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    Yellen Warns the U.S. Could Default as Soon as June 1

    Treasury Secretary Janet L. Yellen reiterated on Monday that the United States could be unable to pay its bills as soon as June 1, an announcement that maintains pressure on the White House and congressional leaders as they negotiate how to raise the nation’s debt limit.The warning to Congress comes as President Biden and Speaker Kevin McCarthy are set to meet on Monday afternoon at the White House to try and resolve the impasse. Representatives for Mr. Biden and Mr. McCarthy have been engaged in talks over the past week to devise a plan that would cap federal spending and reduce the deficit while raising the $31.4 trillion borrowing cap.Ms. Yellen warned that the nation’s finances remain in a precarious state, saying that it was “highly likely” the United States would run out of cash by early June, rather than her previous letters, which called that time-frame “likely.”“With an additional week of information now available, I am writing to note that we estimate that it is highly likely that Treasury will no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1,” Ms. Yellen wrote.In her previous letter, issued a week ago, Ms. Yellen offered the caveat that her estimates could be off because of the unpredictability of incoming government tax revenue. She said that the actual date that Treasury will exhaust the so-called extraordinary measures that she is using to delay a default “could be a number of days or weeks later.”On Monday, Ms. Yellen did not suggest that there might be more time and she warned that failing to lift the debt limit would be disastrous for the economy.“If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests,” Ms. Yellen said.The nation’s cash balance has been running perilously low. On Sunday, Ms. Yellen dismissed hopes that the so-called extraordinary measures that she has been using to delay a default would be sufficient to maintain normal government operations beyond mid-June.Republicans have refused to raise the debt limit without spending cuts, forcing Democrats to the negotiating table to avoid a default that could cause a recession and financial crisis. The two sides remain far apart on key issues, including on caps for federal spending, new work requirements for some recipients of federal antipoverty assistance and funding meant to help the Internal Revenue Service crack down on tax evasion by high earners and corporations.The Treasury secretary said over the weekend that a failure to raise the debt limit would force the government to confront difficult choices about how to meet the nation’s financial obligations. Benefits payments to retirees and veterans are likely to be disrupted, and the uncertainty could cause interest rates to surge and stock prices to plunge.The Biden administration has downplayed the idea that it could essentially ignore the debt limit and continue borrowing by invoking the 14th Amendment, which says that the validity of U.S. debt shall not be questioned. Although the administration’s lawyers have studied the idea, officials believe that the expected legal challenges and uncertainty would destabilize markets.“There can be no acceptable outcomes if the debt ceiling isn’t raised,” Ms. Yellen said on “Meet the Press” on NBC. More

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    Debt Limit Negotiators Debate Spending Caps to Break Standoff

    The strategy, which was used in 2011, could allow both sides to save face but would most likely do little to chip away at the national debt.As negotiators for the White House and House Republican leaders struggle to reach a deal over how to raise the nation’s debt limit, a solution that harks back to old budget fights has re-emerged as a potential path forward: spending caps.Putting limits on future spending in exchange for raising the $31.4 trillion borrowing cap could be the key to clinching an agreement that would allow Republicans to claim that they secured major concessions from Democrats. It could also allow President Biden to argue that his administration is being fiscally responsible while not caving to Republican demands to roll back any of his primary legislative achievements.The Biden administration and House Republican leaders have agreed in broad terms to some sort of cap on discretionary federal spending for at least the next two years. But they are hung up on the details of those caps, including how much to spend on discretionary programs in the 2024 fiscal year and beyond, and how to divide that spending among the government’s many financial obligations, including the military, veterans affairs, education, health and agriculture.What could a spending cap deal look like?The latest White House offer would hold military and other spending — which includes education, scientific research and environmental protection — constant from the current 2023 fiscal year to next fiscal year, according to a person familiar with both sides’ proposals. That move would not reduce what is known as nominal spending, which simply means the level of spending before adjusting for inflation. Republicans are pushing to cut nominal spending in the first year.One reason the White House is willing to entertain holding spending essentially flat has to do with politics. Given that Republicans control the House, getting an increase in funding for discretionary programs outside the military would have been nearly impossible. Congress would not have approved increases through the appropriations process, the normal way in which Congress allocates money to government programs and agencies.Republicans have repeatedly said that they will not accept a deal unless it results in the government spending less money than it did in the last fiscal year. They have said that simply freezing spending at current levels, as the White House has proposed, does not enact the kind of meaningful cuts many in their party have long called for.But Republican negotiators have shown some flexibility around how long they would require those spending caps to last. House G.O.P. leaders are now looking to set spending caps for six years, rather than 10. Still, that is longer than the White House is proposing, with Democrats offering to cap spending for two years.“The numbers are foundational here,” Representative Garret Graves, Republican of Louisiana and one of Speaker Kevin McCarthy’s lead negotiators, said on Sunday. “The speaker has been very clear: A red line is spending less money and unless and until we’re there, the rest of it is really irrelevant.”The approach is evoking debt limit déjà vu.If spending caps sound familiar, that is because they were employed during the last big debt limit fight in 2011.During that episode of brinkmanship, lawmakers agreed to impose limits on both military and nonmilitary spending from 2012 to 2021. The Budget Control Act caps were somewhat successful at keeping spending in check, but not entirely.A Congressional Research Service report published this year noted that during the decade that the caps were in place, Congress and the president repeatedly enacted laws that increased the spending limits. Certain types of expenditures — for emergencies and military engagements — were exempt from the caps and the federal government spent $2 trillion over 10 years on those programs. And spending on so-called mandatory programs such as Social Security was not capped, and those make up about 70 percent of total government spending.Still, the Congressional Research Service pointed out that spending was lower each year from 2012 to 2019 than had been projected before the caps were put in place.The strategy is no fiscal panacea.Caps that limit spending around current levels will help slow the growth of the nation’s debt, but will not cure the government’s reliance on borrowed money.The Congressional Budget Office said this month that annual deficits — the gap between what America spends and what it earns — are projected to nearly double over the next decade, totaling more than $20 trillion through 2033. That deficit will force the United States to continue to rely heavily on borrowed funds.Marc Goldwein, the senior policy director for the Committee for a Responsible Federal Budget, estimated that it would require $8 trillion of savings over 10 years to hold the national debt to its current levels. However, he said that did not mean that enacting spending caps would not be worthwhile.“We’re not going to fix this all at once,” Mr. Goldwein said. “So we should do as much as we can, as often as we can.”The group has called for spending caps to be accompanied by spending cuts or tax increases as a plan to reduce the national debt.Spending caps are not the only issue.Finding an agreement on the extent and duration of spending caps will be a critical part of getting a deal.But negotiators are still working to resolve several other issues, including whether to put in place tougher work requirements for social safety net programs including food stamps, Temporary Assistance for Needy Families and Medicaid, and whether to expedite permitting rules for energy projects, two key Republican priorities that White House negotiators have shown some openness to.Jim Tankersley More

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    Companies Are Pushing Back Harder on Union Efforts, Workers Say

    Apple, Starbucks, Trader Joe’s and REI are accused of targeting union supporters after organizing efforts gained traction, charges the companies deny.After working for more than seven years at an Apple store in Kansas City, Mo., Gemma Wyatt ran into trouble.Last year, she said, managers disciplined her for clocking in late a few times over the previous several weeks. Then, in February, Apple fired her after she missed a store meeting because she was sick but failed to notify managers soon enough, according to Ms. Wyatt.She was at least the fifth Apple employee the store had fired since this fall, all of whom had been active in union organizing there. The terminations came after two other Apple stores voted to unionize.“It took us time to realize they weren’t firing us just because of time and attendance,” said Ms. Wyatt, who is part of a charge filed with the National Labor Relations Board in March accusing Apple of unfair labor practices.Apple said it had not disciplined or fired any workers in retaliation for union activity. “We strongly deny these claims and look forward to providing the full set of facts to the N.L.R.B.,” a spokeswoman said.A pattern of similar worker accusations — and corporate denials — has arisen at Starbucks, Trader Joe’s and REI as retail workers have sought to form unions in the past two years.Initially, the employers countered the organizing campaigns with criticism of unions and other means of dissuasion. At Starbucks, there were staffing and management changes at the local level, and top executives were dispatched. But workers say that in each case, after unionization efforts succeeded at one or two stores, the companies became more aggressive.Some labor relations experts say the companies’ progressive public profiles may help explain why they chose to hold back at the outset.“You’re espousing these values but saying this other organization claiming the same values” — the union — “isn’t good for your work force,” said David Pryzbylski, a labor lawyer at Barnes & Thornburg who represents employers. “It puts you in a little bit of corner.”Once the union wins a few elections, however, “you pull out all the stops,” Mr. Pryzbylski said.In some cases, the apparent escalation of company pushback has coincided with a slowing down of the union campaigns. At Starbucks, filings for union elections fell below 10 in August, from about 70 five months earlier, and no Apple store has filed for a union election since November.At Starbucks, the company unlawfully dismissed seven Buffalo-area employees last year, not long after the union won two elections there, according to a ruling by a federal administrative judge.A Trader Joe’s store in Louisville, Ky., which was the third at the company to unionize, fired two employees who were supportive of the union campaign and has formally disciplined several more, said Connor Hovey, a worker involved in the organizing. Documents shared by Mr. Hovey show the company citing a variety of issues, such as dress-code violations, tardiness and excessively long breaks.And in advance of a recent union election at an REI near Cleveland, management sought to exclude certain categories of workers from voting, according to the Retail, Wholesale and Department Store Union. It said the chain, a co-op that sells recreational gear, had made no such challenge in two previous elections, in which workers voted to unionize. (The union said the company had backed down after workers at the Cleveland-area store walked out, and the store voted to unionize in March.)Jess Raimundo, a spokeswoman for the United Food and Commercial Workers, which is also seeking to unionize REI stores, said the co-op had formally disciplined one employee in Durham, N.C., and put another on leave and later fired him over a workplace action that took place after the workers filed for a union election last month.Starbucks, which is appealing the ruling involving the Buffalo-area employees, has said the firings and discipline were unrelated to union organizing. A Trader Joe’s spokeswoman said that the company had never disciplined an employee for seeking to unionize but that unionizing efforts didn’t exempt an employee from job responsibilities.An REI spokeswoman said that the co-op sought to exclude certain categories of workers near Cleveland because it believed their duties made them ineligible to join a union, and that it had reached an agreement on the issue independent of the walkout. The spokeswoman said the two Durham employees had been disciplined for violations of company policies, not union activity.Across the companies, the shift is such that some organizers look back on their union campaigns’ early days with an odd measure of nostalgia.“Thinking about it, I wondered why they didn’t fight harder at our store,” said Maeg Yosef, a worker and an organizer at a Trader Joe’s in Massachusetts that became the company’s first store to unionize last year. “They were like, ‘Oops, you won’ and certified us. It was really hard, but relatively easy compared to the things they could have done.”The fight at Apple followed a similar trajectory. The company did not hide its suspicion of unions when workers at a U.S. store first filed for an election in April 2022, in Atlanta. Managers emphasized that employees could receive fewer promotions and less flexible hours if they unionized, and the company circulated a video of its head of retail questioning the wisdom of putting “another organization in the middle of our relationship.”Apple’s response was similar in two other union campaigns. But although the union withdrew its election filing in Atlanta, unions won elections in both subsequent cases — first in Towson, Md., in June and then in Oklahoma City in October.According to workers, the company became more aggressive once union organizers made inroads. Around the time that employees in Oklahoma City filed for a union election in September, managers at the Kansas City store disciplined several who supported unionizing for issues related to tardiness or absences that other workers typically have not been punished for, union backers said.Terminations began before the end of the year. D’lite Xiong, a union supporter who started at the Kansas City store in 2021 and uses gender-neutral pronouns, said they were told they were being fired just before Halloween. Mx. Xiong went on leave to buy time to appeal the decision, but was officially let go upon returning in January.D’lite Xiong, a union supporter, was fired from an Apple store in Kansas City, Mo. several months ago. Will Newton for The New York Times“It didn’t make sense to me — I had recently gotten promoted,” said Mx. Xiong, who speculated that the company discovered their role in union organizing after they sought to enlist co-workers. “I was praised for doing a great job.”The Communications Workers of America, which represents Apple workers in Oklahoma and has supported workers seeking to unionize the Kansas City store, filed the unfair labor practice charge against the company over the firings in March.John Logan, a professor at San Francisco State University who is an expert on anti-union campaigns, said companies often considered the potential dissatisfaction of customers, investors and even white-collar corporate employees when calibrating their response to a union campaign.“There’s something deeply threatening about the idea that you might be on the verge of losing them,” Mr. Logan said of corporate employees.But even these considerations, he said, tend to fade once a campaign gains traction: “The overriding priority is, ‘We have to crush this.’”This year, more than 70 Starbucks corporate employees placed their names on a petition calling on the company to stay neutral in union elections and to “respect federal labor laws.” The National Labor Relations Board has issued dozens of complaints against the company accusing it of illegal behavior, which the company denies.Howard Schultz, the former Starbucks chief executive, was quick to push back against such accusations while testifying before the Senate Health, Education, Labor and Pensions Committee in March, telling one senator, “I take offense with you categorizing me or Starbucks as a union-buster.”In late April, the labor board issued a complaint accusing the company of failing to bargain in good faith at more than 100 stores.A company spokesman attributed the delay to the union, including its insistence on broadcasting sessions using video-chat software, which could make it difficult to discuss sensitive topics.Apple, too, appears intent on signaling that it is not hostile to labor. The company agreed this year to assess its U.S. labor practices for consistency with its human rights policy. And the company has reached tentative agreements with the union at its Towson store on a handful of issues, such as a commitment that workers at the store will receive any improvement in 401(k) benefits that nonunion retail workers at the company might receive.Yet despite these gestures, there has been little progress on most of the union’s top noneconomic priorities, such as grievance procedures, and the company has sought broad contract provisions that could substantially weaken the union. For example, under a proposed a management-rights clause obtained by The New York Times, Apple would have wide latitude to use nonunion workers and contractors to do work performed by union members, which could shrink union membership. Labor negotiations typically start with noneconomic issues before moving to matters like wages and paid time off.Apple did not comment on the contract negotiations, but the workers in Oklahoma City have characterized their initial bargaining sessions as “very productive.”Mr. Pryzbylski, the lawyer who represents employers, said Apple’s preferred management-rights clause was “about as robust and aggressive as you can make it,” though he said it was not unusual for companies to seek such broad rights in their first contract.Workers expressed frustration at the breadth of the management proposal. “Everyone from the union at the table had never seen one so long,” said Kevin Gallagher, who serves on the bargaining committee in Towson. “They basically wanted to maintain all the rights of not having a union.” More

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    Silicon Valley Chosen for $4 Billion Chip Research Center

    Anticipating federal subsidies, Applied Materials said it planned to invest up to $4 billion in the semiconductor project in Sunnyvale, Calif.Silicon Valley got its name from computer chips, but no longer plays a central role in shaping how they are made. A major supplier to the industry hopes to change that.Applied Materials, the biggest maker of machines for producing semiconductors, said on Monday that it planned to build a massive research facility near its hometown, Santa Clara, Calif., to allow chip makers and universities to collaborate on advances to make more powerful chips. Silicon Valley hasn’t seen a comparable semiconductor construction project in more than 30 years, industry analysts say.The company expects to invest up to $4 billion in the project over seven years, with a portion of that money coming from federal subsidies, while creating up to 2,000 engineering jobs.The plan is the latest in a string of chip-related projects spurred by the CHIPs Act, a $52 billion package of subsidies that Congress passed last year to reduce U.S. dependence on Asian factories for the critical components. What sets Applied Materials’ move apart is that it focuses on research, rather than manufacturing, and is a substantial new commitment to the industry’s original hub.Chip makers that grew up in Silicon Valley have long chosen to build new “fabs,” the sophisticated factories that fabricate chips from silicon wafers, in less costly states and countries. But Applied Materials is betting that technical talent at nearby universities and the local companies that design chips will spur innovation quickly, making up for cost differences with other locations.“You can connect more leaders in this ecosystem here than anyplace in the world,” said Gary Dickerson, the chief executive of Applied Materials. “There’s no place like this.”Applied Materials has scheduled an event on Monday in Sunnyvale, Calif., to discuss the project, with expected guests including Vice President Kamala Harris.Politicians from both parties overwhelmingly supported the CHIPs Act, partly out of fears that China will one day exert control over Taiwan and factories there that produce the most advanced chips. Besides encouraging domestic chip manufacturing, the legislation allocated about $11 billion to spur related research and development.Chip research now takes place in several phases in multiple locations, including university labs and collaborative centers such as the Albany NanoTech Complex in New York. Applied Materials participates with other companies in that center and operates a research fab in Silicon Valley where chip makers can work with its machines and those of other toolmakers.But many of the core chores in developing new production processes are carried out by chip manufacturers in fabs outfitted with a broad array of equipment. The proposed center, which Applied Materials calls Epic, is set to have ultraclean production space bigger than three football fields and is designed to give university researchers and other engineers comparable resources to experiment with new materials and techniques for creating advanced chips.One goal is to reduce the time it takes for new ideas to flow from the research labs to companies designing new manufacturing gear, information that is now often delayed as it is filtered through the chip makers.“The trouble is, those customers need time to figure out what they need,” said H.-S. Philip Wong, a Stanford professor of electrical engineering who was briefed on the company’s plans. “There is a big hole in there.”Applied Materials also said chip makers would be able to reserve space in the center and try out new tools before they were commercially available.The plan hinges partly on whether Applied Materials can win subsidies under the CHIPs Act, which the Commerce Department says has already attracted expressions of interest from more than 300 companies. Mr. Dickerson said that the company planned to build the center in any case, but that government funding could affect the project’s scale.Assuming the center evolves as planned, it could substantially bolster Silicon Valley’s role in the evolution of chips, said G. Dan Hutcheson, vice chair at the market research firm TechInsights.“It really is a vote of confidence for the Valley,” he said. More

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    Biden and McCarthy Set to Resume Debt Ceiling Talks on Monday

    Discussions aimed at avoiding a default have bogged down as Republicans press their demand for spending caps, work requirements for public benefit programs and other proposals in exchange.President Biden and Speaker Kevin McCarthy agreed on Sunday to meet on Monday afternoon to try to jump-start talks aimed at averting a default on the nation’s debt, capping a tumultuous stretch of negotiations that faltered over the weekend as the two sides clashed over Republicans’ demands to cut spending in exchange for raising the debt limit.Mr. McCarthy announced the meeting — his third with Mr. Biden this month, scheduled for after the president’s return from the Group of 7 summit in Hiroshima, Japan — after he concluded a call with the president on Sunday sounding more sanguine than before about the prospects for a deal. The speaker said House G.O.P. and White House negotiators would continue talks at the Capitol on Sunday to lay the groundwork. White House negotiators left the Capitol on Sunday night after a two-and-a-half-hour bargaining session with their Republican counterparts but said they intended to keep working before Monday’s session.Mr. Biden “walked through some of the things that he’s still looking at, he’s hearing from his members; I walked through things I’m looking at,” Mr. McCarthy said. “I felt that part was productive. But look — there’s no agreement. We’re still apart.”Negotiators are working against a punishing clock. The debt ceiling, the statutory limit on the government’s power to borrow to pay its obligations, is projected to be reached as soon as June 1.Mr. Biden and Mr. McCarthy are negotiating over a fiscal package that would raise the limit, which Republicans have refused to do without spending cuts. They remain far apart on key issues, including on caps for federal spending, new work requirements for some recipients of federal antipoverty assistance and funding meant to help the I.R.S. crack down on high earners and corporations that evade taxes.Mr. Biden said on Sunday that he believed he had the power to challenge the constitutionality of the nation’s borrowing limit, but that he did not believe such a challenge could succeed in time to avoid a default on federal debt if lawmakers did not raise the limit soon.“I think we have the authority,” Mr. Biden said at a news conference in Hiroshima. “The question is could it be done and invoked in time.”Mr. Biden added that after the current crisis is resolved, he hopes to “find a rationale and take it to the courts” to decide whether the debt limit violates a clause in the 14th Amendment stipulating that the United States must pay its debts. He also said that, while meeting with world leaders, he had not been able to assure them that America would not default on its debt — an event that economists say could set off a financial crisis that would sweep the globe.“I can’t guarantee that they will not force a default by doing something outrageous,” Mr. Biden said, referring to congressional Republicans who have insisted on deep cuts to federal spending in exchange for raising the borrowing limit.“The numbers are foundational here,” Representative Garret Graves, Republican of Louisiana and one of Mr. McCarthy’s lead negotiators, said on Sunday. “The speaker has been very clear: A red line is spending less money and unless and until we’re there, the rest of it is really irrelevant.”Treasury Department officials estimate that there are just over two weeks before the government could lose its ability to pay its bills on time, forcing a default. Both Mr. Biden and Mr. McCarthy had expressed rising optimism last week that they could reach an agreement that would pave the way for Congress to raise the borrowing limit while also reducing some federal spending.But on Friday, Republicans abruptly halted the talks, leading to a weekend of stop-and-start negotiations that left things in limbo and Mr. McCarthy insisting that Mr. Biden reinsert himself.Treasury Secretary Janet L. Yellen is expected to provide another update to Congress on the government’s cash balance this week. On Sunday, Ms. Yellen indicated that her projections that the United States could be unable to pay all of its bills on time as soon as June 1 had not changed.“I certainly haven’t changed my assessment, so I think that that’s a hard deadline,” Ms. Yellen said on NBC’s “Meet the Press.”Ms. Yellen noted that the government was expecting to receive substantial tax payments on June 15 that could extend the so-called X-date later into the summer. But she cautioned that the odds of making it that far were “quite low.”The Treasury secretary, who warned last week that a default would “generate an economic and financial catastrophe,” said she was not exaggerating the gravity of the looming crisis.“There will be hard choices to make if the debt ceiling isn’t raised,” Ms. Yellen said, explaining that if the United States ran out of money to pay all its bills, some would have to go unpaid.Hopes had dimmed at least slightly in the last few days. Mr. Biden’s aides accused Republicans of backsliding on key areas of negotiation, and Republicans accused the White House of refusing to budge on top priorities for conservatives.Mr. Biden criticized Republicans on Sunday for not considering raising additional tax revenue to reduce future budget deficits as part of the negotiations. He said he had proposed a discretionary spending cap that would save $1 trillion over a decade compared with baseline projections.“It’s time for Republicans to accept there is no budget deal to be made solely on their partisan terms,” he said.Representative Jodey C. Arrington, Republican of Texas and the chairman of the Budget Committee, on Sunday flatly ruled out Republicans’ accepting any tax increases as part of a debt-limit deal.“It’s not on the table for discussion,” Mr. Arrington said on ABC’s “This Week.” “This is not the time to put a tax on our economy or on working families.”Some of the barbs that have been traded by the parties appeared to be meant to shore up their bases. Hard-line spending hawks in the House have urged Mr. McCarthy to demand far greater concessions from Mr. Biden. Some progressive Democrats have pushed Mr. Biden to cut off negotiations and instead act unilaterally to challenge the debt limit on constitutional grounds.A clause in the 14th Amendment, adopted after the Civil War, stipulates that “the validity of the public debt” issued by the U.S. government “shall not be questioned.” Some legal scholars say the limit is constitutional. But others contend that the clause requires the government to continue issuing new debt to pay bondholders, effectively overriding the nation’s statutory borrowing limit, which is controlled by Congress.The two sides have found some agreement in talks in the last week, including on clawing back some unspent funds from previously approved Covid relief legislation. They have also agreed in broad terms to some sort of cap on discretionary federal spending for at least the next two years. But they are hung up on the details of those caps, including how much to spend overall next fiscal year on discretionary programs — and how to divide that spending among the military and other programs.The latest White House offer would hold both military spending and other spending — which includes education, scientific research and environmental protection — constant from the current fiscal year to next fiscal year, according to a person familiar with both sides’ proposals. That move would not reduce nominal spending before adjusting for inflation, which Republicans are pushing hard to do. Asked by a reporter on Sunday, Mr. Biden said the spending reduction he had proposed would not cause a recession.Speaker Kevin McCarthy at a news conference on debt-limit negotiations at the Capitol on Wednesday.Haiyun Jiang/The New York TimesA bill that Republicans passed last month that paired spending cuts with a debt-limit increase would bring net savings of about $5 trillion over a decade compared with current projections.Republicans’ latest proposal includes a nominal drop in total discretionary spending next year. But that cut is not evenly distributed; in their plan, military spending would continue to rise, while other programs would face deeper cuts.Mr. Biden’s offer would set spending caps for two years. Republicans would set them for six years.Republicans have also proposed several efforts to save money that White House officials have objected to. They include new work requirements for recipients of Medicaid and the Temporary Assistance for Needy Families program. They would also make it harder for states to seek waivers for work requirements for certain recipients of federal food assistance who live in areas of sustained high unemployment — a proposal that was not in the Republican debt-limit bill that passed the House.Republicans are also continuing to seek a reduction in enforcement funding for the I.R.S., a move that the Congressional Budget Office estimates would increase the budget deficit by decreasing future federal tax receipts. And they have sought to include some provisions from a stringent immigration bill that recently passed the House, according to a person familiar with the proposal.“We are all concerned about deficits and fiscal responsibility, but deficits can be addressed both through changes in spending and through changes in revenue,” Ms. Yellen said, adding that she was “greatly concerned” about Republican proposals to cut funding for the I.R.S. Mr. Biden insisted on Sunday that he was willing to cut spending. He also suggested that some Republicans were trying to crash the economy by not raising the borrowing limit, in order to hurt Mr. Biden’s hopes of winning re-election.If the nation were to default, Mr. Biden said, “I would be blameless” on the merits — meaning that it would be Republicans’ fault. But, he said, “on the politics of it, no one would be blameless.”“I think there are some MAGA Republicans in the House who know the damage that it would do to the economy, and because I am president, and the president’s responsible for everything, Biden would take the blame,” he said.Alan Rappeport More

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    The U.S. Needs Minerals for Electric Cars. Everyone Else Wants Them Too.

    The United States is entering an array of agreements to secure the critical minerals necessary for the energy transition, but it’s not clear which of the arrangements can succeed.For decades, a group of the world’s biggest oil producers has held huge sway over the American economy and the popularity of U.S. presidents through its control of the global oil supply, with decisions by the Organization of the Petroleum Exporting Countries determining what U.S. consumers pay at the pump.As the world shifts to cleaner sources of energy, control over the materials needed to power that transition is still up for grabs.China currently dominates global processing of the critical minerals that are now in high demand to make batteries for electric vehicles and renewable energy storage. In an attempt to gain more power over that supply chain, U.S. officials have begun negotiating a series of agreements with other countries to expand America’s access to important minerals like lithium, cobalt, nickel and graphite.But it remains unclear which of these partnerships will succeed, or if they will be able to generate anything close to the supply of minerals the United States is projected to need for a wide array of products, including electric cars and batteries for storing solar power.Leaders of Japan, Europe and other advanced nations, who are meeting in Hiroshima, agree that the world’s reliance on China for more than 80 percent of processing of minerals leaves their nations vulnerable to political pressure from Beijing, which has a history of weaponizing supply chains in times of conflict.On Saturday, the leaders of the Group of 7 countries reaffirmed the need to manage the risks caused by vulnerable mineral supply chains and build more resilient sources. The United States and Australia announced a partnership to share information and coordinate standards and investment to create more responsible and sustainable supply chains.“This is a huge step, from our perspective — a huge step forward in our fight against the climate crisis,” President Biden said Saturday as he signed the agreement with Australia.But figuring out how to access all of the minerals the United States will need will still be a challenge. Many mineral-rich nations have poor environmental and labor standards. And although speeches at the G7 emphasized alliances and partnerships, rich countries are still essentially competing for scarce resources.Japan has signed a critical minerals deal with the United States, and Europe is in the midst of negotiating one. But like the United States, those regions have substantially greater demand for critical minerals to feed their own factories than supply to spare.Kirsten Hillman, Canada’s ambassador to the United States, said in an interview that the allied countries had an important partnership in the industry, but that they were also, to some extent, commercial competitors. “It is a partnership, but it’s a partnership with certain levels of tension,” she said.“It’s a complicated economic geopolitical moment,” Ms. Hillman added. “And we are all committed to getting to the same place and we’re going to work together to do it, but we’re going to work together to do it in a way that’s also good for our businesses.”“We have to create a market for the products that are produced and created in a way that is consistent with our values,” she said.Leaders of the G7 nations, who are gathering in Japan this week, agree that the world’s reliance on China for more than 80 percent of processing of minerals leaves their nation’s vulnerable to political pressure from Beijing.Kenny Holston/The New York TimesThe State Department has been pushing forward with a “minerals security partnership,” with 13 governments trying to promote public and private investment in their critical mineral supply chains. And European officials have been advocating a “buyers’ club” for critical minerals with the G7 countries, which could establish certain common labor and environmental standards for suppliers.Indonesia, which is the world’s biggest nickel producer, has floated the idea of joining with other resource-rich countries to make an OPEC-style producers cartel, an arrangement that would try to shift the power to mineral suppliers.Indonesia has also approached the United States in recent months seeking a deal similar to that of Japan and the European Union. Biden administration officials are weighing whether to give Indonesia some kind of preferential access, either through an independent deal or as part of a trade framework the United States is negotiating in the Indo-Pacific.But some U.S. officials have warned that Indonesia’s lagging environmental and labor standards could allow materials into the United States that undercut the country’s nascent mines, as well as its values. Such a deal is also likely to trigger stiff opposition in Congress, where some lawmakers criticized the Biden administration’s deal with Japan.Jake Sullivan, the national security adviser, hinted at these trade-offs in a speech last month, saying that carrying out negotiations with critical mineral-producing states would be necessary, but would raise “hard questions” about labor practices in those countries and America’s broader environmental goals.Whether America’s new agreements would take the shape of a critical minerals club, a fuller negotiation or something else was unclear, Mr. Sullivan said: “We are now in the thick of trying to figure that out.”Cullen Hendrix, a senior fellow at the Peterson Institute for International Economics, said the Biden administration’s strategy to build more secure international supply chains for minerals outside of China had so far been “a bit incoherent and not necessarily sufficient to achieve that goal.”The demand for minerals in the United States has been spurred in large part by President Biden’s climate law, which provided tax incentives for investments in the electric vehicle supply chain, particularly in the final assembly of batteries. But Mr. Hendrix said the law appeared to be having more limited success in rapidly increasing the number of domestic mines that would supply those new factories.“The United States is not going to be able to go this alone,” he said.Biden officials agree that obtaining a secure supply of the minerals needed to power electric vehicle batteries is one of their most pressing challenges. U.S. officials say that the global supply of lithium alone needs to increase by 42 times by 2050 to meet the rising demand for electric vehicles.Ford’s electric pickup truck on the production line of the company’s plant in Dearborn, Mich.Brittany Greeson for The New York TimesWhile innovations in batteries could reduce the need for certain minerals, for now, the world is facing dramatic long-term shortages by any estimate. And many officials say Europe’s reliance on Russian energy following the invasion of Ukraine has helped to illustrate the danger of foreign dependencies.The global demand for these materials is triggering a wave of resource nationalism that could intensify. Outside of the United States, the European Union, Canada and other governments have also introduced subsidy programs to better compete for new mines and battery factories.Indonesia has progressively stepped up restrictions on exporting raw nickel ore, requiring it to first be processed in the country. Chile, a major producer of lithium, nationalized its lithium industry in a bid to better control how the resources are developed and deployed, as have Bolivia and Mexico.And Chinese companies are still investing heavily in acquiring mines and refinery capacity globally.For now, the Biden administration has appeared wary of cutting deals with countries with more mixed labor and environmental records. Officials are exploring changes needed to develop U.S. capacity, like faster permitting processes for mines, as well as closer partnerships with mineral-rich allies, like Canada, Australia and Chile.On Saturday, the White House said it planned to ask Congress to add Australia to a list of countries where the Pentagon can fund critical mineral projects, criteria that currently only applies to Canada.Todd Malan, the chief external affairs officer at Talon Metals, which has proposed a nickel mine in Minnesota to supply Tesla’s North American production, said that adding a top ally like Australia, which has high standards of production regarding environment, labor rights and Indigenous participation, to that list was a “smart move.”A lithium mine near La Corne, Quebec, in Canada.Brendan George Ko for The New York TimesBut Mr. Malan said that expanding the list of countries that would be eligible for benefits under the administration’s new climate law beyond countries with similar labor and environmental standards could undermine efforts to develop a stronger supply chain in the United States.“If you start opening the door to Indonesia and the Philippines or elsewhere where you don’t have the common standards, we would view that as outside the spirit of what Congress was trying to do in incentivizing a domestic and friends supply chain for batteries,” he said.However, some U.S. officials argue that the supply of critical minerals in wealthy countries with high labor and environmental standards will be insufficient to meet demand, and that failing to strike new agreements with resource-rich countries in Africa and Asia could leave the United States highly vulnerable.While the Biden administration is looking to streamline the permitting process in the United States for new mines, getting approval for such projects can still take years, if not decades. Auto companies, which are major U.S. employers, have also been warning of projected shortfalls in battery materials and arguing for arrangements that would give them more flexibility and lower prices.The G7 nations, together with the countries with which the United States has free trade agreements, produce 30 percent of the world’s lithium chemicals and about 20 percent of its refined cobalt and nickel, but only 1 percent of its natural flake graphite, according to estimates by Adam Megginson, a price analyst at Benchmark Mineral Intelligence.Workers at the site of a proposed nickel mine near Tamarack, Minn.Tim Gruber for The New York TimesJennifer Harris, a former Biden White House official who worked on critical mineral strategy, argued that the country should move more quickly to develop and permit domestic mines, but that the United States also needs a new framework for multinational negotiations that include countries that are major mineral exporters.The government could also set up a program to stockpile minerals like lithium when prices swing low, which would give miners more assurance they will find destinations for their products, she said.“There’s so much that needs doing that this is very much a ‘both/and’ world,” she said. “The challenge is that we need to responsibly pull up a whole lot more rocks out of the ground yesterday.”Jim Tankersley More

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    U.S. Default Prospect Hurts Economy in the Meantime

    As negotiations over the debt limit continue in Washington and the date on which the U.S. government could be forced to stop paying some bills draws closer, everyone involved has warned that such a default would have catastrophic consequences.But it might not take a default to damage the U.S. economy.Even if a deal is struck before the last minute, the long uncertainty could drive up borrowing costs and further destabilize already shaky financial markets. It could lead to a pullback in investment and hiring by businesses when the U.S. economy is already facing elevated risks of a recession, and hamstring the financing of public works projects.More broadly, the standoff could diminish long-term confidence in the stability of the U.S. financial system, with lasting repercussions.Currently, investors are showing few signs of alarm. Although markets fell on Friday after Republican leaders in Congress declared a “pause” on negotiations, the declines were modest, suggesting that traders are betting that the parties will come to an agreement in the end — as they always have before.But investor sentiment could shift quickly as the so-called X-date, when the Treasury can no longer keep paying the government’s bills, approaches. Treasury Secretary Janet L. Yellen has said the date could arrive as early as June 1. One thing that’s already happening: As investors fret that the federal government will default on Treasury bonds that are maturing soon, they have started to demand higher interest rates as compensation for greater risk.If investors lose faith that leaders in Washington will resolve the standoff, they could panic, said Robert Almeida, a global investment strategist at MFS Investment Management.“Now that the stimulus is fading, growth is slowing, you’re starting to see all these little mini-fires,” Mr. Almeida said. “It makes what is already a difficult situation more stressful. When the herd moves, it tends to move really fast and in a violent way.”That’s what happened during a debt-ceiling standoff in 2011. Analyses after that near-default showed that the plunging stock market vaporized $2.4 trillion in household wealth, which took time to rebuild, and cost taxpayers billions in higher interest payments. Today, credit is more expensive, the banking sector is already shaken and an economic expansion is tailing off rather than beginning.“2011 was a very different situation — we were in recovery mode from the global financial crisis,” said Randall S. Kroszner, a University of Chicago economist and former Federal Reserve official. “In the current situation, where there’s a lot of fragility in the banking system, you’re taking more of a risk. You’re piling up fragility on fragility.”The mounting tension could cause problems through a number of channels.Rising interest rates on federal bonds will filter into borrowing rates for auto loans, mortgages and credit cards. That inflicts pain on consumers, who have started to rack up more debt — and are taking longer to pay it back — as inflation has increased the cost of living. Increasingly urgent headlines might prompt consumers to pull back on their purchases, which power about 70 percent of the economy.Although consumer sentiment is darkening, that could be attributed to a number of factors, including the recent failure of three regional banks. And so far, it doesn’t appear to be spilling over into spending, said Nancy Vanden Houten, a senior economist for Oxford Economics.“I think all this could change,” Ms. Vanden Houten said, “if we get too close to the X-date and there is real fear about missed payments for things like Social Security or interest on the debt.”Treasury Secretary Janet L. Yellen has said the federal debt limit could be reached as early as June 1.Haiyun Jiang/The New York TimesSuddenly higher interest rates would pose an even bigger problem for highly indebted companies. If they have to roll over loans that are coming due soon, doing so at 7 percent instead of 4 percent could throw off their profit projections, prompting a rush to sell stocks. A widespread decline in share prices would further erode consumer confidence.Even if the markets remain calm, higher borrowing costs drain public resources. An analysis by the Government Accountability Office estimated that the 2011 debt limit standoff raised the Treasury’s borrowing costs by $1.3 billion in the 2011 fiscal year alone. Back then, the federal debt was about 95 percent of the nation’s gross domestic product. Now it’s 120 percent, which means servicing the debt could become a lot more expensive.“It eventually will crowd out resources that can be spent on other high-priority government investments,” said Rachel Snyderman, a senior associate director of the Bipartisan Policy Center, a Washington think tank. “That’s where we see the costs of brinkmanship.”Interrupting the smooth functioning of federal institutions has already created a headache for state and local governments. Many issue bonds using a U.S. Treasury mechanism known as the “Slugs window,” which closed on May 2 and will not reopen until the debt limit is increased. Public entities that raise money frequently that way now have to wait, which could hold up large infrastructure projects if the process drags on longer.There are also more subtle effects that could outlast the current confrontation. The United States has the lowest borrowing costs in the world because governments and other institutions prefer to hold their wealth in dollars and Treasury bonds, the one financial instrument thought to carry no risk of default. Over time, those reserves have started to shift into other currencies — which could, eventually, make another country the favored harbor for large reserves of cash.“If you are a central banker, and you’re watching this, and this is a kind of recurring drama, you may say that ‘we love our dollars, but maybe it’s time to start holding more euros,’” said Marcus Noland, executive vice president at the Peterson Institute for International Economics. “The way I would describe that ‘Perils of Pauline,’ short-of-default scenario is that it just gives an extra push to that process.”When do these consequences really start to mount? In one sense, only when investors shift from assuming a last-minute deal to anticipating a default, a point in time that is nebulous and impossible to predict. But a credit-rating agency could also make that decision for everyone else, as Standard & Poor’s did in 2011 — even after a deal was reached and the debt limit was raised — when it downgraded the U.S. debt to AA+ from AAA, causing stocks to plunge.That decision was based on the political rancor surrounding the negotiations as well as the sheer size of the federal debt — both of which have ballooned in the intervening decade.It isn’t clear exactly what would happen if the X-date passed with no deal. Most experts say the Treasury Department would continue to make interest payments on the debt and instead delay fulfilling other obligations, like payments to government contractors, veterans or doctors who treat Medicaid patients.That would prevent the government from immediately defaulting on the debt, but it could also shatter confidence, roiling financial markets and leading to a sharp pullback in hiring, investment and spending.It isn’t clear what would happen if the X-date passed with no deal. But it could roil financial markets.John Taggart for The New York Times“Those are all defaults, just defaults to different groups,” said William G. Gale, an economist at the Brookings Institution. “If they can do that to veterans or Medicaid doctors, they can eventually do it to bond holders.”Republicans have proposed pairing a debt-limit increase with sharp cuts in government spending. They have pledged to spare Social Security recipients, Pentagon spending and veterans’ benefits. But that equation would require steep reductions in other programs — like housing, toxic waste cleanup, air traffic control, cancer research and other categories that are economically important.The 2011 Budget Control Act, which resulted from that year’s standoff, led to a decade of caps that progressives have criticized for preventing the federal government from responding to new needs and crises.The economic turbulence from the debt ceiling standoff comes as Federal Reserve policymakers are trying to tame inflation without causing a recession, a delicate task with little margin for error.“The Fed is trying to thread a very fine needle,” Mr. Kroszner, the former Fed economist, said. “At some point, you break the camel’s back. Would this be sufficient to do that? Probably not, but do you really want to take that risk?” More

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    Inflation Persists and Car Prices Are a Big Reason

    Prices of new and used vehicles were supposed to recede quickly as supply chain problems dissipated. The market had other ideas.‌Car prices soared after the coronavirus lockdowns, and two years into the United States’ worst inflationary episode since the 1980s, the industry demonstrates that getting back to normal will be a long and lurching ride.In 2021 and early 2022, global shipping problems, a semiconductor shortage and factory shutdowns coincided with strong demand to push vehicle prices sharply higher. Economists had hoped that prices might ease as supply chains healed and the Federal Reserve’s interest rate increases deterred borrowers.Instead, prices for new cars have risen further. Domestic automakers are still producing fewer cars and focusing on more profitable luxury models. Used car prices helped to lower overall inflation late last year, but rebounded in April as short supply collided with a surge in demand.Echoes from the industry’s pandemic disruptions are reverberating through the economy even though the emergency has formally ended, and illustrate why the Fed’s fight to quash inflation could be a long one as consumers continued spending despite higher prices.A Wild Ride for Car PricesUsed car prices have been volatile, while new car costs have continued to climb, adding to overall inflation.

    Source: Bureau of Labor Statistics By The New York Times“Inflation is not going to be a smooth path downward — there are going to be bumps along the road,” said Blerina Uruci, chief U.S. economist at T. Rowe Price. “There are so many idiosyncratic factors at play right now, and I think some of that has to do with demand post-pandemic.”Elevated car prices have proved uncomfortably sticky. Used car prices have declined, but in a more muted — and volatile — fashion than economists had anticipated. And new cars have continued to get more expensive this year as manufacturers strive to maintain the margins established in 2021.“The big question now is: Are companies going to start competing with one another on price?” Ms. Uruci asked.But that’s a difficult question to answer, because the automotive market has drastically changed. To understand the situation, it’s useful to examine how the auto industry worked before.“Going into the pandemic, the dynamic in the automobile business was this idea that retail profitability was under constant pressure, driven by the internet,” said Pat Ryan, the chief executive of CoPilot, a car shopping app that monitors prices across about 40,000 dealerships.Automakers produced more cars than the marketplace demanded, offering incentives to clear inventory and compete with lower-cost imports. Dealers made their profits on volume and financing, often resulting in customer complaints of excess fees.As the coronavirus spread, factories shut down. Even when they reopened, semiconductors remained scarce. Manufacturers allocated chips to their highest-priced models — trucks and sport utility vehicles — offsetting lower volume with higher profits on each sale. About five million cars that normally would have been produced never were, Mr. Ryan said.Dealers got in on the action, charging thousands of dollars above list price — especially as stimulus programs rolled out, and consumers sought to upgrade their vehicles or buy new ones to escape cities. A study by the economist Michael Havlin, published by the Bureau of Labor Statistics, found that dealer markups accounted for 35 percent to 62 percent of total new-vehicle consumer inflation from 2019 to 2022.There were downsides to the lower sales volumes; dealerships also make money on service packages years after cars drive off the lot. But on balance, “it was the best of times for car dealers, for sure,” Mr. Ryan said.It was the worst of times, however, for anyone who suddenly needed a car.Hailey Cote with her recently purchased Toyota Corolla.Ross Mantle for The New York TimesThat’s the position that Hailey Cote of Pittsburgh found herself in last summer. After tiring of low-wage jobs on farms and in restaurants, she built a business cleaning houses for $25 an hour. When her 2005 Jeep Grand Cherokee broke down, she knew she had to find a replacement quickly to ferry cleaning gear to each job and get to school, where she’s pursuing a degree in counseling.At that point, the used cars she could find were only a few thousand dollars less than the cheapest new cars, so she went with a 2022 base model Toyota Corolla. Her loan payment is about $500 a month. Insurance, which has also become more expensive, is another $200. Including gas and maintenance, Ms. Cote’s transportation cost is almost as much as her rent, leaving nothing for savings or recreation.“I think it’s the basic necessities that are really the worst,” Ms. Cote, 29, said. “Food’s gone up a bit, but the cost of housing, health care and cars is pretty brutal.”The car price frenzy began to ease in the second half of 2022, as more vehicles started rolling off assembly lines. But the supply has risen only gradually. Automakers, loath to relinquish profits enabled by scarcity, started talking about exercising “discipline” in their production targets.“During this two-year period, auto dealers and auto manufacturers discovered that a low-volume, higher-price model was actually a very profitable model,” Tom Barkin, the president of the Federal Reserve Bank of Richmond, said in an interview.Car Dealers Reap Big Profits in Inflation EraCar companies have been increasing prices by more than their input costs have climbed, leading to big profits on new vehicles.

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    Percent markups for publicly traded dealerships
    Source: Michael Havlin (Bureau of Labor Statistics)By The New York Times“The experience of higher prices, and the ability to move prices, does broaden the perspectives of business people in terms of what their options are,” he said. “It’s attractive if you can do it.”One way the automakers tried to buoy prices was jettisoning cheaper models, like the Chevrolet Spark and Volkswagen Passat. Responding to federal subsidies, car companies rolled out electric vehicles, but that didn’t help to bring prices down — they started with luxury versions, like the $42,995 Mustang Mach-E.And there have been added supply constraints. The generation of cars that would typically be coming off three-year leases is smaller than usual. Those who leased cars in the spring of 2020 have an incentive to buy them at the prices that were locked in before everything became more expensive.On top of that, some rental car companies are aggressively restocking their fleets after being starved for several years, leading dealership groups like Sonic Automotive to complain on earnings calls that they’re being outcompeted at auctions.“There are so many sources of used vehicles that just dried up over the last few years,” said Satyan Merchant, a senior vice president for financial services at TransUnion, a credit monitoring company. “And it all has this downstream effect.”The Fed has been raising interest rates sharply to slow demand — including for cars — and cool price increases. But during the adjustment period, that is making it even tougher for many Americans to afford a vehicle. According to TransUnion, the average monthly payment for a new car rose to $736 in the first quarter of 2023, from $585 two years before. Used cars average $523 per month, up $110 over the same period.Prices for Cars of All Ages Are Above Prepandemic LevelsA new car will run you about $51,000 on average – about 30 percent more than in January 2020. 

    Source: CoPilotBy The New York TimesCars are now a bifurcated market: Demand remains strong on the high end, where wealthy buyers with excess savings from the past two-plus years are able to absorb higher interest rates, or simply pay cash. Some are only now receiving vehicles they ordered in 2022 at inflated prices.Competition for vehicles is also fierce on the low end, since people with thin financial cushions and in-person jobs can’t afford to forgo transportation, which in most of the country is synonymous with a car. The job market has remained strong, especially for in-person jobs in fields like hospitality and health care, so more people have workplaces to get to.And many people in between, who might switch cars every few years, are waiting for prices to fall.“What we’ve seen is the disappearance of the middle,” said Scott Kunes, chief operating officer of a dealership group in the Midwest. He faults the automakers for abandoning cheaper, smaller, basic cars that people need just to get around, especially as interest rates put fancier versions beyond reach. “It doesn’t make any sense to me at all.”The situation may start to resolve itself soon. Wholesale car prices have begun to fall, and carmakers are offering more incentives. Kelley Blue Book data shows that average prices have fallen below list for the past two months, which Jonathan Smoke, chief economist at Cox Automotive, said signaled that demand was easing. Prices have come down in recent months for electric cars — the fastest-growing segment of new car sales, though a small portion of the overall market.Recent history has shown, however, that pricing trajectories are rarely linear. Adam Jonas, an auto industry analyst with Morgan Stanley, said that over the short to medium term, more inventory was the only answer.“Even though the statements from the Japanese and the Koreans are that the chip shortage is ending, it takes many months to spool it up,” he said. “Dealers should prepare for a tight summer.”Jack Ewing More