues that Mr. Erdogan will have no choice but to make a U-turn on policy by winter, when energy import costs rise and some debt payments are due.Others are more skeptical that Mr. Erdogan will back down from his insistence that high interest rates fuel inflation. Kadri Tastan, a senior fellow at the German Marshall Fund, a public policy think tank based in Brussels, said that regardless of the cabinet’s makeup, he didn’t believe a policy turnaround was imminent.“I’m quite pessimistic about an enormous change, of course,” he said.To deal with the large external deficit and depleted central bank reserves, Mr. Erdogan has been relying on allies like Russia, Qatar and Saudi Arabia to help bolster its reserves by depositing dollars with the central bank or extending payment deadlines and discounts for imported goods like natural gas.In a note to investors this week, Capital Economics wrote that any optimism about a policy shift is likely to be short-lived: “While policymakers like Simsek would probably pursue more restrained fiscal policy than we had envisaged, we doubt Erdogan would give the central bank license to hike policy rates to restore balance to the economy.”Turkey’s more than $900 billion economy makes it the eighth largest in Europe. And Mr. Erdogan’s efforts to position himself as a power broker between Russia and the European allies since the war in Ukraine began has further underscored Turkey’s geopolitical influence.Mr. Erdogan, who has been in power for two decades, built his electoral success on growth-oriented policies that lifted millions of Turks into the middle class. But the pumped-up expansion wasn’t sustainable.As the lira’s value drops, the price of imported goods rises.Sergey Ponomarev for The New York TimesThe borrowing frenzy drove up prices, spurring a cost-of-living crisis. Still, Mr. Erdogan persisted in lowering interest rates and fired central bank chiefs who disagreed with him. The pandemic exacerbated problems by reducing demand for Turkish exports and limiting tourism, a large source of income.Mr. Erdogan is likely to keep up his expansionary policies until the next local elections take place next year. Until then, Hakan Kara, the former chief economist of the Central Bank of Turkey, said the country would probably just “muddle through.”“Turkish authorities will have to make tough decisions after the local elections, as something has to give in eventually,” Mr. Kara said. “Turkey has to either switch back to conventional policies, or further deviate from the free market economy where the central authority manages the economy through micro-control measures.”“In either case,” he added, “the adjustment is likely to be painful.” More

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    New World Bank President Ajay Banga Leads at a Pivotal Moment

    The incoming president will be under pressure to juggle the global institution’s ambitions to combat climate change and fight poverty.Ajay Banga officially became the 14th president of the World Bank on Friday and urged staff to join him in developing a “new playbook” for a global institution whose relevance has come into question in recent years.The ascension of Mr. Banga to be the next leader of the bank comes at a pivotal moment in its 77-year history. The global pandemic reversed decades of progress in poverty reduction, Russia’s war in Ukraine continues to be a threat to economic stability and the World Bank is under new pressure to become a more ambitious player in the fight against climate change.“Making good on our ambition will require us to evolve to maximize resources and write a new playbook, to think creatively, take informed risks and forge new partnerships with civil society and multilateral institutions,” Mr. Banga wrote in a note to staff that was viewed by The New York Times.Mr. Banga was nominated by President Biden in February after the resignation of David Malpass, the outgoing World Bank president who had been selected by former President Donald J. Trump. The World Bank’s executive board approved Mr. Banga in May following an extensive listening tour that included visits to eight countries and dozens of meetings with government officials around the world.In his message to staff, Mr. Banga defined the bank’s mission as aspiring to “create a world free from poverty on a livable planet.”It is the second part of that mission by which Mr. Banga will be likely be judged.Mr. Malpass left the job a year early after failing to sufficiently demonstrate his commitment to combating global warming amid a renewed emphasis from the Biden administration broadening the bank’s focus on the environment.However, Mr. Banga, a former chief executive of Mastercard, does not bring extensive climate credentials to the job and will be under pressure to demonstrate progress on the bank’s environmental agenda. He has described the tasks of dealing with climate change and poverty as intertwined.“The World Bank’s challenge is clear: It must pursue both climate adaptation and mitigation; it must reach out to lower-income countries without turning its back on middle-income countries; it must think globally but recognize national and regional needs; it must embrace risk but do so prudently,” Mr. Banga wrote in a statement to World Bank’s executive board that accompanied his memo to staff.Activists protest during meetings of the International Monetary Fund and World Bank in April.Yuri Gripas for The New York TimesClimate activists plan to appear outside the World Bank on Friday and attempt to hand postcards to staff with demands that they want Mr. Banga to heed during his first 100 days on the job. They continue to be frustrated that the World Bank finances coal, oil and gas projects despite its pledges to prioritize clean energy projects.Mr. Banga is expected to use his expertise to amplify the resources of the World Bank and build new partnerships between the private and public sectors. The former finance executive added in his memo that accomplishing the World Bank’s many goals will require an annual global investment of trillions of dollars.Mr. Banga will also face a difficult diplomatic task as he seeks to satisfy the climate ambitions of the United States and Europe while facing skepticism from some developing countries. He will also confront the delicate task of urging China, a major World Bank shareholder and creditor, to allow poor countries that have borrowed huge sums from Beijing to restructure their debts.The World Bank president is traditionally chosen by the United States; the managing director of the International Monetary Fund is selected by the European Union.Mr. Banga met on Thursday with Treasury Secretary Janet L. Yellen. They discussed ways to refine how the bank operates and make it more agile and responsive, according to a summary of their conversation released by the Treasury Department. More

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    Payrolls rose 339,000 in May, much better than expected in resilient labor market

    Nonfarm payrolls in May increased by 339,000, better than the 190,000 Dow Jones estimate.
    The unemployment rate rose to 3.7% in May against the estimate for 3.5%. May’s jobless rate was the highest since October 2022.
    Professional and business services led job creation followed by government and health care.

    The U.S. economy continued to crank out jobs in May, with nonfarm payrolls surging more than expected despite multiple headwinds, the Labor Department reported Friday.
    Payrolls in the public and private sector increased by 339,000 for the month, better than the 190,000 Dow Jones estimate and marking the 29th straight month of positive job growth.

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    19 hours ago

    The unemployment rate rose to 3.7% in May against the estimate for 3.5%, even though the labor force participation rate was unchanged. The jobless rate was the highest since October 2022, though still near the lowest since 1969.

    Average hourly earnings, a key inflation indicator, rose 0.3% for the month, which was in line with expectations. On an annual basis, wages increased 4.3%, which was 0.1 percentage point below the estimate. The average workweek fell by 0.1 hour to 34.3 hours.

    Markets reacted positively to the report, with futures tied to the Dow Jones Industrial Average up about 200 points. Treasury yields rose as well.
    “The U.S. labor market continues to demonstrate grit amid chaos – from inflation to high-profile layoffs and rising gas prices,” said Becky Frankiewicz, president and chief commercial officer of Manpower Group. “With 339,000 job openings, we’re still rewriting the rule book and the U.S. labor market continues to defy historical definitions.”
    May’s hiring jump was almost exactly in line with the 12-month average of 341,000 in a job market that has held up remarkably well in an economy that has been slowing.

    Professional and business services led job creation for the month with a net 64,000 new hires. Government helped boost the numbers with an addition of 56,000 jobs, while health care contributed 52,000.
    Other notable gainers included leisure and hospitality (48,000), construction (25,000), and transportation and warehousing (24,000).
    Despite the big jobs gain, the unemployment rate increased due in large part to a sharp decline of 369,000 in self-employment. That was part of an overall drop of 310,000 counted as employed in the household survey, which is used to calculate the unemployment rate.
    An alternative measure of unemployment that encompasses discouraged workers and those holding part-time jobs for economic reasons edged higher to 6.7%.
    May’s jobs numbers come amid a challenging time for the economy, with many experts still expecting a recession later this year or early in 2024.
    Recent data has shown that consumers continue to spend, though they are dipping into savings and increasingly using credit cards to pay for their purchases. A resilient labor market also has helped underpin spending, with job openings rising back above 10 million in April as employers still find it difficult to fill open positions.
    One major potential headache appears to have been eliminated, as warring factions in Washington this week have reached a debt ceiling deal. The agreement is on its way to President Joe Biden’s desk for a signature following passage in the House and Senate this week.
    There remain other issues ahead, though.
    The Federal Reserve has raised benchmark interest rates 10 times since March 2022 in an effort to fight inflation that hasn’t gone away. In recent days, some policymakers have indicated a willingness to take a break in June from the succession of hikes as they look to see what impact the policy tightening is having on the economy.
    However, odds for a June rate hike rose after the jobs report. Traders were pricing in about a 38% chance of another quarter-point increase, according to CME Group data.
    Other data points have shown that the manufacturing sector of the economy is in contraction, though the much larger services sector has held in expansion. The ISM manufacturing index released Thursday also showed that prices are pulling back, a positive sign for the Fed. More

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    Jobs Numbers in Focus as the Fed Hints at a ‘Skip’

    Federal Reserve officials have signaled that they could hold rates steady at their upcoming meeting in June — pausing after a string of 10 straight rate increases to give themselves time to see how the economy is shaping up. But Friday’s fresh jobs data is likely to inform policymakers as they try to decide whether this is the right moment to take a break.Central bankers lifted interest rates to a range of 5 to 5.25 percent as of last month, up sharply from near-zero at the start of 2022. But they have been signaling for months that it could soon be appropriate to take a break from increasing rates so that they can assess how the economy is absorbing the big policy changes they have already made and the consequences of other developments, such as the fallout from recent bank turmoil.Higher interest rates cool the economy by making it more expensive to borrow to buy a house or finance a car purchase, but they take time to have their full effect. As rates rise, businesses gradually pull back on expansion plans, slowing hiring, which then feeds into weaker wage growth and a slower economy overall.That is why policymakers are watching job market data to figure out how higher interest rates are working. They have been expecting hiring to slow, wage gains to pull back and unemployment to begin to rise — but that has taken time to play out.Some Fed officials favor holding off on a rate increase in June, allowing more time for them to see how higher borrowing costs and heightened uncertainty are combining to restrain the economy. Patrick T. Harker, the president of the Federal Reserve Bank of Philadelphia, said this week that he is “definitely in the camp of thinking about skipping any increase at this meeting.”Others have underlined that while the Fed may be poised to pause its campaign to cool the economy, that does not mean it is done raising interest rates altogether.“A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” said Philip Jefferson, a Fed governor who is President Biden’s pick to be vice chair of the institution, during a speech this week.“Indeed, skipping a rate hike at a coming meeting would allow the Committee to see more data before making decisions about the extent of additional policy firming,” Mr. Jefferson added. The Fed vice chair is traditionally an important communicator for the institution, one who broadcasts how core officials are thinking about the policy path forward.But even as the Fed moves toward a possible pause this month, officials will take into account incoming data on the economy. A key inflation number released last week came in firmer than economists had expected, and officials will receive a fresh Consumer Price Index inflation report the day that their June 13-14 meeting begins.Friday’s jobs report could reinforce — or, if it is abnormally strong, call into question — whether a skip makes sense. More

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    Here’s What’s in the Debt Ceiling Deal

    Two years of spending caps, additional work requirements for food stamps and cuts to I.R.S. funding are among the components in the deal.The full legislative text of Speaker Kevin McCarthy’s agreement in principle with President Biden to suspend the nation’s borrowing limit revealed new and important details about the deal, which House lawmakers are expected to vote on this week.The centerpiece of the agreement remains a two-year suspension of the debt ceiling, which caps the total amount of money the government is allowed to borrow. Suspending that cap, which is now set at $31.4 trillion, would allow the government to keep borrowing money and pay its bills on time — as long as Congress passes the agreement before June 5, when Treasury has said the United States will run out of cash.In exchange for suspending the limit, Republicans demanded a range of policy concessions from Mr. Biden. Chief among them are limits on the growth of federal discretionary spending over the next two years. Mr. Biden also agreed to some new work requirements for certain recipients of food stamps and the Temporary Aid for Needy Families program.Both sides agreed to modest efforts meant to accelerate the permitting of some energy projects — and, in a surprise move, a fast track to construction for a new natural gas pipeline from West Virginia to Virginia that has been championed by Republican lawmakers and a key centrist Democrat.Here’s what the legislation would do:Temporarily suspends the debt limitThe deal suspends the nation’s $31.4 trillion borrowing limit until Jan. 2025. Suspending the debt limit for a period of time is different than setting it at a new fixed level. It essentially gives the Treasury Department the latitude to borrow as much money as it needs to pay the nation’s bills during that time period, plus a few months after the limit is reached, as the department employs accounting maneuvers to keep up payments.That’s different than the bill passed by House Republicans, which raised the limit by $1.5 trillion or through March 2024, whichever came first.Under the new legislation, the debt limit will be set at whatever level it has reached when the suspension ends. For political reasons, Republicans tend to prefer suspending the debt limit rather than raising it, because it allows them to say they did not technically green-light a higher debt limit.The suspension will kick the next potential fight over the nation’s debt load to 2025 — past the next presidential election.Caps and cuts spendingThe bill cuts so-called nondefense discretionary, which includes domestic law enforcement, forest management, scientific research and more — for the 2024 fiscal year. It would limit all discretionary spending to 1 percent growth in 2025, which is effectively a budget cut, because that is projected to be slower than the rate of inflation.The legislative text and White House officials tell different stories about how big those cuts actually are.Some parts are clear. The proposed military spending budget would increase to $886 billion next year, which is in line with what Mr. Biden requested in his 2024 budget proposal, and rise to $895 billion in 2025. Spending on veterans’ health care, including newly approved measures to assist veterans exposed to toxic burn pits, would also be funded at the levels of Mr. Biden’s proposed budget.Legislative text suggests nondefense discretionary outside of veterans’ programs would shrink in 2024 to about last year’s spending levels. But White House officials say a series of side deals with Republicans, including one related to funding for the Internal Revenue Service, will allow actual funding to be closer to this year’s levels.Although Republicans had initially called for 10 years of spending caps, this legislation includes just 2 years of caps and then switches to spending targets that are not bound by law — essentially, just suggestions.The White House estimates that the agreement will yield $1 trillion in savings over the course of a decade from reduced discretionary spending.A New York Times analysis of the proposal — using White House estimates of the actual funding levels in the agreement, not just the levels in the legislative text — suggests it would reduce federal spending by about $55 billion next year, compared with Congressional Budget Office forecasts, and by another $81 billion in 2025. If spending then returned to growing as the budget office forecasts, the total savings over a decade would be about $860 billion.Speaker Kevin McCarthy has said he believes a majority of his conference would vote for the deal.Haiyun Jiang for The New York TimesClaws back I.R.S. fundingThe legislation takes aim at one of President Biden’s biggest priorities — bolstering the I.R.S. to go after tax cheats and ensure companies and rich individuals are paying what they owe.Democrats included $80 billion to help the I.R.S. hire thousands more employees and update its antiquated technology in last year’s Inflation Reduction Act. The debt limit agreement would immediately rescind $1.38 billion from the I.R.S. and ultimately repurpose another $20 billion from the $80 billion it received through the Inflation Reduction Act.Administration officials said on Sunday that they had agreed to reprogram $10 billion of extra I.R.S. money in each of the 2024 and 2025 fiscal years, in order to maintain funding for some nondefense discretionary programs.The clawback will eat into the tax collection agency’s efforts to crack down on rich tax cheats. It is also a political win for Republicans, who have been outraged by the prospect of a beefed up I.R.S. and approved legislation in the House to rescind the entire $80 billion.Still, because of the leeway that the I.R.S. has over how and when it spends the money, the clawback might not affect the agency’s plans in the next few years. Officials said in a background call with reporters that they expected no disruptions whatsoever from the loss of that money in the short term.That’s likely because all of the $80 billion from the 2022 law was appropriated at once, but the agency planned to spend it over eight years. Officials suggested the I.R.S. might simply pull forward some of the money earmarked for later years, then return to Congress later to ask for more money.New work requirements for government benefitsThe legislation would impose new work requirements on older Americans who receive food stamps through the Supplemental Nutrition Assistance Program and who receive aid from the Temporary Assistance for Needy Families Program.The bill imposes new work requirements for food stamps on adults ages 50 to 54 who don’t have children living in their home. Under current law, those work requirements only apply to people age 18 to 49. The age limit will be phased in over three years, beginning in fiscal year 2023. And it includes a technical change to the T.A.N.F. funding formula that could cause some states to divert dollars from the program.The bill would also exempt veterans, the homeless and people who were children in foster care from food-stamp work requirements — a move White House officials say will offset the program’s new requirements, and leave roughly the same number of Americans eligible for nutrition assistance moving forward.Still, the inclusion of new work requirements has drawn outrage from advocates for safety net assistance, who say it punishes vulnerable adults who are in need of food.“The agreement puts hundreds of thousands of older adults aged 50-54 at risk of losing food assistance, including a large number of women,” Sharon Parrott, president of the Center on Budget and Policy Priorities, said in a statement.President Biden also agreed to some new work requirements for certain recipients of food stamps.Pete Marovich for The New York TimesPermitting reformThe agreement includes new measures to get energy projects approved more quickly by creating a lead agency to oversee reviews and require that they are completed in one to two years.The legislation also includes a win for Senator Joe Manchin III of West Virginia, a Democratic centrist, by approving permitting requests for the Mountain Valley Pipeline, a natural gas project in West Virginia. The $6.6 billion project is intended to carry gas about 300 miles from the Marcellus shale fields in West Virginia across nearly 1,000 streams and wetlands before ending in Virginia.Environmentalists, civil rights activists and many Democratic state lawmakers have opposed the project for years.The bill declares that “the timely completion of construction and operation of the Mountain Valley Pipeline is required in the national interest.”Mr. Manchin said on Twitter that he is proud to have secured the bipartisan support necessary to “get it across the finish line.” Republican members of the West Virginia delegation also claimed credit.Student loans and unspent Covid moneyThe bill officially puts an end to Mr. Biden’s freeze on student loan repayments by the end of August and restricts his ability to reinstate such a moratorium.It does not move forward with the measure that House Republicans wanted to include that would halt Mr. Biden’s policy to forgive between $10,000 and $20,000 in student loan debt for most borrowers. That initiative, which the Biden administration rolled out last year, is currently under review by the Supreme Court and could ultimately be blocked.The bill also claws back about $30 billion in unspent money from a previous Covid relief bill signed by Mr. Biden, which had been a top Republican priority entering negotiations. Some of that money will be repurposed to boost nondefense discretionary spending.According to an administration official, the deal leaves intact funding for two key Covid programs: Project NextGen, which aims to develop the next generation of coronavirus vaccines and treatments, and an initiative to offer free coronavirus shots to the uninsured.Preventing a government shutdownThe agreement only sets parameters for the next two years of spending. Congress must fill them in by passing a raft of spending bills later this year. Large fights loom in the details of those bills, raising the possibility that lawmakers will not agree to spending plans in time and the government will shut down.The agreement between Mr. Biden and Mr. McCarthy attempts to prod Congress to pass all its spending bills and avoid a shutdown, by threatening to reduce spending that is important to both parties. If lawmakers have not approved all 12 regular funding bills by the end of the year, the agreement tightens its spending caps. Nondefense discretionary spending would be set at one percent below current year levels, and it is possible that the I.R.S. would not see its $10 billion in funding for next year repurposed for other programs.The same levels would apply to defense and veterans’ spending — which would be, in effect, a significant cut to those programs compared to the agreed-upon caps. Democrats see the looming military cuts as a particularly strong incentive for Republicans to strike a deal to pass appropriations bills by the end of the year.What’s not in the billThe final agreement includes far less reduction in future debt than either side proposed.Republicans wanted much deeper spending cuts and stricter work requirements. They also wanted to repeal hundreds of billions of dollars in tax incentives signed by Mr. Biden to accelerate the transition to lower-emission energy sources and fight climate change. Mr. Biden wanted to raise taxes on corporations and high earners, and to take new steps to reduce Medicare’s spending on prescription drugs. None of those made it into the deal. More

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    How to Enforce a Debt Deal: Through ‘Meat-Ax’ Cuts Nobody Wants

    The debt-limit legislation includes a provision meant to force both sides to pass additional bills following through on their deal: the threat of automatic cuts if they fail to do so.The bipartisan legislation Congress passed this week to suspend the debt ceiling and impose spending caps contains an arcane but important provision aimed at forcing both sides to follow through on the deal struck by President Biden and Speaker Kevin McCarthy.The 99-page measure suspends the $31.4 trillion borrowing limit until January 2025. It cuts federal spending by $1.5 trillion over a decade, according to the Congressional Budget Office, by effectively freezing some funding that had been projected to increase next year and then limiting spending to 1 percent growth in 2025.But it also contains a number of side deals that never appear in its text but that were crucial to forging the bipartisan compromise, and that allowed both sides to claim they had gotten what they wanted out of it. To try to ensure that Congress abides by the agreement, negotiators used a time-tested technique that lawmakers have turned to for decades to enforce efforts to reduce the deficit: the threat of automatic, across-the-board spending cuts if they do not finish their work.Here’s how it works.A 1 percent cut unless spending bills are passed.Congress is supposed to pass 12 individual spending bills each year to keep the government funded. But for decades, lawmakers, unable to agree on those measures, have lumped them together into one enormous piece of legislation referred to as an “omnibus” spending bill and pushed them through against the threat of a shutdown.The debt-limit agreement imposes an automatic 1 percent cut on all spending — including on military and veterans programs, which were exempted from the caps in the compromise bill — unless all dozen bills are passed and signed into law by the end of the calendar year. Mandatory spending on programs such as Medicare and Social Security would be exempt.A wrinkle is that, because the fiscal year that drives Congress’s spending cycle ends before the calendar year does — on Sept. 30 — Congress would still need to pass a short-term bill to fund the government from October through December to avoid a shutdown.Republicans and Democrats both dread the cuts.The measure is a version of a plan offered by Representative Thomas Massie, Republican of Kentucky, a key vote to advancing the bill through the Rules Committee, who said he believed it would help avoid the Democratic-controlled Senate using the specter of a shutdown to force the House to swallow a bloated spending bill at the end of the year.“You get threatened and ransomed with a shutdown,” Mr. Massie said in an interview in late April describing the plan. “They’ll tell you, ‘If you don’t pass the Senate bill, there’s going to be a shutdown.’ I think we need to take that leverage away from anybody who would risk a shutdown to get more spending. Just take that off the table.”Some Republicans, including defense hawks, are livid about the measure, arguing that it would subject the Pentagon to irresponsible cuts. Senator Susan Collins of Maine, the top Republican on the Appropriations Committee and its defense subcommittee, called it a “harmful” provision that would leave a “threat hanging over” the Defense Department.“It would trigger an automatic, meat-ax, indiscriminate, across-the-board cut in our already inadequate defense budget and in the domestic, discretionary nondefense funding,” Ms. Collins said.Democrats, too, have a major incentive to avoid the cuts, since they have resisted reducing funding for federal programs all along.Without spending bills, major parts of the debt deal will die.Both parties stand to lose victories gained through handshake agreements during negotiations if Congress cannot pass its appropriations bills. Neither the White House nor House Republicans have published a full accounting of the agreements that do not appear in legislative text, but some have become clear.The deals allow Republicans to claim they are making deep cuts to certain spending categories while letting Democrats mitigate the pain of those cuts in the funding bills.One unwritten but agreed-upon compromise allows appropriators to repurpose $10 billion a year in 2024 and 2025 from the I.R.S. — a key priority of Republicans, who had opposed the additional enforcement funding championed by Mr. Biden and Democrats.Another side agreement, sought by Democrats, that would evaporate if the spending bills were not written designated $23 billion a year in domestic spending outside military funding as “emergency” spending, basically exempting that money from the caps in the deal.Jim Tankersley More