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MORNING REPORT

Thursday, May 4

by Alexis Simendinger & Kristina Karisch

What if? The fiscal questions the US faces

It is possible that the economy's monetary and fiscal policy stewards by June are each on pause. That would be seen as a good-news, very-bad-news scenario, no matter who you ask in the White House, Congress and on Wall Street.

On the one hand, Federal Reserve Chairman Jerome Powell suggested the central bank's 10th interest rate hike of a quarter-point, announced on Wednesday, could result in a hands-off approach when central bankers next meet in June. That is, if the Fed's inflation-fighting strategy, which Powell says is going to take a while, is working. He made clear that interest rate cuts are not on the horizon.

Business Insider: The real monster behind soaring prices.

On the other hand, while Congress and the White House are staring down the barrel of a June 1 potential default if lawmakers do nothing to raise Treasury's limit on borrowing, inaction could trigger painful economic damage.

Financial markets (and many in the White House and the Capitol) will applaud the Fed if it takes a breather. But if President Biden and House Republicans fail to lift the debt ceiling in statute, the economy everyone wants to nudge away from recession could tumble over a cliff.

Powell, asked by reporters about the debt limit battle, preferred not to dwell on the worst-case scenario.

We shouldn't even be talking about a world in which the U.S. doesn't pay its bills," the chairman said, adding that possible repercussions would be "highly uncertain and could be quite adverse."

The Hill: Powell on U.S. default fears: "It just shouldn't be a thing."
The Hill: What would a debt ceiling failure, a first for the U.S., mean for Americans?
Politico: The debt ceiling staredown.
The Washington Post: Debt ceiling showdown: five possible outcomes.

Biden and congressional leaders plan to meet Tuesday at the White House to talk about their disagreements. If there's a viable debt limit escape hatch under construction, it's still a secret.

The Wall Street Journal: As fallbacks, administration officials are weighing a potential short-term increase in the borrowing limit, plus taking a fresh look at ways the U.S. could potentially keep paying the government's bills if Congress does not act.

Meanwhile, economists and analysts are uncertain whether three failed U.S. banks since March constitute a crisis — and whether there are financial system vulnerabilities still unseen and therefore unaddressed. The Fed, Powell said, is "focused on credit availability."

The Hill: Powell: The banking crisis is over, but its effects will last.
The Hill: Powell says banking system is "sound and resilient" following four U.S. bank failures.
Bloomberg News: PacWest Bancorp, another teetering U.S. regional bank, said it has increased core deposits and confirmed it is in talks with potential partners after a steep plunge this week in stock valuation.
Bloomberg News: The U.S. regional banking system is at risk and federal regulators' failure to update and expand the insurance regime has "hammered more nails in the coffin," warns Bill Ackman of Pershing Square Capital Management.

Predictions vary about whether and when the U.S. economy, which has slowed, might officially be in recession. Powell, conceding that forecasts vary even within the central bank, said that contrary to previous periods of high inflation and aggressive interest rate hikes, continued strong demand in the labor market could change the equation.

"The case of avoiding a recession is more likely, in my view," he said during Wednesday's news conference.

CNBC: In April, private payrolls surged much higher than expected, according to an ADP report released Wednesday.
The Hill: Do new mortgage fees penalize borrowers who have good credit?

👉The CEOs of Alphabet Inc's Google, Microsoft, OpenAI and Anthropic will meet with Vice President Harris and top administration officials today to discuss key artificial intelligence issues today, as the White House races to upgrade the government's AI expertise and role. The administration will push the companies building generative AI to be sure their products are safe before unleashing them on the public as experts say legislation is urgently needed as the technology and its uses expand in the economy (Reuters and Axios).

The Hill: Defense firms jump into new talent pool: laid-off tech workers.
The Hill: Senate is set for bipartisan rebuke of Biden on solar tariffs.
The Hill: Four ways Biden is boosting fossil fuels — and drawing heat for it.
Vox: Why Republicans are pushing to ease child labor laws.
The Hill: Senators are optimistic a bipartisan rail safety measure can pass following the East Palestine, Ohio, freight rail disaster.

Leading the Day

➤ POLITICS

Many Republicans say that Florida GOP Gov. Ron DeSantis remains a powerful force ahead of the 2024 primary, noting that few other candidates, declared or potential, can compete in fundraising and influence, write The Hill's Max Greenwood and Amie Parnes. His status as an early front-runner has sagged under relentless attacks from former President Trump, criticism from some fellow Republicans about his policy agenda, and hand-wringing by some party donors who question his strategy and chances of appealing to a broader coalition of voters.

"The guy isn't even in the race yet, and everyone is trying to count him out," said Dan Eberhart, a Republican donor who's backing DeSantis. "He may be second in the polls behind Trump, but he's double digits ahead of every other possible Republican challenger. So unless this isn't a contest, he's still a contender."

The Hill: The Florida Senate passed an expansion of the controversial "Don't Say Gay" measure, sending it to the governor's desk.
MSNBC: For Biden, Republican book bans become a defining political fight. Speaking at George Washington University on Wednesday, Harris invoked Florida directly. "Can you imagine, in this year of our Lord 2023, book bans? Really, what?" she said. "There are attempts, right before our eyes, to roll back all of the hard-won freedoms we have collectively fought for. And this is a time for people to stand and be very active."
Axios: Biden's reelection bid is slow out of the gate.
The New York Times: Trump will offer no defense witnesses in E. Jean Carroll rape trial, his lawyer says.

The unpleasant reality facing the anti-abortion movement is that most Americans don't actually want to ban abortion, The Atlantic reports. It's been almost a year since the Supreme Court overturned Roe v. Wade, and ever since, voters in states from Montana to Kentucky rejected ballot measures to make abortion illegal. Just last month, in Wisconsin, voters elected an abortion-rights supporter to the state supreme court.

But the movement's activists are pushing on with nationally unpopular policies, such as abortion bans using trigger laws designed to go into effect when Roe fell, and proposed restrictions on traveling out of state for the procedure — which some lawmakers call "abortion trafficking." The groups this new generation of anti-abortion activists leads "are not afraid to lose short term if they think the long-term gain will be eliminating abortion from the country," said Rachel Rebouché, a family-law professor at Temple University.

The Hill: New York Gov. Kathy Hochul (D) on Wednesday moved to protect medication abortion in her state "regardless of FDA approval."
CNN: North Carolina Republicans reach deal to limit most abortions after 12 weeks.
The Washington Post analysis: New data shows how little the electorate looks like the population.
Yahoo News: New data shows the COVID-19 crime surge starting to recede. Can Republicans still rely on crime to counter Democrats' advantage on abortion?

Rep. James Clyburn (D-S.C.), the assistant House Democratic leader, on Wednesday endorsed Rep. Barbara Lee (D-Calif.) in the Golden State's Senate race to succeed Sen. Dianne Feinstein (D) in 2025, splitting from former Speaker Nancy Pelosi's endorsement of Rep. Adam Schiff (D-Calif.) in the crowded contest (The Hill).

The Hill: Sen. Chuck Grassley (R-Iowa) and House Oversight Committee Chairman James Comer (R-Ky.) subpoena the FBI for documents alleged to exist and identified to them by a whistleblower, which may refer to an unspecified "criminal scheme" involving the president. It is believed it is unlikely the FBI would turn over the documents requested, which could set off a legal skirmish.

➤ COURTS & INVESTIGATIONS

The power of federal regulators could shift under the conservative-leaning Supreme Court next term. Justices this week agreed to hear a case that asks them to overrule a 39-year-old precedent that gives agencies deference when Congress has not spoken clearly in statutes.

Advocates for tough federal regulation, as well as those eager to shake Washington's authority over environmental, energy, workplace safety and health, pharmaceutical and other practices, are closely watching the outcome of a challenge to a 1984 precedent set by the court in Chevron U.S.A. v. Natural Resources Defense Council, The Hill's Zach Schonfeld reports. It's the most frequently cited case in administrative law.

Vox: A new Supreme Court case seeks to make the nine justices even more powerful by reconsidering a precedent that for decades defined the balance of power between the federal judiciary and the executive branch.

Meanwhile, at the Justice Department, prosecutors are nearing a decision about whether to charge Hunter Biden, the president's son, with tax- and gun-related violations, the culmination of a four-year investigation that Republicans have sought to portray as evidence the Biden family is corrupt (The Washington Post).

In Focus / Sharp Takes

➤ INTERNATIONAL

Russia on Wednesday said it foiled a Ukrainian drone attack on Russian President Vladimir Putin's residence at the Kremlin, a claim that media reports could not immediately verify and Ukrainian officials denied. Moscow called the alleged attack an assassination attempt on Putin, saying it was "a planned terrorist act and an attempt on the life of the President of the Russian Federation" (Politico EU).

"We don't attack Putin or Moscow," Ukrainian President Volodymyr Zelensky said during a Wednesday visit to Finland. "We fight on our territory. We are defending our villages and cities."

Regardless, the attack is likely to have a "rally around the flag" effect in Russia, leading some to speculate it may be a "false flag" operation staged by the Kremlin to bolster support ahead of Victory Day on May 9, an annual holiday to celebrate the Soviet defeat of Nazis in WWII. "Ukraine has nothing to gain by inflaming Russia further with an assassination attempt on President Putin," said Beth Knobel, a former CBS News bureau chief in Moscow and now a communications professor at Fordham University, noting that the claim of an assassination attempt was far-fetched, given Putin is widely known to reside at a complex outside Moscow (The Hill).

The Atlantic: Four possibilities for the Kremlin attack.

Meanwhile, both Russia and Ukraine are bracing for a planned Ukrainian spring counteroffensive. In recent days, the violence in Kherson has worsened as the city was ordered under a strict new curfew amid mounting speculation of where Ukraine's much-vaunted offensive may strike (The Guardian). The rate at which Russian forces are being killed or wounded in Ukraine has spiked in recent months, according to White House estimates, emphasizing how deadly the combat has become and suggesting the death toll could get worse with Kyiv's long-planned counteroffensive to retake occupied territory (The Washington Post).

Meanwhile, a senior NATO intelligence official has warned there is a "significant risk" Russia could target critical infrastructure in Europe or North America, including gas pipelines and internet cables (Politico EU).

The Hill: The U.S. will send Ukraine another $300 million in weapons ahead of its spring offensive.
Reuters: Zelensky visits the International Criminal Court, seeking justice.
Politico EU: Why Poland dumped Ukraine to help its farmers.
The New York Times: The "peace dividend" is over in Europe. Now come the hard tradeoffs.
The Wall Street Journal: European economies are finding new ways to pay for war on their doorstep.

Civilians trying to survive an outbreak of war in Sudan face a stark choice: risking death by sheltering in place, or being killed while trying to flee. As The Hill's Laura Kelly reports, this was the incredible dilemma that Mohamed Eisa, a Pittsburgh-area physician, confronted with his family while trapped under gunfire in the capital of Khartoum. Eisa had arrived in Sudan for his father's funeral days before the outbreak of war between the country's two top military commanders on April 15. He is one of an estimated 100,000 civilians who have fled Sudan over the course of two weeks of fighting; the United Nations warns that that number is likely to rise to 800,000.

"We had to make a decision whether, basically, die trying, or just die at home, being captured in the middle of these two warring parties," he said in a recent interview with The Hill from Jeddah, Saudi Arabia, where he and his family have found safety. "At the end of the day, we decided, just, we're going to take a risk and leave."

The Washington Post: Sudan's warring generals are closely matched ahead of latest cease-fire.
Reuters: The United Nations says aid trucks have been looted in "volatile" Sudan, calls for safe passage.
The Washington Post: These people want to flee Sudan. Their passports are locked in empty embassies.
Al Jazeera: Port Sudan has become a Red Sea refuge for many fleeing Sudan's violence.

👉 Great read: $59 million, gone: How leaders of Bikini Atoll (population 6,800) blew through a U.S. trust fund (The New York Times).

Reuters: Iran seizes the second oil tanker in a week in the Persian Gulf, U.S. Navy says.

EVENT INVITE:

Expanding Access to Alzheimer's Care & Treatment, May 11, 2 p.m. ET

About 1 in 9 Americans over 65 suffers from Alzheimer's disease. Unfortunately, treatment options are still limited. Why is CMS declining coverage, and where are we in terms of new treatments on the horizon? The Hill brings together Sens. Ed Markey (D-Mass.), Shelley Moore Capito (R-W.Va.); Reps. Anna Eshoo (D-Calif.), Darin LaHood (R-Ill.) and Nanette Barragan (D-Calif.); along with researchers, doctors, caregivers and patients to explore the latest treatments and roadblocks and discuss what more needs to be done.

Click Here to Register

Opinion

Democrats finally seem terrified of GOP debt limit lunacy. About time, by Greg Sargent and Paul Waldman, columnists, The Washington Post. https://wapo.st/3HzOAig
The longest-serving Supreme Court justices make a compelling case for term limits, by Jim Jones, opinion contributor, The Hill. https://bit.ly/3p7CPcr

Where and When

📲 Ask The Hill: Share a news query tied to an expert journalist's insights: The Hill launched something new and (we hope) engaging via text with Editor-in-Chief Bob Cusack. Learn more and sign up HERE.

The House will convene at 11 a.m. Friday. Members are scheduled to return from a district work period on Tuesday.

The Senate meets at 10 a.m. to resume consideration of the nomination of LaShonda Hunt to be a U.S. district judge for the Northern District of Illinois.

The president will receive the President's Daily Brief at 11 a.m. in the Oval Office.

The vice president will join Biden for the President's Daily Brief at the White House at 11 a.m. As part of administration announcements today related to AI, she will meet with senior administration officials and CEOs of Alphabet, Anthropic, Microsoft and OpenAI to discuss responsibility around artificial intelligence and the importance of ethical innovation with safeguards to "mitigate risks and potential harms to individuals and our society." Harris will travel to Richmond, Va., to mark Small Business Week at Babylon Micro-Farms with a tour and remarks at 5 p.m. before returning to Washington.

Secretary of State Antony Blinken at 11:10 a.m. will speak at the 2023 SelectUSA Investment Summit at Maryland's National Harbor. He will participate in the closing session of bilateral peace negotiations with Armenian Foreign Minister Ararat Mirzoyan and Azerbaijani Foreign Minister Jeyhun Bayramov at the George Shultz National Foreign Affairs Training Center at 1:45 p.m.

Economic indicator: The Labor Department at 8:30 a.m. will report on claims for unemployment insurance filed during the week ending April 29.

The White House daily press briefing is scheduled at 2 p.m.

Elsewhere

➤ HEALTH & WELLBEING

Eli Lilly's Alzheimer's treatment donanemab significantly slowed cognitive and functional decline in a large clinical trial of people with early symptomatic disease, the company said on Wednesday (The Hill). An estimated 6.7 million Americans aged 65 and older are living with Alzheimer's in 2023. Seventy-three percent are 75 or older, according to the Alzheimer's Association.

The pharmaceutical industry is on the hunt for breakthrough Alzheimer's drugs, and Lilly said it plans to file for approval with the Food and Drug Administration this quarter. The drug will compete with a similar Alzheimer's treatment from companies Eisai and Biogen, called Leqembi, which won initial FDA approval in January. Medicare will cover Leqembi for all Alzheimer's patients eligible under the drug's label if it gets full federal approval in July, according to the Centers for Medicare and Medicaid Services (CNBC). Medicare currently will only cover the majority of the high costs for Leqembi, an intravenous infusion drug, for patients participating in federally approved clinical trials.

The Hill: The best thing about remote work, from a mental health perspective, may be the commute.
Politico: For Black Americans, the pandemic spike in fentanyl deaths was decades in the making.
NBC News: States threaten crackdown on copycat versions of weight loss drugs Ozempic and Wegovy.
The New York Times: One dose of vaccine for the human papillomavirus (HPV) can prevent infection for at least three years. The longer protection can prevent cervical cancer and other diseases that can be triggered by the virus, a study in Kenya finds.

While schools are desperate to protect their students from the rising threat of mass shootings, experts say the very measures being deployed for safety are in fact traumatizing entire generations of American youth, The Hill's Lexi Lonas reports. There were 51 school shootings in 2022, according to a tracker from Education Week, directly impacting thousands of students, and 95 percent of U.S. schools have shooter lockdown practice, according to Everytown for Gun Safety, affecting millions of students each year.

Sarah Burd-Sharps, senior director of research at Everytown, said, "active shooter drills are actually harmful" for students. "The cumulative impact of shooter drills, lockdowns, metal detectors, armed teachers, and other school-hardening measures is an environment that feels inherently unsafe for America's schoolchildren."

The Closer

Take Our Morning Report Quiz

And finally … It's Thursday, which means it's time for this week's Morning Report Quiz! Inspired by all things canine and feline, we're eager for some smart guesses about presidential pets.

Be sure to email your responses to asimendinger@thehill.com and kkarisch@thehill.com — please add "Quiz" to your subject line. Winners who submit correct answers will enjoy some richly deserved newsletter fame on Friday.

Which president did not keep a pet while in office?

James K. Polk
Andrew Johnson
Donald Trump
All of the above

Which president kept (in and out of the White House) an eclectic mix of pets that included a raccoon, a bobcat, a pygmy hippopotamus, a wallaby and a black bear?

Theodore Roosevelt
Thomas Jefferson
Calvin Coolidge
Grover Cleveland

President John Quincy Adams was given what pet — which briefly resided in a White House bathroom — by the Marquis de Lafayette?

A boa constrictor
An alligator
A red hen
A lizard

Tabby cat Willow currently occupies the White House (and the president claims she sometimes sleeps on his head). How did the Bidens come to adopt her?