In a shrinking economy, Democrats have a make-or-break seven days ahead

Biden had little time to celebrate making a deal with Joe Manchin before more bad news hit

Chuck Schumer talks to reporters about the deal reached with Joe Manchin (Copyright 2022 The Associated Press. All rights reserved)

If Joe Biden had reason to celebrate Joe Manchin and Chuck Schumer’s deal on a climate and healthcare on Wednesday, he got a reality check on Thursday with the news that the US economy contracted by 0.9 per cent in the second quarter of 2022. This, after a first quarter in which it shrank by 1.4 per cent.

Typically, two consecutive quarters of negative growth signals a recession. But as my colleague Oliver O’Connell has explained, extra data shows it isn’t quite that simple. The US boasts a robust labor market, and the announcement of negative growth came just after the Federal Reserve announced another 0.75 per cent interest rate hike meant to tamp down inflation – which is now at a 40-year high, with prices jumping 9.1 per cent in 12 months.

Treasury secretary Janet Yellen, a former Federal Reserve chairwoman herself, downplayed fears of a recession, noting that “job creation is continuing” and arguing that “it doesn’t make sense” for the US to be categorized as in a recession. Nonetheless, all of this makes the coming week even more important for Biden’s agenda.

Manchin’s nervousness about rising prices almost killed the chance of a spending bill happening at all. But now he’s on board, there is one, and it has been dubbed the Inflation Reduction Act of 2022. That means Biden can sell it to the American people without the West Virginia Senator harping on about spiralling costs.

Democrats want to pass the legislation using a budget reconciliation, which allows legislation to pass with only 51 votes (or 50 votes plus the vice president’s tiebreaker) so long as it is related to the budget. Before that, a reconciliation has to be subject to what is often called the “Byrd bath”, a process through which the provisions are scrutinized by the Senate parliamentarian.

Schumer, for his part, gave a confident press conference to close out the Senate’s week in which he predicted that he would get the hard-won legislation over the finish line. “This morning, I met with my Democratic colleagues to discuss this bill, discuss the path to passing it in the next week,” he said. “I expect the remaining work with the parliamentarian will be completed in the coming days.”

But Schumer has a tight deadline. The Senate is notoriously averse to working on weekends: it therefore isn’t meeting today, and once it reconvenes on Monday, Schumer will have just a week to pass the legislation before the August recess, a deadline he imposed himself given the long history of legislation withering and dying while members go home for the summer. One example: In 2013, the August recess essentially killed any chance of immigration reform, negotiated by a “Gang of Eight” that included Schumer himself.

On top of that, while he may have wrangled Manchin, the Majority Leader still has to work on the other conservative Democrat in his caucus: Kyrsten Sinema. Sinema has been especially allergic to raising taxes – particularly on carried interest, a major revenue-raiser in the Manchin-Schumer agreement.

On the House side, meanwhile, many progressives seem ready to swallow a piece of legislation much smaller than their planned multi-trillion-dollar bonanza Build Back Better. Asked about the bill by your reporter, Representative Alexandria Ocasio-Cortez said, “We’re still coming through that text” – though Mike Lillis at The Hill quoted her as calling it “an overwhelmingly positive development”.

Congressional Progressive Caucus chairwoman Pramila Jayapal, meanwhile, said she was optimistic, even though many things she and her fellow progressives wanted are no longer included. “I think the most important thing is to get this thing done as quickly as possible,” she told reporters.

New York Representative Jamaal Bowman, a fellow member of the Squad who voted against the bipartisan infrastructure bill because no vote for Build Back Better was scheduled, said he was pleased about the 15 per cent minimum tax for corporations as well as plans to curb prescription drug costs and climate investments. But he also lamented the loss of other elements.

“Yeah, I mean, but you know, they’re Senators,” he said. “One is the Senate Majority Leader and one has been the gatekeeper of some of these policies.”