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    As Possible Debt Limit Crisis Nears, Wall Street Shrugs

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    Few investors have focused on the possibility that Congress will not raise the nation’s borrowing limit in time to avoid an economically catastrophic default.WASHINGTON — Speaker Kevin McCarthy chose the New York Stock Exchange on Monday to deliver his most detailed comments yet on House Republicans’ demands for raising the nation’s borrowing limit. But his comments made little impression on Wall Street, where investors continue to trade stocks and Treasury bonds under the assumption that Congress and President Biden will find a way to avoid a calamitous government default.The lack of a market panic about the talks reflects a been-there, done-that attitude that investors have increasingly taken to partisan showdowns over taxes, spending and the government’s ability to pay its bills on time, which lawmakers often resolve at the last possible moment.But there are reasons to believe that this time could play out differently, starting with the chaos in Mr. McCarthy’s caucus — and new warnings that lawmakers might have less time to raise the $31.4 trillion limit than previously thought.The next few weeks will more precisely determine how quickly the government will exhaust its ability to pay bondholders, employees, Social Security recipients and everyone else it sends money to on a regular basis. That’s because data on the government’s tax receipts for the year will come into sharper focus after Tuesday’s deadline for people to file individual income tax returns for 2022.On Tuesday, Goldman Sachs economists sounded a warning that the potential default date could be much sooner than previous forecasts — which typically pegged the date in July or August — if revenue comes in soft. “While the data are still very preliminary, weak tax collections so far in April suggest an increased probability that the debt limit deadline will be reached in the first half of June,” they wrote.Republicans are refusing to raise the borrowing cap unless Mr. Biden agrees to reduce government spending and slow the growth of the national debt, a position that risks plunging the United States into recession if the Treasury Department runs out of money to pay all its bills on time. But Mr. McCarthy has struggled to unite his Republicans around specific cuts, even though he said Monday that he will put such a plan on the House floor next week.Moderates in the Republican caucus are wary of deep cuts to popular domestic programs, like education and national parks, that would be spurred by his proposal to cap domestic spending growth at a level well below the current inflation rate. Fiscal hawks, including a faction that resisted Mr. McCarthy’s appointment as speaker and could effectively force a vote to oust him at any time, have pushed for far more aggressive reductions. They include lawmakers who have never voted to raise or suspend the debt limit, even under President Donald J. Trump, who signed three suspensions of the limit into law.Mr. McCarthy detailed his plan to fellow Republicans on Tuesday. As outlined on Monday, it would raise the limit for about a year. It would also return most domestic spending to fiscal year 2022 levels and cap its growth over a decade. Mr. McCarthy also wants to add work requirements for recipients of federal food assistance and reduce federal regulations on fossil fuel development and other projects, which he says will increase economic growth.It is unclear if enough Republicans would vote for that package to ensure its passage in the House. Senate Democrats would almost certainly reject it, as would Mr. Biden, who has said repeatedly that he expects Congress to raise the borrowing limit with no strings attached.Mr. Biden has shown no indication that he will intervene to speed up discussions over raising the limit, or seek to broker any deals in Congress to do so. The president has said he will negotiate taxes and spending levels separately from the borrowing limit. But he and his aides are refusing to engage further with Mr. McCarthy on fiscal policy until Republicans rally around a budget plan.Mr. Biden slammed Mr. McCarthy’s plan in a speech on Tuesday, saying he has “proposed huge cuts to important programs that millions of Americans count on.” Mr. Biden said that Mr. McCarthy had “threatened to become the first speaker to default on our debt unless he gets the cuts he wants.”The only market thus far to reflect stress about the debt limit is the one most attuned to it: credit default swaps, which price the risk of the government failing to make scheduled payments to bondholders. Mr. McCarthy shrugged off that stress in a question-and-answer session after his speech on Monday.“Markets go up and down,” he said.Stock and bond markets were unfazed after Mr. McCarthy’s comments. They have in recent months been far more reactive to any evidence about what the Federal Reserve will do next in its campaign to tame high inflation by raising interest rates.Some White House officials privately say they expect Republicans to step up their efforts to raise the limit if and when investors begin to worry more about negotiations. That’s what happened in 2011, when a showdown between congressional Republicans and President Barack Obama nearly ended in default. Stocks plunged, and borrowing costs rose for corporations and home buyers. The damage took months to repair.Some Republicans are similarly hopeful that a wake-up on Wall Street will push Mr. Biden to change his negotiating stance, including Representative Patrick McHenry of North Carolina, the chairman of the House Financial Services Committee.“I don’t think market participants have any idea of how bad off these negotiations are right now, which should give them pause and concern, and actually should bring the president to the table,” he said.Catie Edmondson More

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    SVB Hearing Takeaways: Bank Failures Spur a Blame Game, But Few Solutions

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    Federal regulators faced more than two hours of intense questioning from lawmakers on Tuesday about what caused the failures of Silicon Valley Bank and Signature Bank, the red flags that went unheeded and the steps that must be taken to avoid future collapses that could rattle the United States financial system.There was bipartisan concern about the state of the nation’s banks that in many cases blurred the usual party lines, where Democrats want more strict oversight and Republicans call for looser regulations. But there was also a substantial amount of buck-passing and finger pointing as the officials from the Federal Reserve, the Federal Deposit Insurance Corporation and the Treasury Department sought to make sense of the second largest bank failure in American history.The hearing — featuring Michael S. Barr, the Federal Reserve’s vice chair for supervision, Martin Gruenberg, chair of the Federal Deposit Insurance Corporation and Nellie Liang, the Treasury’s under secretary for domestic finance — marked the beginning of what will be an extended inquiry by Congress and the regulators themselves into what went wrong.Regulators blamed the banks.From the outset, the regulators made clear what they believed to be the primary reason that Silicon Valley Bank failed: It was poorly managed and allowed risks to build up to the point that the bank collapsed.Mr. Barr said in his testimony that “SVB’s failure is a textbook case of mismanagement.” He added that Fed officials flagged problems to the bank as far back as November 2021, but the bank failed to deal with them.Punishment for executives is on the table.Lawmakers remained intent on ensuring that the executives of the banks are punished if they did anything improper leading up to the failures. They also expressed particular concern about last minute stock sales by Silicon Valley Bank officials.Regulators said that they were limited in their power to claw back compensation but that they can impose financial and other penalties if their continuing investigation finds wrongdoing.Regulators blamed Silicon Valley Bank’s collapse on poor management during more than two hours of questioning, Kenny Holston/The New York TimesThe Fed could have done more.The Federal Reserve is under particular scrutiny regarding when it knew that things were amiss at SVB.Even though Fed supervisors had flagged weaknesses at SVB as far back as 2021, Mr. Barr said he first learned of SVB’s problems last month — suggesting it took a long time for concerns to be escalated to the Fed board and its vice chair of supervision.Mr. Barr said that the Federal Reserve officials will be discussing any potential missed warning signs in their internal review and that “we expect to be held accountable.”Regulators say they need more authority.All three regulators said that they believed that financial regulations needed to be tightened following the recent stress in the banking sector.Mr. Barr pointed to Federal Reserve regulations, which were enacted during the Trump administration in 2019, that exempted Silicon Valley Bank from being stress tested and suggested that those need to be revisited.Some Democrats on the committee emphasized the notion that deregulation left agencies without the tools they needed to address issues at smaller banks.What’s next?The House Financial Services Committee will hold its own hearing on Wednesday, and question the same officials.Reviews by the F.D.I.C. and the Fed are expected to be completed by May 1 and members of the Senate committee from both parties suggested they’d be interested in hearing from regulators after those inquiries are concluded.There is also an ongoing debate about raising the bank deposit insurance cap from $250,000 and imposing stiffer penalties on executives at banks that fail.Lawmakers have also asked the Government Accountability Office to study the effectiveness of the bank supervisory regime and make recommendations for changes. But it’s not clear whether any suggested changes would have enough bipartisan support to overcome a divided Congress. More

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    Double-Barreled Economic Threat Puts Congress on Edge

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    Republicans and Democrats disagree over how recent bank closures should impact the debt limit stalemate, and have taken divergent lessons from past economic crises.WASHINGTON — In 2008, an imminent collapse of the banking system consumed Congress before lawmakers delivered a bailout. Three years later, a debt limit crisis enveloped Washington and led to a series of spending cuts after a dangerous brush with default and a first-ever downgrade in the nation’s credit rating.Now unease about the banking system’s stability and a stalemate over raising the debt limit are engulfing the capital simultaneously, ratcheting up an already high level of financial anxiety as two economic challenges Congress has experienced before become intertwined.“The stakes are exceptionally high when you are dealing with what amounts to a one-two punch of economic peril,” said Senator Ron Wyden, Democrat of Oregon and chairman of the Senate Finance Committee. “The messages that you send to the economy and the public with respect to banking and the full faith and credit of the United States — it doesn’t get more consequential than that.”Republicans and Democrats acknowledge it is a scary case of déjà vu times two. But they diverge sharply on how recent bank failures — and uncertainty over how Congress should respond to them, if at all — will influence the debt limit fight later this summer.At their just-concluded retreat in Florida, House Republicans took the line that shakiness in the banking system should strengthen their hand in the coming showdown over the debt limit. They argued that a Democrat-led spending spree spurred inflation, forced up interest rates and led to a precarious situation for all but the largest banks. The clear answer, to them, remains deep spending cuts, and they say they will still insist on cuts before making any move to raise the debt ceiling.Treasury Secretary Janet L. Yellen said on Tuesday that the president was willing to talk federal spending with Republicans, just not under the threat of a debt default.Pete Marovich for The New York Times“That should wake everybody up,” Speaker Kevin McCarthy, Republican of California, told reporters on Tuesday when asked about the intersection of banking stability and the debt limit. “Why are we having a crisis? Because the government spent too much and created inflation.”“I believe to get to a debt ceiling limit, you have to be spending less than we spent before,” he said.But Jerome H. Powell, the Fed chair, on Wednesday disputed the notion that spending remained the chief driver of inflation.“Spending was of course tremendously high during the pandemic,” he said at a news conference announcing an increase in interest rates. “As pandemic programs rolled off, spending actually came down.”“Fiscal impulse is actually not what’s driving inflation right now,” he said. “It was at the beginning perhaps, but that’s not the story right now.”Democrats say House Republicans are doing the exact opposite of what is required at a critical moment, even as the Fed offers assurances about the soundness of the banking system. They say the fallout from any banking instability should persuade Republicans that the last thing the economy needs is the specter of a default from a failure to raise the debt limit, which is projected to be reached as early as July without action by Congress.Senator Chuck Schumer, Democrat of New York and the majority leader, on Wednesday assailed the Republican stance as “reckless and truly clueless.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.“Instead of calling for calm, House Republicans are sowing chaos by threatening a default at a time when banks need stability,” he said. “The right answer is for Republicans in the House to stop saber-rattling, drop the hostage-taking and brinkmanship and work together, work in a bipartisan way, to extend the debt ceiling without strings attached.”Other Democrats shared those sentiments, dismissing calls from some Republicans to prioritize federal payments should Congress fail to agree on a debt-limit increase. They say that approach is unworkable and default by another name.“The banking crisis highlights the importance of paying our bills on time,” said Senator Chris Van Hollen, Democrat of Maryland and a member of the Banking Committee. “We don’t want to create any more uncertainty in the financial markets and the economy. Because of what happened with the banks, it is more important than ever that Republicans don’t allow us to get close to the cliff.”“Because of what happened with the banks, it is more important than ever that Republicans don’t allow us to get close to the cliff,” said Senator Chris Van Hollen, Democrat of Maryland.Pete Marovich for The New York TimesThe 2008 and 2011 economic crises were earthshaking events on Capitol Hill. In the fall of 2008, in response to warnings from Treasury and Fed officials that the nation’s banks were about go under, Congress dove into a titanic, market-rattling debate over the $700 billion Troubled Asset Relief Program, ultimately approving a historic government intervention in the economy.Three years later, a new House Republican majority and the Obama administration took their clash over spending to the brink of financial ruin, bringing the country close to a federal default before striking a last-minute deal on spending cuts cleared the way for an increase in the debt ceiling, averting disaster.Lawmakers say they drew many lessons from those painful experiences. But the two parties did not draw the same ones.For Democrats, the 2011 experience hardened their opposition to negotiating over increasing the debt limit, confirming their belief that it should be raised without conditions since it is simply making good on spending already approved by Congress, with the support of members of both political parties. Republicans, by contrast, say that same experience persuaded them that the only way to exact real spending cuts is to use the threat of a federal debt default as leverage.The clashing approaches now have the parties again dug in over increasing the debt limit. Scant progress has been made toward finding a resolution that could avoid undermining the economy, even as the banking system exhibits signs of stress.Some Republicans say that they see the high-profile failure of the Silicon Valley Bank as an isolated incident, in contrast to the widespread fear of a total banking collapse in 2008 before Congress intervened.“This is not ’08 and ’09 when the banking industry was crazy on their asset side,” said Senator Mike Braun, Republican of Indiana. “That side of the economy I think learned its lesson.”He and other Republicans said they need to continue to push for spending reductions as part of any agreement to raise the debt limit and called on Democrats and President Biden to drop their refusal to negotiate.“This is not just a one-way street,” said Senator John Cornyn, Republican of Texas. “Hopefully Biden and the administration will get real when it comes to negotiating something, rather than saying, ‘I am not going to negotiate anything.’”In an appearance on Tuesday before the American Bankers Association, Treasury Secretary Janet L. Yellen said that the president was willing to talk federal spending with Republicans, just not with the debt limit sword held at his throat.“Having this conversation needs to happen over time and in the appropriations process and not through the threat of forcing a default,” she told members of the group. “It is essential that Congress raise the debt ceiling and that they do it promptly in order not to inflict a truly catastrophic wound on our economy and our financial system.”Republicans and Democrats credit consumer confidence for holding off economic calamity and so far preventing Congress from entering the crisis atmosphere that permeated both 2008 and 2011. But there is no guarantee that confidence can be maintained, and lawmakers warn of the possibility of cascading events should the banking system become viewed as unstable or the debt limit standoff go on too long.“It has,” warned Senator Richard Blumenthal, Democrat of Connecticut, “the makings of a perfect storm.” More

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    Wall St. Is Counting on a Debt Limit Trick That Could Entail Trouble

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    If the debt limit is breached, investors expect Treasury to put bond payments first. It’d be politically and practically fraught.Washington’s debt limit drama has Wall Street betting that the United States will employ a fallback option to ensure it can make good on payments to its lenders even if Congress doesn’t raise the nation’s borrowing limit before America runs out of cash.But that untested idea has significant flaws and has been ruled out by the Biden administration, which could make it less of a bulwark against disaster than many investors and politicians are counting on.Many on Wall Street believe that the Treasury Department, in order to avoid defaulting on U.S. debt, would “prioritize” payments on its bonds if it could no longer borrow funds to cover all its expenses. They expect that America’s lenders — the bondholders who own U.S. Treasury debt — would be first in line to receive interest and other payments, even if it meant delaying other obligations like government salaries or retirement benefits.Those assumptions are rooted in history. Records from 2011 and 2013 — the last time the U.S. tipped dangerously close to a debt limit crisis — suggested that officials at the Treasury had laid at least some groundwork to pay investors first, and that policymakers at the Federal Reserve assumed that such an approach was likely. Some Republicans in the House and Senate have painted prioritization as a fallback option that could make failure to raise the borrowing cap less of a disaster, arguing that as long as bondholders get paid, the U.S. will not experience a true default.But the Biden administration is not doing prioritization planning this time around because officials don’t think it would prevent an economic crisis and are unsure whether such a plan is even feasible. The White House has not asked Treasury to prepare for a scenario in which it pays back investors first, according to multiple officials. Janet L. Yellen, the Treasury secretary, has said such an approach would not avoid a debt “default” in the eyes of markets.“Treasury systems have all been built to pay all of our bills when they’re due and on time, and not to prioritize one form of spending over another,” Ms. Yellen told reporters this month.Perhaps more worrisome is that, even if the White House ultimately succumbed to pressure to prioritize payments, experts from both political parties who have studied the temporary fix say it might not be enough to avert a financial catastrophe.Senator Ted Cruz, center, and other Republicans during a news conference on debt ceiling on Capitol Hill last week.Haiyun Jiang/The New York Times“Prioritization is really default by another name,” said Brian Riedl, formerly chief economist to former Republican Senator Rob Portman and now an economist at the Manhattan Institute. “It’s not defaulting on the government’s debt, but it’s defaulting on its obligations.”Congress must periodically raise the nation’s debt ceiling to authorize the Treasury to borrow to cover America’s commitments. Raising the limit does not entail any new spending — it is more like paying a credit-card bill for spending the nation has already incurred — and it is often completed without incident. But Republicans have occasionally attempted to attach future spending cuts or other legislative goals to debt limit increases, plunging the United States into partisan brinkmanship.Understand the U.S. Debt CeilingCard 1 of 5What is the debt ceiling? More

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    U.S. Will Hit Debt Limit on Thursday, Yellen Tells Congress

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    The Treasury Department expects to begin taking “extraordinary measures” to continue paying the government’s obligations before what is expected to be a big fight to raise the borrowing cap.WASHINGTON — Treasury Secretary Janet L. Yellen warned on Friday that she would have to begin employing “extraordinary measures” on Thursday to continue paying the nation’s bills if lawmakers did not act to raise the statutory debt limit and that her powers to delay a default could be exhausted by early June.Ms. Yellen’s letter to Congress was the first sign that resistance by House Republicans to lifting the borrowing cap could put the U.S. economy at risk and signals the beginning of an intense fight in Washington this year over spending and deficits.“Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans and global financial stability,” Ms. Yellen wrote.Ms. Yellen said on Friday that considerable uncertainty surrounded how long she could use measures to delay a default. She said she would begin suspending new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund and suspending reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan this month to avoid breaching the debt limit.The letter is the beginning of what is expected to be a protracted and potentially damaging economic fight. Republicans, who assumed control of the House last week, have insisted that any increase to the debt limit be accompanied by significant spending curbs, most likely including cuts to both the military and domestic issues.Speaker Kevin McCarthy has cited reducing the national debt — which topped $31 trillion last year and has increased during both Republican and Democratic administrations, including about a 40 percent increase under former President Donald J. Trump — as a central focus of his party’s agenda.“The American people are the ones that’s demanding the cut in spending,” Representative Jason Smith, a Missouri Republican and the chairman of the powerful House Ways and Means Committee, said Friday on Fox News. “We have to have fiscal reforms moving forward. We cannot just give an unlimited credit card.”Understand the U.S. Debt CeilingCard 1 of 4What is the debt ceiling? More

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    Leaders in Congress Say They Will Act to Prevent Rail Strike

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    Democratic and Republican leaders prepared to intercede as President Biden warned the prospect of a December strike put the U.S. economy “at risk.”After a meeting with President Biden, Democratic and Republican leaders pledged to pass legislation that would avert a planned nationwide rail strike in December.Doug Mills/The New York TimesWASHINGTON — Democratic and Republican leaders in Congress vowed on Tuesday to pass legislation averting a nationwide rail strike, saying they agreed with President Biden that a work stoppage during the holidays next month would disrupt shipping and deal a devastating blow to the nation’s economy.The rare bipartisan promise to act came as some of the nation’s largest business groups warned of dire consequences from a rail shutdown. Mr. Biden, who had promised to be the most pro-union president in the country’s history, said the federal government must short-circuit collective bargaining in this case for the good of the country as a whole.“It’s not an easy call, but I think we have to do it,” he told the top four lawmakers from both parties during a meeting at the White House on Tuesday morning, as the Dec. 9 strike deadline loomed. “The economy is at risk.”Speaker Nancy Pelosi said the House would vote Wednesday on a tentative agreement that Mr. Biden’s administration had helped negotiate between rail companies and the unions earlier this year. The agreement raised wages but lacked provisions for paid medical or family leave.Late Tuesday, facing substantial frustration among progressives who demanded that the offer include paid leave, Ms. Pelosi said she would also bring up a separate proposal to add seven days of paid sick leave to the agreement. It is unclear whether Republicans in the Senate would agree to such an addition, but the plan to hold a vote illustrated the degree of discontent among pro-union liberals about the agreement Mr. Biden had struck.“They demand the basic dignity of paid sick days. I stand with them,” Representative Alexandria Ocasio-Cortez, Democrat of New York, said on Twitter. “If Congress intervenes, it should be to have workers’ backs and secure their demands in legislation.”Senate leaders said they would work to pass legislation to avert the strike quickly after it passes the House, as expected. Senator Mitch McConnell of Kentucky, the minority leader, told reporters that “we’re going to need to pass a bill,” suggesting that Republicans did not intend to try to block such a move. Representative Kevin McCarthy of California, the House minority leader, said, “I think it will pass.”If it does, it will be bittersweet for Mr. Biden, who has built a decades-long political career by stressing his support for unions in their battles against management. Aides said the president had been reluctant to override the will of union workers, but ultimately changed his mind when three of his cabinet secretaries told him that negotiations had broken down and a strike seemed inevitable.Officials said Mr. Biden concluded that the effects of a strike, including hundreds of thousands of lost jobs, would be too damaging. Frozen train lines would snap supply chains for commodities like lumber, coal and chemicals, and delay deliveries of automobiles and other consumer goods, driving up prices even further.The American Trucking Associations, an industry group, recently estimated that relying on trucks to work around a rail stoppage would require more than 450,000 additional vehicles — a practical impossibility given the shortage of equipment and drivers.Understand the Railroad Labor TalksCard 1 of 5Averting a shutdown. More

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    Inflation Plagues Democrats in Polling. Will It Crush Them at the Ballot Box?

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    Americans are extremely attuned to the cost of living, and as midterm election voters head to the polls, they are divided over whom to blame.Inflation has roared back onto the scene as a key issue ahead of the 2022 midterm elections, after five decades during which slow and steady price increases were a political nonissue.It was once a potent driver of politics in America, one that panicked former President Richard M. Nixon and his administration, and later helped to make Jimmy Carter a one-term president. As prices surge, inflation is again taking center stage, and could help decide who controls Congress.Household confidence has plummeted as inflation has climbed, and economic issues have shot to the top of what voters are worried about. A full 49 percent of voters overall said that the economy is an extremely important issue to them in an October Gallup survey, notably outranking abortion, crime and relations with Russia. That’s the highest level of economic concern headed into a midterm election since 2010, when the economy was coming out of the worst downturn since the Great Depression.Inflation is almost certainly the issue pushing the economy to its current prominence. Consumer prices picked up by 8.2 percent in the year through September, far faster than the roughly 2 percent annual gains that were normal in the years leading up to the pandemic. That has left many families feeling like they are falling behind, even as unemployment lingers near a 50-year low, employers hire at a solid clip and job openings abound.The disconnect between the strength of the economy and the way that voters feel about it illustrates why Democrats are barreling into the midterms on the defensive. Elected politicians have a limited role to play in fighting inflation, a job that falls mostly to the Federal Reserve. That has made talking about price increases all the more challenging.Survey data suggest that while voters disagree over whom to blame for today’s rapid price increases, a larger share of independent voters believe that Republicans would be better for the economy and their finances. And irritation over the state of the economy could be enough to prompt some people to vote for change even if the other party doesn’t offer clearly better solutions, according to political scientists. The question is less whether inflation will be a factor driving votes — and more whether it will be a decisive one.“It matters enormously to the election this week,” said Elaine Kamarck, a senior fellow in the Governance Studies program at the Brookings Institution, noting that gas and grocery prices are omnipresent realities for most families. “It is obvious what is happening in inflation every single day: Voters don’t get to forget it.”Across the political spectrum, many Americans are feeling less positive about their personal finances: An AP-NORC Center for Public Affairs Research poll from October found that 36 percent of Democrats now say their finances are in bad shape, up from 28 percent in March. Among Republicans, that number was 53 percent, up from 41 percent. Independents were fairly unchanged, with 53 percent feeling negative.That could be particularly bad for Democrats, because they are often seen as less strong on the economy.Which Party Is Better for the National Economy?Independents and Republicans both tend to rank Republicans ahead of Democrats economically, based on University of Michigan data.

    Note: Survey from September and October 2022.Source: University of MichiganBy The New York TimesNew survey data from the University of Michigan showed that 41 percent of voters felt neither party had an advantage when it came to helping their personal finances. But of those who did think there was a difference, 35 percent thought Republicans would be better — versus 20 percent for Democrats. Consumers also expected Republicans to win in national races.“By and large, respondents expect Republicans to gain control of both the House and the Senate,” Joanne Hsu, director of the University of Michigan’s consumer surveys, wrote in the Nov. 4 release.Which Party Is Better for Your Personal Finances? Republicans and Independents tend to rank Republicans higher on issues of personal finance, though many see no difference.

    Note: Survey from September and October 2022.Source: University of MichiganBy The New York TimesWhether they are right could hinge on whether inflation proves as salient for actual votes as it is in sentiment surveys.Prices may be rising quickly — annoying consumers and occupying their attention — but unemployment is very low, which Ms. Kamarck said might alleviate the angst. Plus, she said, critical groups of voters — most notably women — may focus on other issues including a Supreme Court ruling from earlier this year that overturned Roe v. Wade and ended the constitutional right to abortion.Hally Simpson Wilk, 36, from Broadview Heights, Ohio, is feeling inflation at the grocery store, but she does not think that Republicans would necessarily be better at solving the problem than Democrats. Plus, she said, the abortion ruling had “lit a fire under” her. She expects to vote Democrat.It is hard to guess whether unhappiness over rising prices will drive actual votes in part because there isn’t much recent precedent. While inflation has a history of driving politics in America, it hasn’t been a major issue in 50 years.Back in the 1970s and 1980s, inflation was even faster, touching peaks as high as 12 and 14 percent. Those price increases, and the nation’s response to them, played a big role in driving the national conversation and deciding elections during that era. Mr. Nixon in 1971 instituted wage and price caps to try to temporarily keep prices under control ahead of the 1972 election, for instance.“Inflation robs every American, every one of you,” Mr. Nixon said during his surprise announcement, which included other major economic policy changes. “Homemakers find it harder than ever to balance the family budget. And 80 million American wage earners have been on a treadmill.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}Our needle is back. The needle is an innovative forecasting tool that was created by The Times and debuted in 2016. It is intended to help you understand what the votes tallied so far suggest about possible winners in key contests, before the election is called. Look for one needle on which party will control the House and one on which party will control the Senate.Here’s a deeper dive into how it works.Those wage and price caps may have been politically astute, but research since has showed they just delayed price jumps — they didn’t stop them. When Mr. Carter became president in 1977, inflation was still raging. The Fed wrestled it under control with super-high interest rates that sent unemployment soaring, a campaign that is widely credited with helping to cost Mr. Carter a second term.America’s experience during the 1970s also illustrates a harsh reality: Even if inflation drives the nation’s politics, there is relatively little politicians can do to address it, aside from trying to avoid making the problem worse by stimulating the economy. Taxing and spending policies to offset price increases mostly have comparatively small effects.The country’s main tool for fighting rapid price increases is Fed policy — and that is a painful solution. When the central bank lifts interest rates, it slows economic demand, cools hiring, moderates wage growth and eventually drags prices lower as shoppers pull back and companies find that they can no longer charge more.“There is not an easy fix for inflation — the fix is a recession,” Ms. Kamarck said. For Democrats, “it is very hard to have an economic message.”Economists typically attribute today’s rapid price increases partially to government spending, including a package that Democrats passed in 2021 that helped to fuel consumer demand. But they are also global in nature, tied partly to lingering supply issues amid the pandemic, and food and fuel market disruptions caused by Russia’s invasion of Ukraine.Many voters believe that today’s price increases are not wholly — even principally — the Democratic administration’s fault. But that assessment divides along party lines.About 87 percent of Democrats attribute inflation to factors outside of President Biden’s control, versus 48 percent of independents and 21 percent of Republicans, based on AP-NORC polling data from last month.What Is to Blame for Rapid Inflation?A poll asked voters what was to blame for higher-than usual prices: President Biden’s policies, or factors outside of his control.

    Note: Survey from October 6-10, 2022Source: AP-NORCBy The New York Times People who were already on the fence could have their minds swayed by inflation — especially in places where it is particularly painful. Price increases are reported at a metro level, and some cities in key battleground states are facing particularly rapid price increases: Inflation was at 11.7 percent in Atlanta; 13 percent in Phoenix; and 9 percent in the Seattle metro area as of the latest available data.And even if inflation is hovering near the national average in some places, it is still the fastest pace in decades.Pennsylvania’s Senate race is closely contested, and Christopher Borick, director of the Muhlenberg College Institute of Public Opinion in Allentown, Pa., thinks that rapid price increases could be one factor that is helping the Republican candidate Mehmet Oz run a competitive race despite very low favorability ratings.“We often see in midterm races that if people aren’t happy, a price is paid by the incumbent party,” Mr. Borick said. Inflation “places people in a mood that really does open up the door to alternatives that might not otherwise be acceptable.” More

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    Republicans Denounce Inflation, but Few Economists Expect Their Plans to Help

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    Proposed tax and spending cuts by the G.O.P., which is making a push to take back Congress, are unlikely to bring down rapidly rising prices any time soon.WASHINGTON — Republicans are riding a wave of anger over inflation as they seek to recapture the House and the Senate this fall, hammering Democrats on President Biden’s economic policies, which they say have fueled the fastest price gains in 40 years.Republican candidates have centered their economic agenda on promises to help Americans cope with everyday price increases and to increase growth. They have pledged to reduce government spending and to make permanent parts of the 2017 Republican tax cuts that are set to expire over the next three years — including incentives for corporate investment and tax reductions for individuals.And they have vowed to repeal the corporate tax increases that Mr. Biden signed into law in August while gutting funding for the Internal Revenue Service, which was given more money to help the United States go after high-earning and corporate tax cheats.“The very fact that Republicans are poised to take back majorities in both chambers is an indictment of the policies of this administration,” said Senator Bill Cassidy, Republican of Louisiana, noting that “if you look at the spending that they did on a partisan basis, we certainly would be able to stop that.”But while Republicans insist they will be better stewards of the economy, few economists on either end of the ideological spectrum expect the party’s proposals to meaningfully reduce inflation in the short term. Instead, many say some of what Republicans are proposing — including tax cuts for high earners and businesses — could actually make price pressures worse by pumping more money into the economy.“It is unlikely that any of the policies proposed by Republicans would meaningfully reduce inflation in 2023, when rapidly rising prices will still be a major problem for the economy and for consumers,” said Michael R. Strain, an economist at the conservative American Enterprise Institute.As they position themselves for the midterm elections, Republicans have also indicated that they might try to hold the nation’s borrowing limit hostage to achieve spending cuts. The debt ceiling, which caps how much the federal government can borrow, has increasingly become a fraught arena for political brinkmanship.The State of the 2022 Midterm ElectionsBoth parties are making their final pitches ahead of the Nov. 8 election.Florida Governor’s Debate: Gov. Ron DeSantis and Charlie Crist, his Democratic challenger,  had a rowdy exchange on Oct. 24. Here are the main takeaways from their debate.Strategy Change: In the final stretch before the elections, some Democrats are pushing for a new message that acknowledges the economic uncertainty troubling the electorate.Last Dance?: As she races to raise money to hand on to her embattled House majority, Speaker Nancy Pelosi is in no mood to contemplate a Democratic defeat, much less her legacy.Secretary of State Races: Facing G.O.P. candidates who spread lies about the 2020 election, Democrats are outspending them 57-to-1 on TV ads for their secretary of state candidates. It still may not be enough.Multiple top Republicans have signaled that unless Mr. Biden agrees to reduce future government spending, they will refuse to lift the borrowing cap. That would effectively bar the federal government from issuing new bonds to finance its deficit spending, potentially jeopardizing on-time payments for military salaries and safety-net benefits, and roiling bond markets.Mr. Biden has tried to push back against the Republicans and cast the election not as a referendum on his economic policies, but as a choice between Democratic policies to reduce costs on health care and electricity and Republican efforts to repeal those policies. He has accused Republicans of stoking further price increases with tax cuts that could add to the federal budget deficit, and of risking financial calamity by refusing to raise the debt limit.“We, the Democrats, are the ones that are fiscally responsible. Let’s get that straight now, OK?” Mr. Biden said during remarks on Monday to workers at the Democratic National Committee. “We’re investing in all of America, reducing everyday costs while also lowering the deficit at the same time. Republicans are fiscally reckless, pushing tax cuts for the very wealthy that aren’t paid for, and exploiting the deficit that is making inflation worse.”The challenge for Mr. Biden is that voters do not seem to be demanding details from Republicans and are instead putting their trust in them to turn around an economy that voters believe is headed in the wrong direction. Polls suggest Americans trust Republicans by a wide margin to handle inflation and other economic issues.In a nationwide deluge of campaign ads and in public remarks, Republicans have pinned much of their inflation-fighting agenda on halting a stimulus spending spree that began under President Donald J. Trump and continued under Mr. Biden, in an effort to help people and businesses survive the pandemic recession. Those efforts have largely ended, and Mr. Biden has shown no desire to pass further stimulus legislation at a time of rapid price growth.Representative Jason Smith of Missouri, the top Republican on the House Budget Committee, said in a statement that “the first step in combating inflation is to stop the historically reckless spending spree occurring under one-party Democrat rule in Washington, and that will only happen with a Republican majority in Congress.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.“Republicans,” he added, “will fight to bring down the cost of living and impose fiscal restraint in Washington, and that begins by ensuring Democrats are not able to impose round after round of new inflationary spending.”Economists largely agree that the Federal Reserve is most responsible for fighting inflation, which policymakers are trying to do with rapid interest rates increases. But they say Congress could plausibly help the Fed by reducing budget deficits, in order to slow the amount of consumer spending power in the economy.One way to do that would be to significantly and quickly reduce federal spending. Such a move could result in widespread government layoffs and reduced support for low-income individuals — who would be less able to afford increasingly expensive food and other staples — and could prompt a recession. “The amount of cuts you’d have to do to move the needle on inflation are completely off the table,” said Jon Lieber, a former aide to Senator Mitch McConnell of Kentucky who is now the Eurasia Group’s managing director for the United States.Still, Mr. Lieber said that likelihood would not sully the Republican pitch to voters this fall. “Midterm votes are a referendum on the party in power,” he said, “and the party in power has responsibility for inflation.”“The very fact that Republicans are poised to take back majorities in both chambers is an indictment of the policies of this administration,” said Senator Bill Cassidy, a Republican.Haiyun Jiang/The New York TimesBiden administration officials contend that the Republican plans, rather than curbing inflation, could worsen America’s fiscal situation.Administration economists estimate that two policies favored by Republicans — repealing a new minimum tax on large corporations included in the Inflation Reduction Act and extending some business tax cuts from Mr. Trump’s 2017 legislation — could collectively increase the federal budget deficit by about $90 billion next year.Such an increase could cause the Federal Reserve to raise rates even faster than it already is, further choking economic growth. Or, alternatively, it could add a small amount to the annual inflation rate — perhaps as much as 0.2 percentage points. Fully repealing the Inflation Reduction Act would also mean raising future costs for prescription drugs for seniors on Medicare, including for insulin, and potentially raising future electricity costs.“Their plan to repeal the I.R.A. and double down on the Trump tax cuts for the wealthy will worsen inflation,” said Jared Bernstein, a member of Mr. Biden’s Council of Economic Advisers. “On top of that, they’re also explicit that they’re coming for Social Security and Medicare, making this a terribly destructive agenda that starts by fighting the Fed and moves on to devastating vulnerable seniors.”Conservative economists say the inflation impact of extending Mr. Trump’s tax cuts could be much smaller, because those extensions could lead businesses to invest more, people to work more and growth to increase across the economy. They also say Republicans could help relieve price pressures, particularly for electricity and gasoline, by following through on their proposals to reduce federal regulations governing new energy development.“Those things are going to be positive for investment, job creation and capacity” in the economy, said Donald Schneider, a former chief economist for Republicans on the House Ways and Means Committee and the deputy head of U.S. policy at Piper Sandler.A budget proposal unveiled this year by the Republican Study Committee, a conservative policy group within the House Republican conference, included plans to permanently extend the Trump tax cuts and to impose work requirements on federal benefits programs, in hopes of reducing federal spending on the programs and increasing the number of workers in the economy.“We know for a fact that federal spending continues to keep inflation high, which is why a top priority in next year’s Republican majority will be to root out waste, fraud and abuse of taxpayer money,” Representative Kevin Hern, Republican of Oklahoma, said in a statement. Mr. Hern, who helped devise the budget, called it “one of many proposals to address the dire situation we’re in.”As they eye the majority, top Republicans have suggested that they will consider an economically risky strategy to potentially force Mr. Biden to agree to spending cuts, including for safety-net programs. Representative Kevin McCarthy of California, who is the minority leader and is seen as the clear pick to be speaker should Republicans win control of the House, suggested to Punchbowl News this month that he would be open to withholding Republican votes to raise the federal borrowing limit unless Mr. Biden and Democrats agreed to policy changes that curb spending.How to use that leverage has divided Republicans. Some, like Representative Nancy Mace of South Carolina, who fended off a Trump-backed primary challenger, are supportive of that option.But other Republicans — particularly candidates laboring to present a more centrist platform in swing districts held by Democrats — have shied away from openly supporting cuts to safety-net programs.“Absolutely not,” Lori Chavez-DeRemer, a Republican and former mayor running in Oregon’s Fifth Congressional District, said when asked if she would support cuts to Medicare and Social Security as a way to rein in federal spending. “Cutting those programs is not where I, as a Republican, see myself. I want to make sure that we can fill those coffers.” More