Powell Pushes Back

 Our new book is The Comeback: The 2024 Elections and American Politics. The second Trump administration has been full of ominous developments

Nick Timiraos at WSJ:

For years, Federal Reserve Chair Jerome Powell has responded to President Trump’s broadsides in ways that generally avoided escalation.

That changed on Sunday night. In an extraordinary two-minute video message, Powell accused the administration of using the threat of criminal prosecution to pressure the Fed into lowering rates. He framed the Justice Department investigation as nothing less than a head-on challenge to the Fed’s ability to operate free of political control.

The subpoenas arrived late Friday. Powell, a lawyer by training, spent the weekend huddled with advisers, weighing how to respond. Powell made clear by releasing the video statement that he wasn’t going to let this play out in the shadows.

A criminal investigation of a sitting chair is without precedent. And Powell’s message was, too. It was wrapped in a directness that he had spent years avoiding. Powell often chooses his words carefully, and Sunday’s unusually stern delivery lacked the diplomatic off-ramp and studied neutrality of his past comments about the White House.

“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” Powell said.

Trying to Seize the Fed

Our new book is The Comeback: The 2024 Elections and American Politics. The second Trump administration is has been full of ominous developments

Steve Kopack at NBC:

President Donald Trump is removing Federal Reserve Governor Lisa Cook effective immediately, according to a letter he posted to Truth Social on Monday night.

In the letter, Trump writes: "Pursuant to my authority under Article II of the Constitution of the United States and the Federal Reserve Act of 1913, as amended, you are hereby removed from your position on the Board of Governors of the Federal Reserve, effective immediately."

Trump cites a "criminal referral" from Federal Housing Finance Agency Director William Pulte, in which Pulte accused Cook of mortgage fraud.

In a statement, Cook responded by saying: "President Trump purported to fire me 'for cause' when no cause exists under the law, and he has no authority to do so. I will not resign. I will continue to carry out my duties to help the American economy as I have been doing since 2022."

Under the Federal Reserve Act, the only reason Federal Reserve governors can be removed from their positions is “for cause,” or some kind of wrongdoing.

Cook has not been charged with any crime, and her removal is likely to lead to a court battle between the independent central bank and the executive branch.

The Supreme Court said in May, while granting Trump the ability to remove members of other independent agencies, that the Federal Reserve is a “uniquely structured, quasi-private entity” that has its own distinct historical tradition. That led many to believe the bar would be high for Trump to be able to remove any Fed board members or its chairman.

Economic Warning Signs

In Defying the Odds, we discuss the tax and economics issue in the 2016 campaign.  The update  -- recently published --includes a chapter on the 2018 midterms. and explains why the Trump tax cut backfired on Republicans.

Paul Davidson at USA Today:

U.S. stocks tumbled more than 600 points Friday after President Trump vowed to respond to retaliatory tariffs announced by Beijing earlier in the day and ordered American companies to seek “an alternative to China,” sharply escalating a trade war that has roiled markets for months.

Investors had hoped for more talks between the U.S. and China in September after Trump delayed part of the latest round of tariffs on $300 billion in Chinese imports from September 1 to December 15.

“I think markets thought things were moving along,” says Chris Zaccarelli, chief investment officer of Independent Advisor Alliance. “We just learned things are worse…. substantially worse.”


“Now it seems the truce is off,” he added. “Now it’s anybody’s guess whether there will be talks in September.”

Damian Paletta, Robert Costa, Josh Dawsey, and Philip Rucker at WP:

Top White House advisers notified President Trump earlier this month that some internal forecasts showed that the economy could slow markedly over the next year, stopping short of a recession but complicating his path to reelection in 2020.

The private forecast, one of several delivered to Trump and described by three people familiar with the briefing, contrasts sharply with the triumphant rhetoric the president and his surrogates have repeatedly used to describe the economy.

...“Everyone is nervous — everyone,” said a Republican with close ties to the White House and congressional GOP leaders. “It’s not a panic, but they are nervous.”

....My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?

— Donald J. Trump (@realDonaldTrump) August 23, 2019

Yun Li at CNBC:

U.S. manufacturer growth slowed to the lowest level in almost 10 years in August, the latest sign that the trade war may be exacerbating the economic slowdown.

The U.S. manufacturing PMI (purchasing managers’ index) was 49.9 in August, down from 50.4 in July and below the neutral 50.0 threshold for the first time since September 2009, according to IHS Markit.

Any reading below 50 signals a contraction. The survey is an initial reading for the month of August. The final figure will be released Sept. 3.

“Manufacturing companies continued to feel the impact of slowing global economic conditions,” Tim Moore, economics associate director at Markit, said in a statement Thursday. “August’s survey data provides a clear signal that economic growth has continued to soften in the third quarter.”

Chris Isidore at CNN:

The Labor Department is revising down the number of jobs that employers added to payrolls by 501,000 during the 12-month period that ran from April, 2018 through March of this year. The government initially estimated the economy added 2.5 million jobs during those 12 months, or just over 200,000 a month. Now it appears it will be closer to 170,000 a month on average.

...

The new figures don't suggest the job market is weak. A monthly gain of 170,000 jobs is enough to keep unemployment at its current low level. But it's not quite as hot as previously believed, and risks that unemployment will start to rise if employers slow their pace of hiring any further.

Rachel Layne at CBS:

U.S. Steel is temporarily cutting about 200 workers from its Michigan plant, highlighting the ongoing struggles of a company that President Donald Trump had showcased as benefiting from his administration's steel tariffs.

The layoffs, detailed in an August 5 notice with the state of Michigan, will cover "nearly every area" at the facility, U.S. Steel said in an emailed statement Tuesday. The company already temporarily cut 48 workers at the Great Lakes plant and expects to cut more more in September, bringing the total number of layoffs to 200.

Hints of trouble at U.S. Steel have been emerging in recent months, with the Pittsburgh-based company in June announcing it would idle two furnaces, one in Michigan and one in Indiana. The company said there isn't a "single event" prompting the layoffs. Rather, "Current market conditions are being impacted by a multitude of factors," including price, demand, import volume, cost and projected profit margins, U.S. Steel said in the statement.

2/ "U.S. #farmers will begin harvesting this year’s #soybean crops starting in September. Stockpiles were expected to balloon to an all-time high in the season that ends this month as American #export demand dims." pic.twitter.com/W2SXLZgMbr

— Farm Policy (@FarmPolicy) August 23, 2019

Economic Clouds

In Defying the Odds, we discuss the tax and economics issue in the 2016 campaign.  The update  -- recently published --includes a chapter on the 2018 midterms. and explains why the Trump tax cut backfired on Republicans.

Some economic indicators suggest trouble ahead.   At WP Philip Rucker, Damian Paletta and

Josh Dawsey report:

Trump has a somewhat conspiratorial view, telling some confidants that he distrusts statistics he sees reported in the news media and that he suspects many economists and other forecasters are presenting biased data to thwart his reelection, according to one Republican close to the administration who was briefed on some of the conversations.

“He’s rattled,” this Republican said. “He thinks that all the people that do this economic forecasting are a bunch of establishment weenies — elites who don’t know anything about the real economy and they’re against Trump.”

Trump has relentlessly bludgeoned Fed Chair Jerome H. Powell over interest rates and has told aides and allies that he would be a scapegoat if the economy goes south.

 Catherine Rampell at WP:

Trump’s economic brain trust consists of a guy who plays an economist on TV, a crank who has been disowned by the (real) economics profession and the producer of “The Lego Batman Movie.”

...

Moreover, Mnuchin’s Treasury Department is rife with vacancies. Many senior jobs lack even a nominee. There is likewise no nominee for the Senate-confirmed job of chair of the Council of Economic Advisers. The acting chair is a health expert.

John Harwood at CNBC reports that there is no tail wind from the tax cut:

Instead, benefits from what President Donald Trump called “the biggest reform of all time” to the tax code have dwindled to a faint breeze just 20 months after its enactment. Half of corporate chief financial officers surveyed by Duke University expect the economy to shrink by the second quarter of 2020. Two-thirds expect a recession by the end of next year.

Corporate executives blame the darkening outlook on Trump’s trade war with China. The president blames mismanagement by Jerome Powell, the Federal Reserve chairman he appointed.

But economists who have examined the impact of the 2017 Tax Cuts and Jobs Act say it isn’t helping much in any of the ways advocates once advertised: overall growth, business investment, or worker pay. The strongest current case for the law’s economic benefits is that it remains too early to see them. 

Economic Clouds

In Defying the Odds, we discuss the tax and economics issue in the 2016 campaign.  The update  -- recently published --includes a chapter on the 2018 midterms. and explains why the Trump tax cut backfired on Republicans.

Eric Morath at WSJ:

A boom in employee bonuses handed out by some companies in the wake of the 2017 Republican tax cut proved to be temporary, Labor Department data released Tuesday showed.

Private-sector companies’ spending on nonproduction bonuses fell 24% in the first quarter of 2019 from a year earlier, the largest decrease for the category of benefit costs on record back to 2005.

Those bonus payments jumped in late 2017 and early 2018 after Congress approved its package of tax cuts. Walmart Inc., AT&T Inc. and Wells Fargo & Co. were among prominent employers that announced bonuses in the wake of the new tax law. President Trump and other Republicans touted the bonuses as an example of how the law benefited everyday workers.

Those gains appear to largely have been a one-time windfall. 

Heather Long at WP:

The Federal Reserve did not change interest rates Wednesday but strongly signaled a willingness to cut soon to prevent the economy from slowing further. President Trump has urged the central bank to cut rates for months to boost growth.

Business investment is slowing, uncertainty has increased, and the U.S. economy is growing at a “moderate” pace, the Fed said Wednesday, a notable downgrade from last month when the central bank characterized the economy as “solid.”

The Fed indicated it would take action if the economy shows any more signs of decline.
“In light of these uncertainties and muted inflation pressures, the [Fed] committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” the Fed wrote in a statement.

Wall Street investors are widely anticipating a rate reduction when Fed leaders meet next in late July because of Trump’s trade war and slumping business investment, especially in manufacturing.

“Many on the committee do see a strengthened case for cutting rates," Fed Chair Jerome H. Powell said Wednesday. “News about trade has been an important driver of sentiment in the inter-meaning period. We’re also looking at global growth.

The Best People, Continued Again

In Defying the Odds, we discuss Trump's approach to governing.  The update  -- just published --includes a chapter on the 2018 midterms.

The choice of servants is of no little importance to a prince, and they are good or not according to the discrimination of the prince. And the first opinion which one forms of a prince, and of his understanding, is by observing the men he has around him; and when they are capable and faithful he may always be considered wise, because he has known how to recognize the capable and to keep them faithful. But when they are otherwise one cannot form a good opinion of him, for the prime error which he made was in choosing them.

-- Machiavelli

Catherine Rampell at WP:

Moore is a career political operative whose singular motivation is helping Republicans cut taxes. In service of that goal, he sometimes fabricates economic factoids entirely, including during a Thursday radio interview in which he falsely claimed that wages just began to grow for the first time in 20 years. Usually though, he either cherry-picks or misrepresents (real) government data — e.g., by not adjusting figures for inflation, or claiming that a decline in soybean prices driven by China’s decision to stop buying from American farmers means that prices across the U.S. economy overall are falling. (They are not.)

Cain, on the other hand, does not appear to have sufficient facility with economic statistics to know which cherries to pick. During a recent episode of his Web show, he appeared genuinely confused by the differences between, say, jobs vacant and jobs filled. (This is arguably an important thing to know if you’re on the Federal Reserve Board, where half the legal mandate concerns maximizing the number of jobs filled.)

But when all else fails — that is, when they run out of real numbers to spin or mischaracterize — both Moore and Cain have a tendency to invoke Trump-style data trutherism: that is, to simply claim the official government data are phony.

Jon Swaine and David Smith at The Guardian:

A court official accompanied by four police officers had to break into the home of Stephen Moore, Donald Trump’s pick for the Federal Reserve board, after he repeatedly failed to pay debts to his ex-wife.

The group used a locksmith to force their way into Moore’s house in Virginia in May 2013, according to court filings. They were there to prepare the property for a court-ordered sale in order to raise $330,000 that Moore owed his ex-wife after their divorce.

When the court official telephoned Moore on her way out to ask where she should leave the new key to his home, Moore “was very argumentative” and “denied that we were in his house”, the official, Kyle Skopic, said in a June 2013 motion.

The court records were reopened to the public by a judge on Friday, in response to legal action by the Guardian and other media. They had been temporarily sealed this week following the publication of reports about Moore’s past financial and legal problems.

The Week:

Meet Herman Cain: Federal Reserve Board of Governors nominee. Former Republican presidential candidate. CEO. And professional grifter?

Cain, whom President Trump recently tapped as a nominee for a spot on the Fed's Board, has reportedly turned his sponsored mailing list — which he has been profiting off since his failed presidential bid in 2012 — into a "haven for scammy emails," promoting worthless penny stocks and dubious "moneymaking strategies," according to Media Matters:

Trump Fed pick Herman Cain sent this April 4 sponsored email, which suggested that readers could "turn $1,000 into $800,000" using a certain "moneymaking strategy." pic.twitter.com/p1pLGuNjht

— Eric Hananoki (@ehananoki) April 9, 2019

The Best People, Continued

In Defying the Odds, we discuss Trump's approach to governing.  The update  -- just published --includes a chapter on the 2018 midterms.

Trump is reportedly considering sexual harasser Herman Cain for the Fed.  During the 2012 campaign, he was comically uninformed on issues.  Catherine Rampell writes at WP:

Cain is a longtime inflation hawk, which could put him at odds with Trump’s calls for looser money. As recently as December 2017, Cain was even defending higher interest rates. But perhaps Trump assumes that Cain will dutifully flip his views, just as the once-hawkish Moore has done.

In fact, in January, when Cain was already rumored to be in contention for a Fed seat, he told Bloomberg he was concerned about recent Fed rate increases and said the real thing to fear was not inflation but nonexistent “deflation.” This is Moore’s boogeyman du jour, too.

But perhaps the bigger issue is that Cain has said — repeatedly — that the United States should return to the gold standard.

This stance is one Moore has also intermittently espoused, and it has been roundly rejected by actual economic experts. That includes, for instance, every single economist surveyed by the University of Chicago’s IGM Economic Experts Panel.

Then there’s the fact that Cain spent the years following his failed presidential campaign spamming his email followers with snake-oil scams, promising “weird tricks” that would make his followers get rich quick or “naturally” cure their erectile dysfunction. Of course, such grifting might enhance Cain’s candidacy in Trump’s eyes, but it hardly bodes well for a man seeking to join an institution with consumer protection duties.

Emily R. Siegel, Andrew W. Lehren, Brandy Zadrozny, Dan De Luce and Vanessa Swales at NBC:

An NBC News review of those who donated to the Trump inauguration found at least 14 major contributors to its inaugural fund who were later nominees to become ambassadors, donating an average of slightly over $350,000 apiece. Though the Trump administration says the business acumen of these nominees qualifies them to represent the U.S. abroad, six of the 14 nominations have languished for months in the Republican-controlled Senate. One nomination has stalled for about two years.
...

Since the 1950s, roughly two-thirds of confirmed ambassadors have been career foreign service officials and one-third have been political appointees. Presidents Barack Obama and George W. Bush kept within that range, according to the American Foreign Service Association (AFSA), which is comprised of current and former diplomats.

The Trump administration is different. Of its confirmed appointees, around 50 percent are career foreign service diplomats, and 50 percent are political appointees, according to AFSA.

There are also 52 vacant ambassadorships out of about 250. Two years into their presidencies, Obama had 11 and Bush had 15. There are also a large number of vacancies in critical countries like Pakistan, Saudi Arabia and Qatar.

The rate of confirmation is also quite different for Trump nominees. Two years into their presidencies, Presidents Bill Clinton, Bush and Obama had 96, 84 and 89 percent of their nominees confirmed. Trump is currently at 66 percent, according to a senior congressional staffer.

More Moore

 In Defying the Odds, we discuss the  conservative movement.   The update  -- just published --includes a chapter on the 2018 midterms.

Jon Swaine and David Smith at The Guardian:

Stephen Moore, the economics commentator chosen by Donald Trump for a seat on the Federal Reserve board, was found in contempt of court after failing to pay his ex-wife hundreds of thousands of dollars in alimony, child support and other debts.

Court records in Virginia obtained by the Guardian show Moore, 59, was reprimanded by a judge in November 2012 for failing to pay Allison Moore more than $300,000 in spousal support, child support and money owed under their divorce settlement.

Moore continued failing to pay, according to the court filings, prompting the judge to order the sale of his house to satisfy the debt in 2013. But this process was halted by his ex-wife after Moore paid her about two-thirds of what he owed, the filings say.

In a divorce filing in August 2010, Moore was accused of inflicting “emotional and psychological abuse” on his ex-wife during their 20-year marriage. Allison Moore said in the filing she had been forced to flee their home to protect herself. She was granted a divorce in May 2011.
...

Moore has lamented the steady decline in US marriage numbers, asserting in an October 2014 article that “intact families” were important for the economy and criticising “those who cheer divorce as a form of women’s liberation”.
...
Moore’s 2018 book Trumponomics, co-authored with the veteran economist Arthur Laffer, said many Americans felt “a sense of not being loved (tied to divorce and family breakup)” and argued this was one reason people should be required to work to receive money from government assistance programs.

Stephen Moore

In Defying the Odds, we discuss Trump's approach to governing.  The update  -- just published --includes a chapter on the 2018 midterms.

Heather Long and Damian Paletta at WP:

Stephen Moore, President Trump’s new pick to join the Federal Reserve, took a highly unusual step this week for a nominee to serve on a central bank, which takes pains to distance itself from politics.

He went on conservative radio to sell his message, saying he would advocate lower interest rates, a position President Trump has demanded but that most Fed officials, including Chair Jerome H. Powell, oppose.
...

Moore could also face scrutiny over $75,000 in unpaid taxes and a $350,000 penalty the Club for Growth paid to settle Federal Election Commission violations when he was president of the political advocacy organization.

A number of prominent economists, including Greg Mankiw, a former top economist for President George W. Bush, oppose Moore’s nomination and urge the Senate to vote no.

...
... Moore was ousted from the Club for Growth in 2004. The FEC investigated the Club for Growth’s activities while he was at the helm of the organization and said it failed to register as a political committee and submit its expenditures properly “despite spending millions of dollars on federal campaign activity during the 2000, 2002, and 2004 election cycle.” The Club for Growth ultimately paid a $350,000 penalty to settle with the FEC.

...
In 2013, Moore told Politico that if he were president, he would allow Texas and other Southern states to secede from the Union.

In 2012, he said at a conservative fundraiser, “Greta [Van Susteren] is absolutely perfect for Fox News: She’s fair, balanced and blonde . . . one of the best things about working at Fox News is I have met a lot of beautiful women. ”

In a commentary for the National Review, he called soccer a “Marxist” sport that “teaches our kids all the wrong lessons” in life.

...
In September, he wrote in an op-ed that Trump “deserves the 2018 Nobel Prize in economics.”

Incompetence Update, Economics Edition

In Defying the Odds, we discuss Trump's approach to governing.  The update  -- just published --includes a chapter on the 2018 midterms.

Katia Dmitrieva , Laura Davison , and Saleha Mohsin at Bloomberg:

The U.S. posted its biggest monthly budget deficit on record last month, amid a 20 percent drop in corporate tax revenue and a boost in spending so far this fiscal year.

The budget gap widened to $234 billion in February, compared with a fiscal gap of $215.2 billion a year earlier. That gap surpassed the previous monthly record of $231.7 billion set seven years ago, according to data compiled by Bloomberg.

On the advice of a media pundit turned adviser, Trump picked another pundit for a job requiring actual expertise.

Eamon Javers and Jacob Pramuk at CNBC:

Earlier this week, Trump spoke to National Economic Council Director Larry Kudlow. The president had seen a column in The Wall Street Journal, co-written by Moore, with the headline: “The Fed Is a Threat to Growth.” In it, Moore argued that the “last major obstacle to staying on this path [of economic growth] is the deflationary monetary policy of the Federal Reserve.”

Trump asked his top economic advisor whether he had seen the column. Kudlow replied that he had and “liked it a lot.”

“Why isn’t [Moore] the Fed chairman?” Trump asked rhetorically.

After Kudlow answered that the Fed board had two openings, the president asked his advisor to talk to Moore about one of the posts. Kudlow asked whether Moore was interested, and he said he was. Trump offered Moore the Fed board job, which will not become official until he goes through a vetting process.

At New York, Jonathan Chait writes:

I first started writing about Moore in 1997. Four years before, President Clinton had raised the top tax rate to 39.6 percent, and supply-siders had insisted this would without question cause tax revenues to drop. This prediction was a necessary corollary of supply-side economic theory, which holds that tax revenue moves in the opposite direction of the top tax rate. The prediction was spectacularly wrong — revenue not only rose, it rose much, much faster than even the most optimistic advocates of Clinton’s plan had predicted.

...
He is capable of writing entire columns that contain no true facts at all. He made so many factual errors he achieved the rare feat of being banned from the pages of a Midwestern newspaper. He has sold his policy elixir to state governments which have promptly experienced massive fiscal crises as a direct result of listening to him. He believes what he calls “the heroes of the economy: the entrepreneur, the risk-taker, the one who innovates and creates the things we want to buy” should be lionized, and that the idea that a recession might be caused by anything other than excessively high rates on these heroes defies “common sense.” He was pulled into Trump’s orbit during the 2016 campaign and co-wrote a ludicrous hagiography of Trump and his agenda. By all appearances, Moore opposes mainstream fiscal theories because he simply doesn’t understand them.

Conservative economist Greg Mankiw:

A couple of weeks ago, I gave a talk at the Federal Reserve Bank of Dallas. I said that, although I am not a fan of President Trump, I have to give him credit for making good appointments to the Fed. I was thinking about people like Jay Powell, Rich Clarida, and Randy Quarles.

Then today the president nominates Stephen Moore to be a Fed governor. Steve is a perfectly amiable guy, but he does not have the intellectual gravitas for this important job. If you doubt it, read his latest book Trumponomics (or my review of it).

It is time for Senators to do their job. Mr. Moore should not be confirmed.

I really hope this video of Stephen Moore getting absolutely destroyed by @crampell doesn't get retweeted and seen by the rest of the internet, because it would be very embarrassing for him. pic.twitter.com/gnI3F5hheT

— Aléx Young (@AlexYoung) March 22, 2019

...

Does a Bad Economy Loom?

At Bloomberg, Jason Shenker reports that unemployment was at a low 4.5 percent in March.  But....

At 98,000, the number of net new jobs created in March was soft, coming in below the 180,000 median estimate of economists surveyed by Bloomberg. The report calls into question the narrative of an economy on autopilot that continues to generate strong job growth amidst rising rates. The downward revision of 38,000 fewer jobs for the previous two months only adds to those questions.

The most recent quarterly Fed member forecasts show a path of higher rates, with a mean estimate of 1.4 percent for the end of the year, which is up from the current target range of 0.75 percent to 1 percent. And some market participants had become even more hawkish than members of the Federal Open Market Committee.

Although the Fed has a dual mandate to support full employment and contain inflation, its policy is not on a set course. Yes, the economy is at full employment, but the slower March job gains will make the April employment report critical for determining if the latest number is a blip or the start of a new trend.

From the Atlanta Fed:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 0.6 percent on April 7, down from 1.2 percent on April 4. The forecast for first-quarter real GDP growth fell 0.4 percentage points after the light vehicle sales release from the U.S. Bureau of Economic Analysis and the ISM Non-Manufacturing Report On Business from the Institute for Supply Management on Wednesday and 0.2 percentage points after the employment release from the U.S. Bureau of Labor Statistics and the wholesale trade release from the U.S. Census Bureau this morning. Since April 4, the forecasts for first-quarter real consumer spending growth and real nonresidential equipment investment growth have fallen from 1.2 percent and 9.7 percent to 0.6 percent and 5.6 percent, respectively.

Even the Good News Is Bad

At the end of a lousy week for the White House, Politico reports:

Welcome to the good-news-could-be-bad-news economy.

Friday’s Labor Department report showing a better-than-expected gain of 195,000 jobs in June was a heartening sign for many that the economic recovery continues to move ahead at a modest pace. But it could ultimately turn out to be bad news, especially for Democrats, because it means that the Federal Reserve might start winding down its extraordinary efforts to boost the economy later this year.

And if the Fed takes the juice away too soon it could tank the stock market, crush housing prices, snuff out the four-year-old economic recovery, and make life exceedingly difficult for any Democrat who hopes to run in 2016 for what will essentially be President Barack Obama’s third-term.

“This jobs report is a data-point that will get people wondering if the Fed will really start pulling back as soon as September, as many people are expecting,” said Nigel Gault co-chief economist at the Parthenon Group. “And it certainly raises the stakes for the next for the next three jobs reports.”

Quantum of Easing

American Crossroads takes on President Obama and the Fed:



This web-only spot won't change any votes, but it will amuse conservative wonks.

GDP Clouds

Alan Abramowitz has developed conditional forecasts of President Obama’s share of the national popular vote depending on the growth rate of real GDP. 

The results show that not only is the election likely to be very close, but the winner of the popular vote may very well depend on the performance of the economy in the second quarter.

A growth rate of zero or less predicts a narrow popular vote win for Republican challenger Mitt Romney, while a growth rate of 1% or greater predicts a popular vote win for President Obama. The consensus prediction of economic forecasters for real GDP growth in the second quarter is currently about 2.0%. This growth rate would predict a narrow reelection win for President Obama with slightly less than 51% of the major party vote.

 This morning, Ben Bernanke testified [emphasis added]:

The U.S. economy has continued to recover, but economic activity appears to have decelerated somewhat during the first half of this year. After rising at an annual rate of 2-1/2 percent in the second half of 2011, real gross domestic product (GDP) increased at a 2 percent pace in the first quarter of 2012, and available indicators point to a still-smaller gain in the second quarter.

Conditions in the labor market improved during the latter part of 2011 and early this year, with the unemployment rate falling about a percentage point over that period. However, after running at nearly 200,000 per month during the fourth and first quarters, the average increase in payroll employment shrank to 75,000 per month during the second quarter. Issues related to seasonal adjustment and the unusually warm weather this past winter can account for a part, but only a part, of this loss of momentum in job creation. At the same time, the jobless rate has recently leveled out at just over 8 percent.

Household spending has continued to advance, but recent data indicate a somewhat slower rate of growth in the second quarter. Although declines in energy prices are now providing some support to consumers' purchasing power, households remain concerned about their employment and income prospects and their overall level of confidence remains relatively low.

Bad News, Late June Edition

Yesterday's post described clouds on the president's horizon.The skies keep getting darker. AP reports on yesterday's bad economic news:

The Dow started sinking after the Philadelphia branch of the Federal Reserve reported a manufacturing slowdown resulting from a steep drop in companies’ orders. Then the losses just accelerated. Mining and other companies that made basic materials fell hard after prices for commodities such as copper and oil dropped. Elsewhere, the Labor Department reported that the four-week average of applications for unemployment benefits jumped to the highest level since September. The National Association of Realtors also reported that sales of previously owned homes dropped 1.5 percent in May. All this unfolded a day after the Federal Reserve slashed its estimates for U.S. economic growth and said it would extend a bond-buying program through the end of the year. The moves disappointed investors who had hoped for bolder steps from the central bank to get the economy going again. “What’s worse is that things are getting weaker without the Fed coming in,” said Rex Macey, chief investment officer at Wilmington Trust Investment Advisors. “We had a run-up in the market this month because people had been expecting Fed action. Today, the market is giving it back.” The Dow lost 250.82 points to close at 12,573.57, a drop of 2 percent.

AP also reports that the president was already losing ground:

WASHINGTON (AP) — Fighting a swell of economic anxiety, President Barack Obama has lost much of the narrow lead he held just a month ago over Mitt Romney and the two now are locked in a virtually even race for the White House, according to a new Associated Press-GfK poll. The survey also found a majority of Americans disapproving of how the Democratic president is handling a national economy that fewer people think is improving. Less than five months before the election, 47 percent say they will vote for the president and 44 percent for Romney, a difference that is not statistically significant. The poll also shows that Romney has recovered from a bruising Republican primary, with more of his supporters saying they are certain to vote for him now. The economy remains Obama's top liability. Only 3 out of 10 adults say the country is headed in the right direction and 55 percent disapprove of his handling of the economy, the highest level detected in AP-GfK polls this year.

Fed to Obama: You're In Trouble

Most presidential elections are about the economy.Although the media focus on poll numbers and the latest rumors from the campaigns, this story is what matters most. From The New York Times:

With the economy stumbling into the summer months after the false promise of a relatively strong winter, the Fed announced a modest expansion of its efforts to stimulate growth. The Fed said its senior officials now expected growth of 1.9 percent to 2.4 percent this year, half a percentage point lower than they forecast in April. They predicted the unemployment rate would not drop below 8 percent this year, and that inflation would not climb above 1.7 percent. Those are the vital signs of a patient who will be ill for some time. And the Fed noted that the outlook could worsen if events in Europe unnerved financial markets or if politicians in Washington failed to resolve a stalemate over fiscal policy.