Perfect Storm of Issues Gathers at Washington as Biden Prepares for His State of the Union Address

A jobs boom prompts the Federal Reserve to eye interest rate increases, while the administration is calling on Congress to borrow yet more money — even as war clouds are scudding.

AP/Nam Y. Huh
A hiring sign at a restaurant at Rolling Meadows, Illinois, January 30, 2023. AP/Nam Y. Huh

President Biden will, despite his pledges to unify the country, deliver his State of the Union address Tuesday to one of the most bitterly divided Congresses in modern American history. 

The president will be buoyed by employment numbers that came in Friday — a sizzling 517,000 new jobs — but he’ll be facing a Federal Reserve that sees the jobs boom as a problem to be cured with higher interest rates.

This is coming to a head as the president is refusing to negotiate with the House over the debt, which means he’s risking a shutdown of much of the government if the Congress refuses to authorize borrowing more money. Yet the Republican opposition now controls the house of Congress in which the Constitution requires any spending to be initiated. 

If this weren’t enough to launch an epic general election debate in which the early maneuvering has long since begun, war clouds are scudding on two fronts — in Europe, where Mr. Biden is refusing to send war planes to an embattled Ukraine, and in Asia, on which front Mr. Biden was just caught flat-footed by what the Pentagon calls an “intelligence gathering balloon” drifting over Montana.

Which is to say, at a time when the Biden administration is scrambling to match the hypersonic missile that Communist China claims to have developed, Secretary Blinken was forced to cancel a visit to Beijing because the administration failed to act against the slowest-movement weapon in the skies — which the Pentagon knew about for days.

The top of the news is a jobs report that caught analysts and the government by surprise. The Associated Press started its report by marking that the Federal Reserve “has been on a mission to cool down the job market to help curb the nation’s worst inflation bout in four decades.” The job market, it noted, “hasn’t been cooperating.”

The 517,000 jobs added last month — much higher than the 185,000 jobs that had been estimated by many — came along with news that the unemployment rate dipped to 3.4 percent, the lowest level since 1969. The job gain, the AP noted, was so large it left economists scratching their heads and wondering why the Fed’s aggressive interest rate hikes haven’t slowed hiring at a time when many foresee a recession nearing. The Republicans in Congress generally favor a supply-side approach, dealing with inflation by deregulating the economy and lowering taxes while raising interest rates. 

On top of the sizzling job growth it reported for January, the government on Friday also revised up its estimate of the gains in November and December by a combined 71,000 jobs. Mr. Biden called the report “strikingly good news” and asserted that his Republican critics were wrong in their warnings of continued high inflation and a coming recession and layoffs.

“Our plan is working,” Mr. Biden said, “because of the grit and resolve of the American worker.”

“This is a labor market on heat,’’ the chief global strategist at Principal Asset Management, Seema Shah, said. It would be difficult, she suggested, “to see the Fed stop raising rates and entertain ideas of rate cuts when there is such explosive economic news coming in.”

The Fed has raised its key rate eight times since March to try to slow the job market and contain inflation, which hit a 40-year high last year but has slowed since then. Yet companies are still seeking more workers and are hanging tightly onto the ones they have. Putting aside some high-profile layoffs at big tech companies like Microsoft, Google, Amazon, and others, most employees are enjoying an unusual level of job security even at a time when many economists foresee a recession approaching.

For all of 2022, the economy added a sizzling average of roughly 375,000 jobs a month. That was a pace vigorous enough to have contributed to some of the painful inflation Americans have endured. A tight job market tends to put upward pressure on wages, which, in turn, feed into inflation.

Year-over-year measures of consumer inflation have eased steadily since peaking at 9.1 percent in June. At 6.5 percent in December, though, inflation remains far above the Fed’s 2 percent target, which is why the central bank’s policymakers have reiterated their intent to keep raising borrowing rates for at least a few more months.

Meantime, the chairman of the new House select committee investigating threats from Communist China, Congressman Mike Gallagher, said that the Chinese spy balloon is “a violation of American sovereignty” and asserted that “the incident demonstrates that the CCP threat is not confined to distant shores — it is here at home and we must act to counter this threat.”   


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