A Busy Week for NATO Leaders in Vilnius

Happy Thursday—and happy National French Fry Day! If you happen to be in Thailand, we hope you celebrate with Burger King’s new “real cheeseburger”: One sesame seed bun, 20 slices of American cheese, and absolutely nothing else.

Quick Hits: Today’s Top Stories

• Chinese hackers accessed the email accounts of numerous U.S. government officials—including Commerce Secretary Gina Raimondo—by breaching Microsoft’s cloud security, according to Microsoft and the White House. The New York Times reported yesterday the hack was first identified at the State Department, where hackers allegedly tried to breach the email accounts of specific officials prior to Secretary of State Antony Blinken’s trip to Beijing last month. The hackers reportedly had access to the accounts for a month before their presence was detected and addressed.
• North Korea launched its first intercontinental ballistic missile test in several months on Wednesday, supposedly in retaliation for U.S. spy planes’ flights through the country’s exclusive economic zone earlier this week—though American officials downplayed the allegations. The ICBM—apparently a solid-fuel Hwasong-18—traveled more than 620 miles over the course of 74 minutes before landing in waters between the Korean Peninsula and Japan.

• Lawmakers in Iowa voted Tuesday night—56-34 in the House, 32-17 in the Senate—to pass a bill banning abortions in the state if a fetal heartbeat is detected, generally around six weeks gestation. Republican Gov. Kim Reynolds said in a statement that she would sign the legislation—which has exceptions for “medical emergencies”—into law on Friday, after which it would take effect immediately, unless a judge issues a preliminary injunction as abortion access groups requested in a lawsuit filed Wednesday afternoon.
• Morning Consult released the first poll of the GOP presidential field that meets the Republican National Committee’s criteria for qualifying for the party’s August primary debate in Milwaukee. Donald Trump, Ron DeSantis, Vivek Ramaswamy, Mike Pence, Nikki Haley, Tim Scott, Chris Christie, and Asa Hutchinson all met or surpassed the 1 percent threshold, but GOP hopefuls will need to earn at least 1 percent support in two more national polls (or one more national and one state poll) and garner 40,000 individual donors to qualify for the debate. Christie and Scott both announced yesterday that they had met the donor requirements.

• Northwestern University fired head football coach Pat Fitzgerald this week after University President Michael Schill concluded Fitzgerald “should have known” about hazing activities—including “nudity and sexualized acts of a degrading nature”—uncovered by an independent investigation after a whistleblower report. Schill had initially suspended Fitzgerald—who signed a 10-year, $57 million contract in 2021—for two weeks, but made the dismissal permanent amid mounting public pressure.

The State of Our NATO Is Strong

Vilnius, Lithuania: Home to 540,000 people, a 15-foot statue of Tony Soprano wearing a bathrobe and purple shorts, and, for the last few days, the heads of the world’s most powerful military alliance.

We hope those NATO leaders took a field trip to see the giant Tony, but we doubt they had time between announcing new security assistance for Ukraine—though not a NATO membership timeline—and getting the runaround from Turkish President Recep Tayyip Erdoğan over when Turkey will approve Sweden’s accession to the alliance.

At first glance, Ukraine might not seem any closer to NATO membership after the two-day summit than it was in 2008, when NATO first declared the nation “will become” a member at some point—and then did little to help Ukraine make that a reality. This time, the alliance affirmed that “Ukraine’s future is in NATO,” but still offered no timeline, saying only that Ukraine can join “when allies agree and conditions are met.”

Ukrainian President Volodymyr Zelensky—also present in Vilnius—wasn’t pleased with the lack of a detailed accession plan. “It’s unprecedented and absurd when [a] time frame is not set neither for the invitation nor for Ukraine’s membership,” he tweeted. “Uncertainty is weakness. And I will openly discuss this at the summit.”

The comments drew anonymous criticism from high-level NATO diplomats—and a public caution from British Defense Minister Ben Wallace. “People want to see gratitude,” he told reporters on the summit sidelines. “You know, we’re not Amazon.” Zelensky countered that Ukraine deserves plaudits from the West for actually fighting Russia themselves.

By the end of the gathering, however, Zelensky was expressing thanks for NATO nations’ previous support, as well as their many new commitments. Over the course of the two days, NATO agreed to remove the bureaucratic requirement for Ukraine to complete a “Membership Action Plan” before joining, and laid plans to build full military interoperability between Ukraine and NATO. Members pledged money to strengthen Ukrainian civil society and help it build strong, low-corruption institutions, and gave Ukraine a greater seat at the table for intra-alliance discussions via the newly formed “NATO-Ukraine Council.”

Ukraine was never going to get a fast track to membership—admitting the war-torn nation now would, under the alliance’s mutual defense pact, instantly commit NATO forces to a direct conflict with Russia. So the alliance is finding other ways to help. “They’ve been trying to straddle that line by supporting the Ukrainians but not getting involved in World War III,” says Daniel Hamilton, a senior fellow at Johns Hopkins School of Advanced International Studies who previously worked on NATO policy at the State Department.

For Ukraine, the most immediately useful developments to come out of the summit were probably announcements of additional military aid—including cluster munitions from the U.S., long-range missiles from France, additional tanks from Germany, and more tank ammunition from Britain. “The most important thing in the short term for Ukraine is getting its hands on as much military hardware as possible to defend itself,” says Sean Monaghan, a visiting fellow  at the Center for Strategic and International Studies who studies NATO and defense. “Zelensky should walk away from the summit happy.”

Someone else walking away happy: Erdoğan, who reportedly said Monday he’s withdrawn his opposition to Sweden’s NATO accession, but added Wednesday that Turkey’s parliament won’t take up the measure until October. The delay seems deliberate. “He could convene the Turkish Parliament tomorrow and instruct everybody to wear yellow jackets if he wanted,” Sinan Ciddi, an associate professor focused on Turkish politics at the Marine Corps University, tells TMD. “He’s choosing not to do this.”

The recently reelected Erdoğan has already wrung several concessions from NATO members, including a new counterterrorism coordinator for the alliance, as well as Sweden’s promise to help remove military sale sanctions on Turkey and to support Ankara’s long-stalled European Union bid. And hours after Erdoğan’s statement of support on Monday, the Biden administration said it would move ahead on the sale of F-16 fighter jets to Turkey—though the White House has vehemently insisted that the two decisions were not linked. Lawmakers concerned Turkey will threaten Greece and Syria with the planes have blocked the move, but Senate Foreign Relations Committee Chairman Bob Menendez—a leading opponent of the step—said this week “there may be a way forward.”

Ciddi suggested that won’t be enough for Erdoğan. Until the Biden administration can show signs of congressional approval, he said, the Turkish leader will keep stalling Sweden and reap the reward of looking powerful at home. “Presumably Erdoğan wants some sort of assurance that’s more than just Biden’s golden handshake,” Ciddi tells TMD. Requiring unanimous approval, Sweden’s rocky accession process has highlighted for Erdoğan—and buddies like Hungary’s Viktor Orbán—the power of the veto to wrench policy priorities from NATO with little way for disgruntled members to bite back.

Other summit business reaffirmed just how far NATO has come since Russian tanks rolled across Ukraine’s borders in February 2022. Alliance leaders last year agreed on the need to beef up troop numbers in eastern Europe and at this summit affirmed plans to conduct live exercises proving NATO’s ability to quickly reinforce eastern European members. This year’s joint communique also welcomed Finland and promised to finish up full integration with the Nordic country’s military. 

Allies didn’t publicly discuss a replacement for NATO Secretary-General Jens Stoltenberg—who’s led the alliance since 2014 and recently had his tenure extended until October 2024—but the topic likely came up behind the scenes. A few names have been tossed around—including British Defense Minister Wallace, European Commission President Ursula von der Leyen, and Estonian Prime Minister Kaja Kallas—but all are likely to face opposition from one segment of the alliance or another. President Joe Biden has reportedly soured on Wallace, for example, after the United Kingdom announced plans to train Ukraine on U.S.-made F-16s without Washington’s approval.

The summit also served as a reminder that even a North Atlantic-focused alliance can’t ignore China’s growing aggression in the Indo-Pacific: For a second consecutive year, Japanese, South Korean, Australian, and New Zealand leaders attended. Though France vetoed opening a NATO office in Tokyo, the alliance agreed on 16 areas where it will cooperate with Japan, including cyber defense and maritime security. “NATO and Japan are now going to work together,” Hamilton tells TMD, arguing it’s “more important than an office, which wouldn’t do a whole lot.”

Although Zelensky’s frustrations laid bare some tensions among partners, Biden left Vilnius stressing NATO’s might—and solidarity. “Today, our alliance remains a bulwark of global security and stability as it’s been for more than seven decades,” he said in a speech. “NATO is stronger, more energized, and yes, more united than ever in its history.”

Stoltenberg was similarly optimistic. “We all understand the extremely difficult situation that Ukraine is in—they’re in the middle of the war,” he said. To Zelensky, he added: “Today, we meet as equals. I look forward to the day we meet as allies.”

With the war against Russia still raging and reforms needed to root out corruption and prepare Ukraine for full partnership, that day is still likely years away. But once those conditions are met, expect Ukraine to push the issue. Asked how long Zelensky would wait to join NATO after the war with Russia ends, Biden quipped: “An hour and 20 minutes.”

Soft Landing Ahoy?  

Apparently all we needed to get inflation back under control was a made-up, mid-summer holiday where giant retailers come together to offer consumers excellent deals on pressure cookers, vacuum cleaners, and wireless headphones. Who knew?

The Bureau of Labor Statistics released its latest Consumer Price Index (CPI) report on Wednesday—the second half of Amazon’s Prime Day extravaganza—and it was a beauty, beating economists’ consensus expectations easily. Overall, prices increased just 0.2 percent from May to June, and 3 percent year-over-year—the lowest annual rate since March 2021—and wage growth outpaced the rate of inflation by 1.2 percent. Go ahead and get that discounted Instant Pot, your purchasing power hasn’t grown this quickly in years.

Yesterday’s data drove the S&P 500 and Nasdaq to their highest levels in 15 months as the CPI report seemed to indicate we could actually be in for a proverbial “soft landing,” whereby the economy slows enough to return inflation to the Federal Reserve’s 2 percent annual target without slowing too much and tipping into a recession. We’re almost there: Year-over-year inflation at this time last year was a staggering 9.1 percent, but the unemployment rate was unchanged at 3.6 percent. 

As positive as June’s report was, however, it’s still too early to celebrate. Much of the deceleration in prices over the past month and year can be attributed to the plunging cost of energy (read: gasoline), which is liable to spike again at any time for geopolitical or weather-related reasons. In fact, stripping out volatile energy and food prices, core inflation is headed in the right direction but still at 4.8 percent year-over-year. “If I’m [Fed Chairman] Jerome Powell, I’m not alarmed by the data that’s coming out,” Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting, tells TMD, “but I’m not landing on an aircraft carrier with a ‘Mission Accomplished’ banner flying behind me [either].”

Powell, for what it’s worth, almost assuredly agrees with that assessment. Although the Fed in June opted against increasing interest rates an 11th consecutive time, minutes later released from that month’s meeting hinted that the hikes would resume in July—and yesterday’s news is unlikely to shake central bankers from that course. Before the latest inflation data was released, investors considered the probability of another 25-basis-point increase (0.25 percentage points) at the Fed’s July meeting to be 93 percent. After the CPI report, that figure plummeted to … 92.4 percent.

Why? In addition to concerns about overreacting to what could end up being a one-off fluke or aberration, central bankers also have a reputation to uphold. Inflation is partially psychological, and a key way for central bankers to prevent it from roaring back is to convince investors—and the American public—that they take the issue seriously. “[Fed bankers] were so far behind the curve two years ago, and then inflation got out of control,” Brendan Walsh, a principal at Markets Policy Partners, tells TMD. “Unfortunately, they’re [probably] willing to put the economy in recession in order to save their own credibility.”

The Fed will also be flying a little blind at their next meeting on July 26, as the body’s preferred inflation indicator—the personal consumption expenditures (PCE) index—won’t be released until several days later. Core PCE inflation came in at 4.6 percent year-over-year in May, and Powell & Co. would certainly love to know how much closer it got to their 2 percent target before doing anything drastic. 

Those last few percentage points are going to be trickier to knock off, Walsh says, because “part of the drop that’s happening right now has to do with base effects,” he tells TMD. “But, we are seeing some signs that rates may have normalized a little bit higher. While we were in a 2 percent inflation environment, maybe we’re in a 2.5, 3 [percent environment now].”

“Base effect,” in this context, has to do with how all these annual inflation stats are calculated. Because inflation was already running incredibly hot last June, this June’s data doesn’t look quite so bad in comparison. Zooming out a little, you can see how this bookkeeping method distorts reality. Yes, prices are only up on average about 3 percent since June 2022, but they’re up 12.3 percent from June 2021 and 18.2 percent from June 2020. 

While odds that the U.S. will avoid the once almost-certain recession are improving, inflation is still reading slightly above the Fed’s 2 goal and more rate hikes are likely in the coming months—now potentially running the risk of over-tightening. 

Consumer prices aren’t the only measure central bankers are watching closely as they try to take the economy’s temperature ahead of their July meeting. On that score, the June jobs numbers, released last week, gave cause for both hope and anxiety. Employers added 209,000 jobs in June, which is strong, but lower than expected and a significant drop from May’s posting. The figures suggest rate hikes might be having the desired effect, cooling the economy’s engine slightly. 

Not so fast, though: The unemployment numbers told a slightly different story. At 3.6 percent, the jobless rate stayed basically steady at an almost 50-year low. Average hourly earnings grew 4.4 percent yearly, outpacing expectations (and inflation). 

While one month does not a trend make, persistently high wages may spook Powell: Companies raising worker pay may also raise prices to cover those wage increases. Plus, people earning more can afford to pay more. “A slight softening in the labor market’s not going to take away that wage pressure and the subsequent impact that can have on inflation going forward,” says Snaith.

Still, Biden seems ready to take a victory lap. “This is Bidenomics in action,” he said Friday (and again Wednesday in response to the inflation numbers). The incumbent president is trying to make the economy part of his reelection pitch—a dangerous proposition, considering most Americans aren’t convinced things are on the upswing despite recent good news. His economic pitch, launched late last month in Chicago, comes as his approval numbers on the economy are particularly dismal: In an Associated Press poll published the same day as the Chicago speech, two-thirds of Americans disapproved of his handling of the economy even as inflation has slowly declined. His economic approval rating was lower than his overall approval rating of 41 percent. 

In spite of—or perhaps because of—Americans’ flagging confidence in his economic agenda, Biden has dispatched his Cabinet across the country to preach his economic gospel: subsidizing key sectors like technology and manufacturing, investing in infrastructure, and an antitrust crusade. This week, even first lady Jill Biden is getting in on the action, visiting the crucial battleground states of Georgia, Pennsylvania, and Ohio. 

But what effect are his policies—incarnated in the 2021 American Rescue Plan Act and the Infrastructure Investment and Jobs Act, the 2022 Inflation Reduction Act and the CHIPS and Science Act, plus a bevy of executive orders and proposed rules—actually having on the economy? The jury is still mostly out. While the American Rescue Plan stimulus check likely contributed to early inflation, it stepped in where the Trump-era stimulus left off, and may have also contributed to late- and post-pandemic growth that outpaced the other Group of Seven economies. Walsh tells TMD the infrastructure projects may be creating jobs, with fewer consequences for inflation than conventional economic wisdom would suggest, for now. “Inflation data I think it’s proving that [Bidenomics] hasn’t been as inflationary as some had feared, but that could play a role down the road as we have to service higher debt loads at higher rates,” he says.

Republicans, for their part, have been throwing Bidenomics around like it’s a four-letter word. In a messaging memo to GOP senators late last month, Sen. John Barrasso of Wyoming said Democrats’ predilection for big government spending is “making everyday essentials more expensive, hollowing out family savings, and driving interest rates higher.” 

While odds of a recession are decreasing, at least in the near term, we’re not entirely out of the woods yet—and that could spell bad news for Biden. “If this recession does come to pass, then that sort of becomes the calling card of Bidenomics, and I think it could be politically problematic,” Snaith says.

Worth Your Time

• Hollywood has a pretty well-worn track record of converting books into movies, but the biography behind Christopher Nolan’s newest blockbuster, Oppenheimer, has a more storied history than most. “[The] film stands on the shoulders of the exhaustive and exhilarating 721-page Pulitzer Prize-winning biography called ‘American Prometheus: The Triumph and Tragedy of J. Robert Oppenheimer,’ co-written by [Martin] Sherwin and Kai Bird,” writes Andy Kifer for the New York Times. The book took Sherwin and later Bird a quarter century to complete. “Knopf published this masterwork in 2005,” Kefir explains. “But it was only thanks to a rare collaboration between two indefatigable writers—and a deep friendship, built around a shared dedication to the art of biography as a life’s work—that ‘American Prometheus’ got done at all.” Sherwin passed away in 2021, but Bird was able to observe the film’s production, watching actor Cillian Murphy transform into Robert Oppenheimer. “There was a break in filming, and Murphy walked over to introduce himself,” Kifer recounts. “As the actor approached—dressed in Oppenheimer’s brown, baggy 1940s-era suit and wide tie—Bird couldn’t help himself. ‘Dr. Oppenheimer!’ he shouted. ‘I’ve been waiting decades to meet you!’”

Presented Without Comment

The Daily Beast: Yevgeny Prigozhin’s Explanation for His Violent Mutiny: ‘I Went Crazy’

Also Presented Without Comment

Insider: GOP Congressman Who Said Last Year That Trump ‘Can’t Be Trusted’ and is ‘Not Fit to Lead’ Just Endorsed His 2024 Campaign

Also Also Presented Without Comment

The Independent: Ray Epps Sues Fox News and Tucker Carlson for ‘Defamatory Attacks’ After January 6

Toeing the Company Line

• In the newsletters: The Dispatch Politics team speaks with Nikki Haley about her opposition to discrimination against transgender adults, Scott reflects on (🔒) what the second season of The Bear can teach us about dynamism, Nick unpacks (🔒) all that’s wrong with an upcoming Republican presidential forum hosted by Tucker Carlson, and Jonah argues (🔒) that no one should be confident in their opinions on the Hunter Biden allegations.
• On the podcasts: Jonah is joined on the Remnant by Christopher Scalia to discuss film, television, and the legacy of the cultural critic Paul Cantor, while Sarah and David are rejoined on Advisory Opinions by Kannon Shanmugam for another SCOTUS opinion wrap-up.
• On the site today: Charlotte sums up the most important takeaways from this week’s NATO summit, Kevin ponders the role of due process in the prosecution of gun charges, and Drucker interviews Nikki Haley from New Hampshire.

Let Us Know

Does it feel like inflation is cooling to you?