The Morning Dispatch: Prices On the Rise

Happy Thursday!* A big thank you to everyone who tuned in to Dispatch Live last night! It was one of our favorite ones yet. If you missed it—or it was so good you want to watch it again—we’ve archived it for you here.

Quick Hits: Today’s Top Stories

• Inflation rose at its fastest rate since September 2008 in April, the Labor Department reported Wednesday, with the Consumer Price Index increasing 4.2 percent year-over-year, and 0.8 percent month-over-month.

• Colonial Pipeline announced it began restarting pipeline operations at 5 p.m. ET yesterday, nearly a week after a ransomware attack forced the East Coast’s largest underground fuel line to shut down. “Following this restart, it will take several days for the product delivery supply chain to return to normal,” the company said. Secretary of Homeland Security Alejandro Mayorkas approved a temporary Jones Act Waiver last night in an effort to “ease oil supply constraints.”

• House Republicans Wednesday morning officially removed Rep. Liz Cheney from conference leadership, passing the motion overwhelmingly by voice vote, so no final tally was recorded. Cheney remained defiant after the meeting, telling reporters she will do everything she can “to ensure that the former president never again gets anywhere near the Oval Office.” House Republicans are expected to hold a forum for candidates vying to replace Cheney later tonight and vote on her replacement tomorrow morning.

• Following FDA authorization earlier in the week, the Centers for Disease Control on Wednesday formally endorsed the use of Pfizer/BioNTech’s COVID-19 vaccine for use in children ages 12 to 15.

• President Joe Biden on Wednesday unveiled his third slate of judicial nominees: Three for Circuit Court positions, and three for District Court ones. Biden has now announced 20 nominees for federal judicial vacancies.

• The United States confirmed 40,143 new cases of COVID-19 yesterday per the Johns Hopkins University COVID-19 Dashboard, with 4.5 percent of the 886,351 tests reported coming back positive. An additional 856 deaths were attributed to the virus on Wednesday, bringing the pandemic’s American death toll to 583,647. According to the Centers for Disease Control, 30,718 Americans are currently hospitalized with COVID-19. Meanwhile, 1,548,283 COVID-19 vaccine doses were administered yesterday, with 153,986,312 Americans having now received at least one dose.

Consumer Prices Continue to Spike

The consumer price index (CPI) rose 4.2 percent over the last 12 months before seasonal adjustment, the Labor Department said Wednesday, the highest year-over-year increase since the 12-month period ending in September 2008. April saw a seasonally adjusted CPI increase of 0.8 percent.

Wednesday’s CPI report was much higher than economists had originally forecast, stoking panic among investors who fear that rising prices could force the Federal Reserve to raise its targets for short-term interest rates. Stocks fell Wednesday in response to the news, and the S&P 500 and Dow Jones Industrial Average have now reported their steepest three-day declines in almost seven months.

Analysts say the drastic year-over-year increase in prices is partly just a function of the “base effect,” an economic term that contextualizes stark CPI increases by taking into account the lower number of comparison in a particular economic model. In April of last year, small businesses were shuttered and consumer demand plummeted. Now that consumer spending is skyrocketing, consumer prices are following suit.

Supply chains are also struggling to keep up with consumer demand. “Some of the largest price increases are in industries where we know there have been supply issues or where suppliers are automatically constrained,” Stan Veuger, an economist at the American Enterprise Institute, told The Dispatch. For example, widespread semiconductor chip shortages caused consumer prices for used cars and trucks to rise 10 percent in April alone, the highest month-by-month sector increase on record dating back to 1953. 

But sector price increases can also distort month-by-month CPI data. “Used car pricing has had a massive outsized impact on the way that the CPI reading came through,” said John Fagan, co-founder of Markets Policy Partners and former director of the Markets Group at the Treasury Department. “The way that they make up the index, that led to a huge chunk of the increase month-on-month.”

Leading up to this month’s CPI report, Federal Reserve Chair Jerome Powell has consistently maintained the Central Bank will keep its easy-money policy in place until the economy meets its 2 percent inflation target and maximum employment. (The Fed bases its inflation targets on personal consumption expenditures, which typically runs below CPI.)

“The economy is beginning to move ahead with real momentum,” Powell told reporters on April 28, adding that “an episode of one-time price increases as the economy re-opens is not the same thing as, and is not likely to lead to, persistently higher year-over-year inflation.”

“The Federal Reserve is very closely monitoring these numbers,” Veuger said. Under the previous framework, he explained, the Fed was consistently undershooting inflation, which dampened economic recovery in the aftermath of the financial crisis. 

Still, many market participants are spooked by Wednesday’s CPI report. “As an investor, even if you’re not individually concerned about inflation and you believe the Fed that so much of what we’re seeing is transitory, noise in the data, and that sort of stuff, you’re concerned that other people are concerned about inflation,” said Fagan, who noted he personally finds the Fed’s “narrative about noise in the data in the near-term to be quite credible.”

Near-zero interest rates have led investors to pour their money into riskier investments like tech stocks and Bitcoin, both of which took a big tumble Wednesday following the report. (Bitcoin’s sink was also spurred by an announcement from Tesla that it would no longer accept payments of the cryptocurrency due to environmental concerns about its production.)

Luke Lloyd, an investment adviser for Strategic Wealth Partners, believes this jitteriness among investors is unlikely to last. “The only reason that the stock market would be impacted by inflation in the short term is if they raise interest rates, which I don’t think is happening,” he said, predicting that the market will see a rotation back into tech stocks over the next six months.

Manhattan Institute senior fellow Brian Riedl is modestly worried about inflation, but he also cautioned against reading too much into the latest CPI report. “Much of the increase is based on a low starting point last April, and core inflation is lower than the headline number we’ve seen,” Riedl told The Dispatch. “So I think we need to wait a couple more months to see how bad it’s going to be. That being said, anyone who is totally unconcerned with them right now is just completely in denial.”

Riedl also added that the picture gets a bit murkier when you combine consumer price increases with the Labor Department’s latest jobs report, which showed that nonfarm payrolls increased by only 266,000 jobs in April and the unemployment rate ticked up to 6.1 percent. 

“Something is going on that cannot simply be explained purely by the pandemic, particularly when people are getting vaccinated,” Riedl said. “I don’t want to overstate it, it’s one month at this point. But clearly, creating 266,000 jobs last month when analysts were expecting a million is really bad.”

‘I Probably Won’t Ever Speak to Her Again’

We’ve spent a lot of time in recent days covering Rep. Liz Cheney’s lonely crusade in the House GOP conference, but Republicans have made clear they’d rather look to the future rather than dwell on the past. To that end, Declan has a profile up on the site today of Rep. Elise Stefanik, the New York Republican who is set to replace Cheney in leadership when the House votes tomorrow.

It’s been a long and winding road to this point for Stefanik, and Declan spoke to people who knew her at various points along the way—dating all the way back to her days at Harvard, where Stefanik’s interest in politics and public service was first piqued.

When the Harvard Institute of Politics (IOP) decided after January 6 to boot Rep. Elise Stefanik from its Senior Advisory Committee, it likely hurt the 36-year-old Republican far more than she publicly let on.

“When we were at the IOP, we looked at that Senior Advisory Committee like they were gods on earth,” said one of Stefanik’s Harvard classmates who served on IOP leadership with her. “At the time, Ted Kennedy sat on the Senior Advisory Committee. It was stacked with former senators and congresspeople. If you could get invited to a lunch with the Senior Advisory Committee, that was perceived as the ticket when you were a student.”

The IOP—established in 1966 and housed at Harvard’s Kennedy School—is designed to imbue students with a passion for politics and public service, and it worked on Stefanik. Just weeks after making the trek from upstate New York to Cambridge, Massachusetts in 2002 to begin her college career, an 18-year-old Stefanik found herself at 79 JFK St., working with Ted Sorensen—President John F. Kennedy’s longtime speechwriter and confidante—to produce a weekly seminar.

“That to me was just an amazing experience,” Stefanik remembered years later. “After that, I was hooked.”

Stefanik went on to serve as a liaison to another IOP fellow—Bush White House Domestic Policy Council Director John Bridgeland—and worked her way up to chair the Fellows and Study Groups program. Her peers elected her vice president of the entire organization when she was a junior in 2004, and she was invited to join the ranks of the hallowed Senior Advisory Committee shortly after becoming the youngest woman ever voted into Congress. 

“There is no other institution around the world that is at the caliber of the Institute of Politics in terms of exposure and having a seat at the table to discuss issues with world leaders, political practitioners, and well-respected members of the media,” she said in 2016. Around that time, she told a friend it was her dream to one day return to the IOP as its director.

But that dream is over.

“The decision by Harvard’s administration to cower and cave to the woke Left will continue to erode diversity of thought, public discourse, and ultimately the student experience,” Stefanik said after IOP leadership deemed her “public assertions about voter fraud” in the 2020 election a bridge too far. “As a conservative Republican, it is a rite of passage and badge of honor to join the long line of leaders who have been boycotted, protested, and canceled by colleges and universities across America.”

Stefanik has really leaned into Trumpism these last two years—and it’s caught some people off guard.  

“She did things supportive of President Trump, and got a really good response for them,” said a former Republican congressional aide. “And I think it was just a positive feedback loop where the incentives aligned to make her, not necessarily that much more conservative, but that much more pro-Trump. Which is a different thing.”

By all accounts, Stefanik is at peace with her decision—and she’s found strength in numbers. Asked by The Daily Beast yesterday if she believes anything Cheney has said in recent months is actually untrue, Stefanik framed her response in the terms that have come to define the past two years of her career: “What [Cheney] is saying is not representative of the viewpoints of 70-plus million Americans who voted for President Trump.”

To make room for those 70-plus million new supporters, Stefanik has been forced to shed some old ones. “It’s sad, because she was a friend, and I just—I probably won’t ever speak to her again,” said someone who first met her at the IOP. “At this point I dont really want to, because picking up the phone and talking to her would be like talking to someone I don’t know, that I’ve never met before.”

“[Stefanik] was exactly the kind of student that you wanted to come out of the IOP,” a Harvard Kennedy School staffer added. “When you think about what the IOP stands for, it hopefully produces people like Elise Stefanik.” The deep-rooted pride in her accomplishments only served to render the eventual disappointment that much more painful.

“I honestly think to this day, Elise knows better. I really believe that,” the staffer continued. “She went from someone who I thought was extremely principled and would be like a profile in courage to someone who was exactly the opposite of that.”

To read Declan’s whole piece, including details on Stefanik’s evolving congressional district, her voting record, and her push for more gender diversity in the GOP—click here.

Worth Your Time

• In a piece for American Purpose, former World Bank president and U.S. Trade Representative Robert Zoellick outlines what he sees as six key principles for reviving conservative internationalism. “It is a fool’s game—and a loser’s strategy—to compete with authoritarians by restricting America’s openness, whether to people, goods, capital, inventions, or ideas. Fortress America retreats to defense, instead of going on offense to reshape the competition,” he writes. “Secretary of State William Seward believed that America’s economy and its ideas could be a magnet—an attractive power—that contrasted with the dominating dictates of empires. Ronald Reagan recalled Seward’s vision for North America, declaring in 1979 that U.S. security would be enhanced if Mexico and Canada became stronger, and that ‘it is time we stopped thinking of our nearest neighbors as foreigners.’”

• This reported piece by Adam Jahns in The Athletic is too good not to include. In it, he explores how the Chicago Bears landed their new franchise quarterback, Justin Fields, with the 11th pick in the NFL draft. “[Bears General Manager Ryan] Pace was ready to pivot based on what he heard over the phone and the significant work that preceded the draft, but he didn’t want to,” Jahns writes, detailing how the Bears’ trade with the New York Giants came together. “‘We walk into the draft room with a plan — and with Justin being our No. 1 target,’ Pace said. ‘The odds of us getting him (are) probably not great, but that would be the best-case scenario for us if things fall the right way.’” They did.

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Toeing the Company Line

• In his Wednesday G-File (🔒), Jonah argues that Rep. Liz Cheney’s ouster from House leadership yesterday was significant—but not necessarily for the reasons cable news might tell you. “History is a bit like one of those choose-your-own-adventure books. Small decisions that seem trivial move events, people, and institutions along paths that lead to more choices while simultaneously foreclosing other choices,” he writes. Pundits are “entirely correct that most people don’t care about this brouhaha, and many more don’t know anything about it at all. But ‘inside baseball’ has consequences. The people at that meeting made a choice, and that choice will constrain, create, and close future choices to come. The next time Donald Trump lies about the 2020 election being stolen, Republicans will still have a choice to speak up or stay silent. But the costs of speaking up just went up dramatically.”

• Scott Lincicome returns to the culture war vs. economic policy debate in this week’s Capitolism. “Either Republicans are keeping their policy priors—tax cuts are still good, current U.S. union policies are bad, etc.—and just excepting certain corporate villains from the general rules, or they just never believed in those policies in the first place,” he writes. “Unserious signaling might not matter when it comes to selecting a party apparatchik or filing a soon-forgotten messaging bill, but—to the extent that such policies are actually implemented—it can. And we’d all be worse off for it.”

Let Us Know

Ohio Gov. Mike DeWine announced yesterday that, beginning in two weeks, the state will hold five weekly, $1 million lotteries for which anyone who has received at least one COVID-19 vaccine dose will be eligible.

Our question to you: What other wacky ideas should governors implement to encourage folks to get vaccinated?

Reporting by Declan Garvey (@declanpgarvey), Andrew Egger (@EggerDC), Haley Byrd Wilt (@byrdinator), Audrey Fahlberg (@FahlOutBerg), Charlotte Lawson (@charlotteUVA), Ryan Brown (@RyanP_Brown), and Steve Hayes (@stephenfhayes).

Correction, May 13, 2021: Today is Thursday, not Wednesday.