Finance

“When I hear the word ‘goldilocks,’ I get nervous,” Gundlach said Wednesday on CNBC’s “Closing Bell.”
Many investors had been betting that the economy wasn’t hurt too badly by the Fed’s series of aggressive rate hikes over the past year.
The Fed kept interest rates unchanged at 5.25% to 5.50% on Wednesday.

Jeffrey Gundlach speaking at the 2019 Sohn Conference in New York on May 6, 2019.
Adam Jeffery | CNBC

DoubleLine Capital CEO Jeffrey Gundlach believes the Federal Reserve poured cold water on hopes for a “Goldilocks” economic scenario benefiting risk assets, and the bond king stuck to his call for a likely recession this year.
“When I hear the word ‘goldilocks,’ I get nervous,” Gundlach said Wednesday on CNBC’s “Closing Bell.” “When you hear people saying ‘Goldilocks’ and everybody in the room [is] nodding their head in a north-south direction and says ‘yeah, it’s Goldilocks,’ that means everything is priced to something resembling perfection. … Today, Jay Powell took Goldilocks away,” he said, referring to Federal Reserve Chair Jerome Powell.

Many investors had been betting that the economy wasn’t hurt too badly by the Fed’s series of aggressive rate hikes over the past year, leaving an economic expansion that’s not too hot, or too cold.
But Gundlach believes the market’s faith was blindly optimistic and that Powell’s message on Wednesday crushed the “Goldilocks” theory.
The Fed kept interest rates unchanged at 5.25% to 5.50% on Wednesday, while making it clear that it is not yet ready to ease up on the brakes. Stocks tumbled to session lows as Powell said in a press conference that the central bank would likely not have the level of confidence about inflation to lower rates at its next policy meeting in March.
“For now, we think there will be a stall in the inflation rate coming down,” Gundlach said. “That will probably mean that the market is not going to get the Goldilocks picture that it was euphoric about a couple of weeks ago.”
The stock market started 2024 with a bang with the S&P 500 rising to consecutive record highs. The large-cap equity benchmark shed 1.6% Wednesday alone, halving the 2024 gain to 1.6%.

Gundlach said he still expects to see a recession hitting in 2024. He suggested that investors may want to raise cash to fund buying opportunities when an economic downturn arrives.
“I think you want cash to be able to get into emerging market trade once the economy slows and perhaps goes into recession,” Gundlach said. “Globally, there are certainly many pockets of recession at present. If we go into the United States recession, I think we will see a buying opportunity and you want cash for that.”Don’t miss these stories from CNBC PRO: More

The Federal Reserve sent a tepid signal that it is done raising interest rates but made it clear that it is not ready to start cutting.
The Federal Open Market Committee removed language that had indicated a willingness to keep raising interest rates until inflation had been brought under control and was on its way toward the Fed’s 2% inflation goal. 
However, it also said there are no plans yet to cut rates with inflation still running above the central bank’s target.

WASHINGTON — The Federal Reserve on Wednesday sent a tepid signal that it is done raising interest rates but made it clear that it is not ready to start cutting, with a March move lower increasingly unlikely.
In a substantially changed statement that concluded the central bank’s two-day meeting this week, the Federal Open Market Committee removed language that had indicated a willingness to keep raising interest rates until inflation had been brought under control and was on its way toward the Fed’s 2% inflation goal. 

However, it also said there are no plans yet to cut rates with inflation still running above the central bank’s target. The statement further provided limited guidance that it was done hiking, only outlining factors that will go into “adjustments” to policy.
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the statement said.
During Fed Chair Jerome Powell’s news conference, he said policymakers are waiting to see additional data to verify that the trends are continuing. He also noted that a March rate cut is unlikely.
“I don’t think it’s likely that the committee will reach a level of confidence by the” March meeting, Powell said.
“We want to see more good data. It’s not that we’re looking for better data, we’re looking for a continuation of the good data we’ve been seeing,” he added.

Markets initially took the news in stride but slid following Powell’s comments casting doubt on a March cut. The Dow Jones Industrial Average surrendered more than 300 points in the session while Treasury yields plunged. Futures pricing also swung, with the market assigning about a 64% chance the Fed would stay put at its March 19-20 meeting, according to CME Group calculations.
While the committee’s statement did condense the factors that policymakers would consider when assessing policy, it did not explicitly rule out more increases. One notable change was removing as a consideration the lagged effects of monetary policy. Officials largely believe it takes at least 12 to 18 months for adjustments to take effect; the Fed last hiked in July 2023 after starting the tightening cycle in March 2022.

“In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the statement said. That language replaced a bevy of factors including “the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

‘Moving into better balance’

Those changes were part of an overhaul in which the Fed seeks to chart a course ahead, with inflation moving lower and economic growth proving resilient. The statement indicated that economic growth has been “solid” and noted the progress made on inflation.
“The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance,” the FOMC missive said. “The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”Gone from the statement was a key clause that had referenced “the extent of any additional policy firming” that might come. Some Fed watchers had been looking for language to emphasize that additional rate hikes were unlikely, but the statement left the question at least somewhat open.Going into the meeting, markets had expected the Fed could begin reducing its benchmark overnight borrowing rate as soon as March, with May also a possible launching point. Immediately after the decision, stocks fell to session lows.Policymakers, though, have been more circumspect about their intentions, cautioning that they see no need to move quickly as they watch the data unfold. Committee members in December indicated a likelihood of three quarter-percentage point rate cuts this year, less ambitious than the six that futures markets are pricing, according to the CME Group.More immediately, the committee, for the fourth consecutive time, unanimously voted not to raise the fed funds rate. The key rate is targeted in a range between 5.25%-5.5%, the highest in nearly 23 years.The Fed has been riding a wave of decelerating inflation, a strong labor market and solid economic growth, giving it both leeway to start easing up on monetary policy and caution about growth that could reaccelerate and drive prices higher again. Along with 11 rate hikes, the Fed also has been allowing its bond holdings to roll off, a process that has shaved more than $1.2 trillion off the central bank balance sheet. The statement indicated that the balance sheet runoff will continue apace.

The ‘soft-landing’ narrative

Many economists now are adopting a soft-landing narrative where the Fed can bring inflation down without torpedoing economic growth.

Separate reports Wednesday indicated that the labor market is softening, but so are wages. Payrolls processing firm ADP reported that private companies added just 107,000 new workers in January, a number that was below market expectations but still indicative of an expanding labor market. Also, the Labor Department reported that the employment cost index, a gauge the Fed watches closely for signals of inflation coming through wages, increased just 0.9% in the fourth quarter, the smallest rise since the second quarter of 2021.More broadly, inflation as measured through core personal consumption expenditures prices rose 2.9% in December from the prior year, the lowest since March 2021. On a six- and three-month basis, core PCE prices both ran at or below the Fed’s target.In a separate matter, the Fed also announced it was altering its investment policy both for high-ranking officials and staff. The changes expand the scope of those covered to include anyone with access to “confidential FOMC information” and said some staff might be required to submit brokerage statements or other documents to verify the accuracy of disclosures.The changes follow controversy over multiple Fed officials trading from private accounts at a time when the central bank was making major changes to policy in the early days of the Covid pandemic.
Don’t miss these stories from CNBC PRO: More

Goldman sees a first 25 basis point cut in May, followed by further quarter-point increments at every meeting until the Bank rate reaches 3% in May 2025.
JPMorgan also expects the MPC to hint at a potential easing of monetary policy around the summer, but does not believe it will come until August.

People walk outside the Bank of England in the City of London financial district, in London, Britain, January 26, 2023.
Henry Nicholls | Reuters

LONDON — The Bank of England is widely expected to hold interest rates steady at 5.25% on Thursday, but market observers will be closely watching voting patterns, projections and language for hints about future rate cuts.
The market on Wednesday afternoon was pricing a more than 96% likelihood that the British central bank’s Monetary Policy Committee will leave rates unchanged at their current historically high levels, as recent economic data has been pointing to meaningful progress across the institution’s three indicators of inflation persistence.

The labor market has shown signs of rebalancing, although the overall trajectory remains somewhat uncertain, while wage growth and services inflation have surprised the bank’s November projections substantially to the downside, Goldman Sachs economists noted Sunday.
“We therefore expect a 9-0-0 vote split with no dissents, but the vote split remains difficult to predict given limited recent commentary by MPC members,” Goldman economist Ibrahim Quadri said, suggesting the three dissenting voices for further rate increases at the December meeting will fall into line.
“In the case of dissents, we think a dovish dissent in the form of [Swati] Dhingra voting for a 25bp cut and/or a hawkish dissent in the form of [Catherine] Mann voting for 25bp hike are possible, but we think hawkish dissents are less likely given that there has been a moderation in underlying services inflation since the MPC’s last meeting.”

The services consumer price index annual rate came in at 6.4% in December, a slight increase from the 6.3% of November, but below the 6.9% of September, according to the last data available to the MPC when it made its November projections.
U.K. headline inflation unexpectedly nudged upward to an annual 4% in December on the back of a rise in alcohol and tobacco prices, while the closely watched core CPI figure was unchanged at 5.1%.

Though sluggish, the U.K. economy has also outperformed expectations and thus far staved off a technical recession, though GDP flatlined in the third quarter of 2023 and many economists still see a recession in store.
Updated projections
Quadri says the updated projections of Thursday are likely to show a meaningful upward adjustment to the bank’s growth forecast and a reduction of its near-term inflation forecast, though this could be revised up toward the end of the forecast horizon due to the lower conditioning rate path.
“We expect the MPC to retain its data-dependent approach and reiterate that monetary policy ‘will need to be sufficiently restrictive for sufficiently long’,” Quadri said.
“But we think that the MPC may mitigate its tightening bias and soften its policy language somewhat by no longer stating that ‘further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures’.”
Goldman sees a first 25 basis point cut in May, followed by further quarter-point increments at every meeting until the bank rate reaches 3% in May 2025.

JPMorgan U.K. economist Allan Monks also expects the MPC will hint at a potential easing of monetary policy around the summer, but does not believe it will come until August.
“The BoE will not shut the door on a potential May cut, but we think it will also not want to encourage expectations for an easing that early,” he said in a research note last week.
“The BoE’s updated narrative is likely to be that clear progress is being made on inflation, but that it is too early to declare victory and therefore caution must be exercised when thinking about when and how quickly policy can be normalised.”
JPMorgan also expects the votes for further rate increases to disappear, leaving the MPC unanimous in its decision to hold rates on Thursday. The bank did not rule out the possibility of Dhingra voting for a 25 basis point cut at this meeting.
“While the MPC’s vote is not formal guidance, there is often a fair degree of weight placed on its change from one meeting to the next,” Monks said.
“If there is one dovish dissent, however, this should not necessarily be viewed as a reliable guide to where the rest of the committee is and hence the likelihood of an earlier cut.” More

This is a comparison of Wednesday’s Federal Open Market Committee statement with the one issued after the Fed’s previous policymaking meeting in December.
Text removed from the December statement is in blue with a horizontal line through the middle.

Text appearing for the first time in the new statement is in blue and underlined.
Black text appears in both statements.

Arrows pointing outwards More

Here’s our Club Mailbag email investingclubmailbag@cnbc.com — so you send your questions directly to Jim Cramer and his team of analysts. We can’t offer personal investing advice. We will only consider more general questions about the investment process or stocks in the portfolio or related industries. This week’s question: CNBC guests often say six Fed cuts are priced into the 2024 market. How do they know? Is it just their opinion? Do they have some calculation or is this just a pitch to support some bearish investment strategy? – Mike H. When you hear about the number of Federal Reserve interest rate cuts being priced into the market, the data comes from the CME FedWatch tool . This tool, which leverages data from fed funds futures contract prices, can be used to determine the likelihood of a cut (or hike) in the near-term, like the next meeting, or where rates might be headed over the next year. The overnight fed funds bank lending rate is the rate that everyone is referring to when talking about Fed rate moves. The current range is 5.25% to 5.5% following 11 rate hikes from March 2022 to July 2023. There was a pause at the June, November and December meetings. In terms of cuts being “priced in” for the full year, this is determined by where the market predicts the Fed target rate will be by year-end in December. Looking at a snapshot at the CME FedWatch tool, as of this writing and ahead of Wednesday afternoon’s Fed rate decision and central bank chief Jerome Powell news conference, it shows the probability of various targets by December 2024. As we can see, the highest probability, roughly 40%, is being attributed to the 375 to 400 basis point cut range by year end. Each cut amounts to a 25-basis point, or 0.25 percentage point, reduction to the range. One hundred basis points equals 1 percentage point. So, with if the current fed funds range is 5.25% to 5.5%, as we can see right above the chart, then the implication is that the Fed will cut by 150 basis points, or 1.5 percentage points in 2024. That’s where the six 25-basis-point cuts come from. If you follow the link above, you will be able to pick any month, during which the Fed has a meeting, and do this same analysis to determine how many cuts the market thinks we will see by the conclusion of the meeting in that given month. Heading into the January meeting, we can see the market is placing a nearly 94% probability on the Fed holding rates at the current range following the January meeting. That’s a tick down from the roughly 98% we saw Tuesday. Perhaps, it’s because of the weaker-than-expected ADP private-sector employment report out Wednesday morning. In addition to leveraging this data to understand what the market is factoring in, you should compare it to your own outlook. You may have heard us say things like, the market is trading on Fed rate cuts. What we mean is that the valuation models being used to find appropriate price levels are factoring in six cuts. If you think that’s too much, then you would want to be more cautious as it would mean that the market is getting ahead of itself by pricing in a lower rate environment more quickly than it will be realized, according to your own world view. The opposite may also be true. However, keep in mind, while the general view is that lower rates are better for stock, given the impact on multiples and discount rates in discounted cash flow models, the more important question is why rates are where they are. Are they low because inflation has come down and the economy is still chugging along (bullish) or are they low because the economy is tanking (more, sub-optimal as Jim Cramer would say)? (See here for a full list of the stocks INJim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Here’s our Club Mailbag email investingclubmailbag@cnbc.com — so you send your questions directly to Jim Cramer and his team of analysts. We can’t offer personal investing advice. We will only consider more general questions about the investment process or stocks in the portfolio or related industries.

This week’s question: CNBC guests often say six Fed cuts are priced into the 2024 market. How do they know? Is it just their opinion? Do they have some calculation or is this just a pitch to support some bearish investment strategy? – Mike H. More

Coinbase announced Wednesday that George Osborne, who served as Britain’s chancellor of the exchequer from 2010 to 2016, will join the company on its global advisory council.
Faryar Shirzad, Coinbase’s chief policy officer, said the company was “pleased to have George join our council at an exciting time for us in the U.K. and globally.”
Osborne’s ties with Coinbase aren’t totally new; he has interacted with the exchange previously at a U.K. fintech event in London and at the World Economic Forum in Davos, Switzerland.

Former British Chancellor George Osborne addresses guests during a visit to the Manchester Chamber of Commerce on July 1, 2016 in Manchester, England.
Christopher Furlong | Getty Images

LONDON — A former British finance minister on Wednesday joined cryptocurrency exchange Coinbase as a global advisor, beefing up the company’s regulatory bargaining power at a time when it faces severe scrutiny stateside.
Coinbase announced that George Osborne, who served as Britain’s chancellor of the exchequer from 2010 to 2016, will join the company on its global advisory council.

He’ll join the likes of Mark Esper, the former U.S. Secretary of Defense and Patrick Toomey (R-PA) on the council, which is in place to “advise Coinbase on our global strategy as we grow our reach around the world.”
Faryar Shirzad, Coinbase’s chief policy officer, said the company was “pleased to have George join our council at an exciting time for us in the U.K. and globally.”
“George brings with him a wealth of experience in business, journalism and government. We look forward to relying on his insights and experiences as we grow Coinbase around the world,” Shirzard added.
Osborne will serve in an advisory capacity at Coinbase, helping connect the company with politicians and regulators to help further the cause of forming crypto-friendly regulations.
While chancellor of the exchequer, Osborne launched a slew of austerity policies aimed at reducing the budget deficit, including freezing child benefits, reducing housing benefits, and implementing a two-year pay freeze for public sector workers. He also tried to stimulate business activity by cutting corporation tax.

Osborne was temporarily editor-in-chief at London’s Evening Standard newspaper after completing his tenure as Britain’s finance minister. He is currently a partner at Robey Warshaw LLP, a boutique investment bank.
“There’s a huge amount of exciting innovation in finance right now,” Osborne said. “Blockchains are transforming financial markets and online transactions.”
“Coinbase is at the frontier of these developments. I look forward to working with the team there as they build a new future in financial services,” Osborne continued.

Osborne’s ties with Coinbase aren’t new

Suggestions of a growing relationship between Osborne and Coinbase first emerged last year, when Coinbase’s CEO Brian Armstrong spoke onstage in a fireside moderated by Osborne at a fintech event in London.
Osborne subsequently spoke with Coinbase’s chief financial officer, Alesia Haas, at a fireside chat in the Belvedere Hotel during the World Economic Forum in Davos, Switzerland.
It comes as Coinbase has made something of a land grab across Europe, expanding in multiple countries over the last few months with new licenses in place. The company was granted a virtual asset service provider license in France last month, paving the way for expansion of its services there. It has also recently secured licenses in Spain, Singapore, and Bermuda.
Coinbase is currently facing a harsh regulatory crackdown in the U.S. where the Securities and Exchange Commission has accused the company of violating securities laws. Coinbase denies the allegations.

Last year, Coinbase chief Armstrong appeared on stage with Osborne at the Innovate Finance Global Summit conference in London. At the event, Armstrong said he was open to investing more abroad, including relocating from the U.S. to the U.K. or elsewhere if the regulatory pressure on crypto companies continues.
“I think if a number of years go by where we don’t see regulatory clarity around us … we may have to consider investing more elsewhere in the world. Anything including, you know, relocating,” Armstrong told Osborne.
He told CNBC’s Arjun Kharpal at the time that Coinbase was “looking at other markets” as it considers its position from a regulatory standpoint.
Armstrong did later clarify in an interview with CNBC’s Dan Murphy that Coinbase had no formal plans to relocate from its U.S. headquarters in San Francisco. “Coinbase is not going to relocate overseas,” Armstrong said. “We’re always going to have a U.S. presence … But the U.S. is a little bit behind right now.” More

The U.S. and China had a “productive” first day of talks in Beijing about the fentanyl crisis, Jennifer Daskal, a deputy homeland security advisor, told NBC News’ Janis Mackey Frayer in an exclusive interview Tuesday.
Reducing illicit supplies of the drug, precursors of which are mostly produced in China and Mexico, has become an area in which Washington and Beijing have agreed to cooperate, amid an otherwise fraught bilateral relationship.
“We will know if it works if we start seeing the supply of precursor drugs diminish, if we start seeing the supply of pill presses and other equipment diminish,” Daskal said.

Chinese Minister of Public Security Wang Xiaohong (C) announces the launch of the U.S.-China Counternarcotics Working Group next to U.S. Deputy Assistant to the President and Deputy Homeland Security Advisor Jen Daskal (center L) at the Diaoyutai State Guesthouse in Beijing on January 30, 2024.
Ng Han Guan | Afp | Getty Images

BEIJING — The U.S. and China had a “productive” first day of talks in Beijing about the fentanyl crisis, Jennifer Daskal, a deputy homeland security advisor, told NBC News’ Janis Mackey Frayer in an exclusive interview Tuesday.
“We’re looking for results and we had a productive step forward,” Daskal said, while acknowledging the risk that China could use its sway over the fentanyl supply chain as a bargaining chip.

Fentanyl, a synthetic opioid, is an addictive drug that’s led to tens of thousands of overdose deaths each year in the U.S.
Reducing illicit supplies of the drug, precursors of which are mostly produced in China and Mexico, has become an area in which Washington and Beijing have agreed to cooperate.
It comes amid an otherwise fraught bilateral relationship.
U.S. President Joe Biden and Chinese President Xi Jinping agreed at their meeting in San Francisco in November to establish a working group on drug control.

In an official readout of Tuesday’s meeting, Wang Xiaohong, director of China’s National Narcotics Control Commission, said he hoped both sides would “inject more positive energy” into the stable development of U.S.-China relations.

Wang is also the Minister of Public Security.
The Biden administration in November removed the Ministry of Public Security’s Institute of Forensic Science of China from a blacklist known as the entity list, in effect lifting sanctions on its narcotics lab.
That removal allows China’s National Narcotics Lab to repair or buy new equipment — mostly made in the U.S. — and reduce delays in research, lab director Hua Zhendong told NBC News’ Mackey Frayer.
Greater bilateral cooperation allows the two countries to exchange information about drugs more easily, Hua said.
“Only through the information exchange could we know which substance is now a key problem in the U.S., because it’s only evolving.”

‘More needs to be done’

The two-day meeting that kicked off Tuesday was billed as the “Inauguration of the China-U.S. Counternarcotics Working Group.”
Daskal, leader of the White House delegation for this week’s high-level talks, said the diversity of representatives from both sides “showed a real commitment.”
“We will know if it works if we start seeing the supply of precursor drugs diminish, if we start seeing the supply of pill presses and other equipment diminish,” Daskal said. She pointed out that Beijing has already sent notices to Chinese companies that make precursors for fentanyl, and that incidents are being reported to the International Narcotics Control.
“There’s obviously more that needs to be done,” she said.
It’s unclear to what extent Beijing is willing, or able, to act.
Earlier this month, Yu Haibin, deputy secretary-general of the National Narcotics Control Commission, told NBC News that the “root cause” of the fentanyl crisis lies within the U.S.
“Demand needs to be reduced, as controlling demand will naturally curb supply,” Yu told NBC’s Mackey Frayer.

“I want to emphasize the global nature of drug crimes. These criminals work very closely together. Our law enforcement agencies need to collaborate even more closely than the criminals so there can be a robust response to these crimes,” Yu said.
He is also deputy director general of the Ministry of Public Security’s Narcotics Control Bureau.
Asked about the issue of U.S. fentanyl demand, Daskal said the two delegations spent most of Tuesday discussing “the fact that this is a problem of both demand and supply.”
“We talked about the need … to address the supply of the pill, process and other equipment that are used to manufacture these deadly drugs, and to often hide them and create fake pills that look like they’re other things [that] turned out to be deadly fentanyl,” Daskal said. More

Joe Biden’s opponents focus on his age as something that makes him doddering, confused and ultimately unfit for office. So the great paradox of the 81-year-old’s first term is that he has presided over perhaps the most energetic American government in nearly half a century. He unleashed a surge in spending that briefly slashed the childhood poverty rate in half. He breathed life into a beleaguered union movement. And he produced an industrial policy that aims to reshape the American economy.image: The EconomistThere is plenty to debate about the merits of all of this. A steep rise in federal spending has aggravated the country’s worrying fiscal trajectory. Subsidies for companies to invest in America have angered allies and may yet end up going to waste. But there is no denying that many of these policies are already having an impact. Just look at the boom in factory construction: even accounting for inflation, investment in manufacturing facilities has more than doubled under Mr Biden, soaring to its highest on record.What would he do in a second term? Mr Biden’s re-election motto—“we can finish the job”—sounds more like a home contractor’s pledge than the rhetoric of a political firebrand. Yet to hear it from the president’s current and former advisers, Bidenomics amounts to little short of an economic revolution for America. It would be a revolution shaped by faith in government and a mistrust of markets.image: The EconomistFive elements stand out. The first is a desire to boost workers, mostly through unions. The second is more social spending, especially on early-childhood education. Third is tougher competition policy to restrain big business. Fourth, a wave of investment intended to make America both greener and more productive. Last, Mr Biden wants to tax large firms and the wealthy to pay for much of this.As with any president, Mr Biden’s agenda thus far has been limited by Congress. The five elements were all present in the $3.5trn “Build Back Better” bill that Democrats in the House of Representatives backed in 2021, only to run smack into a split Senate. The result is that the most prominent part of existing Bidenomics has been the investment element, comprising three pieces of legislation focused on infrastructure, semiconductors and green tech. Signing three big spending bills into law nevertheless counts as a productive presidential term. They add up to a $2trn push to reshape the American economy.If Mr Biden returns to the White House for a second term but Republicans retain control of the House or gain the Senate, or potentially both, advisers say that his focus would be on defending his legislative accomplishments. Although Republicans would be unable to overturn his investment packages if they did not hold the presidency, they could chip away at them.Take the semiconductor law. Along with some $50bn for the chips industry, it also included nearly $200bn in funding for research and development of cutting-edge technologies, from advanced materials to quantum computing. But that giant slug of cash was only authorised, not appropriated, meaning it is up to Congress to pass budgets to provide the promised amount. So far it is falling well short: in the current fiscal year, it is on track to give $19bn to three federal research agencies, including the National Science Foundation, which is nearly 30% less than the authorised level, according to estimates by Matt Hourihan of the Federation of American Scientists, a lobby group. If Congress refuses to work with Mr Biden, these shortfalls will grow.The funding directed at infrastructure and semiconductors is more secure, but much of it will run out by 2028, before the end of a second term. Without Republican support for funding, the investment kick-started over the past couple of years may ease off. High-cost producers will struggle to survive. Critics may see no reason to devote so much treasure to manufacturing when a modern economy based on professional, technical and scientific services already generates plenty of well-paying jobs.But Mr Biden will have some leverage if Republicans try to water down his policies. Many of the big tax cuts passed during Donald Trump’s presidency expire at the end of 2025. Republicans want to renew them, to avoid income-tax rates jumping up. So one possibility is that Mr Biden could fashion a deal in which he agrees to an extension of many of the tax cuts in exchange for Republicans in Congress backing some of his priorities, including his industrial subsidies—never mind that such an agreement would be fiscally reckless.The White House is also hoping that Mr Biden’s investment programmes will develop momentum of their own. “We are very pleasantly surprised by the extent to which private capital has flowed in the direction of our incentives,” says Jared Bernstein, chair of the president’s Council of Economic Advisers. Much of the money is going to red states, spawning constituencies of businesses and local politicians who would object to cuts. Meanwhile, there is, in principle, bipartisan support for federal spending on science and technology as a way of safeguarding America’s competitive edge over China. That is why a few dozen Republicans in the House and Senate, albeit a minority, voted for the semiconductor package. Given this constellation of interests and leverage, the industrial policies that defined Bidenomics in the president’s first term would probably survive his second term, albeit in somewhat more limited form.But what if Mr Biden is less constrained? To really understand the potential scope of Bidenomics, it is worth asking what the president would do if the Democrats end up controlling both houses of Congress. Once they come down from their elation at such an outcome, the team around Mr Biden would know that they have a limited window—probably just two years, until the next set of midterm elections—to get anything of note done.For starters they would turn to the social policies left on the Build Back Better cutting-room floor. These include free pre-school for three- and four-year-olds, generous child-care subsidies, spending on elderly care, an expanded tax credit for families with children and paid parental leave. Janet Yellen, the treasury secretary, has described this agenda as “modern supply-side economics”. She argues that investments in education would make American workers more productive, while investments in care would free up people, especially women, to work, leading to a bigger labour force. But it would also be costly, running to at least $100bn a year of additional spending—adding half a percentage point to the annual federal deficit (which hit 7.5% of GDP in 2023). And implementation would be challenging. For instance, funding for child care would fuel demand for it, which in turn would exacerbate a chronic shortage of caregivers.Mr Biden’s desire to strengthen unions would also receive fresh impetus. The president describes himself as the most pro-union president in American history—a claim that may well be true. In his first term support for unions was expressed most clearly through words and symbolic actions: when he joined striking auto workers near Detroit in September, he became the first president to walk a picket line. Mr Biden would have liked to have done more. He had at first wanted to make many industrial subsidies contingent on companies hiring unionised workers, a requirement that did not make it into law. The labour movement’s big hope for a second Biden term is passage of the PRO Act, which would boost collective bargaining by, among other things, making it harder for firms to intervene in union votes. That would represent a gamble: the flexibility of America’s labour market is a source of resilience for the economy, which has been good to workers in recent years.The flipside of Mr Biden craving approbation as a pro-union president is that he has also come to be seen as anti-business. Members of his cabinet bridle at this charge, noting that corporate profits have soared and that entrepreneurs have created a record number of businesses during his first term. Yet the single biggest reason why Bidenomics has got a bad rap has been his competition agenda, led by Lina Khan of the Federal Trade Commission (FTC). Although her efforts to cut down corporate giants have spluttered, with failed lawsuits against Meta and Microsoft, she is not done. The FTC has introduced new merger-review guidelines that require regulators to scrutinise just about any deal that makes big companies bigger, which could produce even more contentious competition policy. Excessive scrutiny of deals would also use up regulators’ scarce resources and poison the atmosphere for big business. An alternative focus, on relaxing land-use restrictions and loosening up occupation licensing, would provide a much healthier boost to competition.Captain of industryAt the same time, Mr Biden may double down on the manufacturing policies of his first term. The $50bn or so of incentives for the semiconductor industry has been a start, but it is small relative to how much investment is required for large chip plants. Advisers talk of a follow-on funding package. There would also be a desire to craft new legislation to smooth out bumps in the implementation of industrial policy. Todd Tucker of the Roosevelt Institute, a left-leaning think-tank, advocates a national development bank, creating a reservoir of cash that could be channelled to deserving projects.How to pay for it all? Mr Biden has long made clear that he wishes to raise taxes on the rich, in particular on households earning over $400,000 a year and on businesses. The president’s advisers argue that he truly believes in fiscal discipline. His budget for the current fiscal year would, for instance, cut the deficit by $3trn over a decade, or by 1% of GDP a year, according to the Committee for a Responsible Federal Budget (CRFB), a non-profit outfit. That, however, is predicated on Democrats exercising restraint as tax receipts increase—something that is hard to imagine, says Maya MacGuineas of the CRFB.Notable by its absence in Mr Biden’s first term has been any serious trade agenda, apart from an aversion to traditional trade negotiations. Perhaps Mr Biden may be somewhat less encumbered by the daunting domestic politics of trade deals in a second term. One test will be if America and Europe can establish a critical-minerals agreement, working together to secure inputs for battery production and curbing reliance on Chinese suppliers.But Mr Biden’s apparent mistrust of globalisation will probably rule out anything more ambitious. His decision on January 26th to pause approvals for liquefied-natural-gas exports reflected protectionist instincts; it may cut prices for American consumers at the expense of customers overseas. And he will almost certainly maintain a tough line on China. Throughout his first term there was speculation that he might lower tariffs on China. Now, some in his orbit talk instead of adjustments: reducing duties on basic consumer goods, while raising them on high-tech products.Most of the action, then, would be in the domestic arena—the battleground for everything from child-care spending to semiconductor subsidies. Supporters argue that these policies would make America more equal, propel its industry and tilt the playing-field towards workers and away from bosses. To many others, they look like a lurch back to bigger government, with an outdated focus on both manufacturing and unions, which may strain ties with allies. Mr Biden was a most unlikely radical in his first term. If the polls head his way, he may go further yet in a second. ■ More