Weekly News Blast | Jan. 30 – Feb. 5

A summary of key events from this past week.

Caravan migrants near the US-Mexico border (Ken Shin/Flickr).

New Immigration Program Set to Admit over 7,500 Migrants as Illegal Border Crossings Fall

Pursuant to the Biden administration’s new immigration program, U.S. officials have approved more than 7,500 migrants from Cuba, Nicaragua, and Haiti. The new program, announced in early January, permits up to 30,000 migrants each month from Cuba, Nicaragua, Haiti, and Venezuela, as well as deporting up to that same number of migrants who violate U.S. laws or attempt illegal border crossings. Billed as a humanitarian “parole” for sponsored applicants who have followed prescribed procedures, the program deters migrants from embarking upon harrowing odysseys with high mortality rates.

Heralded as a stop-gap measure to help address the increasingly-dire health and safety situation at the southern border of the U.S., President Joe Biden acknowledged the program “won’t fix our entire immigration system.”

“Until Congress passes the funds, a comprehensive immigration plan to fix the system completely, my administration is going to work to make things at the border better using the tools that we have,” he said. The program has already resulted in a fifty-percent decrease in U.S.-Mexico border crossings.

The program, however, may be short-lived. On January 24, twenty states initiated a lawsuit to halt the program. Filed in the U.S. District Court for the Southern District of Texas, the complaint alleges a lack of legal authority for the program, as well as potential harm from an influx of immigrants. The litigation is now pending.

Federal Reserve Institutes Eighth Interest Rate Hike within a Year

On Wednesday, February 1, the U.S. Federal Reserve System raised interest rates by a quarter percent. The rate hike – the eighth such increase within a year – aimed to slow inflation by putting brakes on the economy without harming the employment rate. Although the February 1 increase was the smallest since last March, the Fed signaled it may be obligated to continue boosting rates throughout 2023.

Pursuant to the Congressional mandate, the Federal Reserve is tasked with keeping prices stable and maximizing employment. Last month, prices rose at a slower rate than in prior months, but the increase still exceeded the ideal. Additionally, January's nonfarm employment increased, while the unemployment rate remained stable. Even though these economic indicators moved in a promising direction, Federal Reserve intervention was still required.

Interest rate increases tend to discourage borrowing, which has a two-fold effect: (1) it is harder to obtain funds to buy goods and services, which tends to make inflation fall and prices drop, and (2) it is harder to invest in business expansion, which tends to hurt the employment rate. Unfortunately, falling prices tend to accompany falling employment rates. The probable impact of the Fed’s most recent rate increase should become clear in several months.

Upon Hitting Debt Ceiling, U.S. Department of Treasury Struggles to Keep Paying America’s Bills

Following the U.S. hitting its $31.4 trillion debt limit on January 19, President Joe Biden and House Speaker Kevin McCarthy met on Wednesday, February 1 to discuss ways to keep the U.S. from defaulting on its ongoing liabilities. Both characterized the meeting as positive, but they failed to reach a solution. The President advocates a simple, “clean” bill raising the debt ceiling because U.S. leaders have an absolute, non-negotiable obligation to provide for debt payments. Conversely, McCarthy insists that any bill increasing the debt ceiling be accompanied by spending cuts. In fact, when campaigning for the House speaker position, McCarthy had to promise fellow Republicans that any increase in the debt ceiling would be accompanied by spending cuts.

Since 1960, Congress has authorized 78 increases in the debt ceiling. Legislatively raising the debt ceiling used to be a de rigeur Congressional exercise. In recent years, however, this straightforward matter has become unusually contentious. Some congress members focus on the catastrophic, unprecedented consequences if the U.S. were to default on its numerous obligations. Others prefer to use urgency as a bargaining chip to extract concessions for curbing spending. Although both party leaders feel confident the U.S. will not default on its obligations, neither party seems willing to budge.

In the interim, the Treasury Department must employ “extraordinary measures” to continue paying America’s bills timely. These measures could include halting investments or reinvestments in various federal funds or suspending sales of state and local government treasury securities. The nonpartisan Congressional Budget Office has warned that the Treasury will exhaust its ability to use emergency measures sometime between July and September.