Inflation Continues to Moderate, But Warning Signs on the Horizon

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Quick Hits: Today’s Top Stories

• The White House confirmed Thursday Iran had agreed to transfer five imprisoned Americans to house arrest as part of a deal—years in the making—that will reportedly free several Iranians jailed in the United States for sanctions violations and unfreeze up to $6 billion in Iranian assets for “humanitarian” uses. Secretary of State Antony Blinken said yesterday he “hope[s] and expect[s]” yesterday’s development will result in the detained Americans returning home to the United States, but declined to offer many more details on what Iran is receiving as part of the deal. The agreement was met with immediate criticism from Republicans, some former U.S. intelligence officials, and human rights activists. The deal “incentivizes Iran’s regime to take more hostages,” said Masih Alinejad, a leading Iranian critic of the regime. “They paid little cost & got a huge benefit.”
• The Consumer Price Index (CPI) rose 0.2 percent month-over-month and 3.2 percent annually in July, the Bureau of Labor Statistics reported Thursday, compared to 0.2 percent and 3 percent in June. The increase was lower than expected and the annualized uptick is largely due to “base effects”—inflation was unusually low month-over-month last July because June 2022 marked a 40-year high of 9.1 percent, skewing the base of a 12-month comparison. The Fed will get one more CPI report before its September 19 meeting where investors expect the central bank to pause its rate-hiking campaign.
• Following an emergency meeting of the Economic Community of West African States (ECOWAS) on Thursday, West African leaders ordered the immediate “activation” and “deployment” of a “standby force” after coup leaders in Niger refused to reinstall the democratically elected leader by the August 6 deadline set by the alliance. It was not immediately clear what actions the force would take, though the ruling junta reportedly told U.S. Acting Deputy Secretary of State Victoria Nuland during her visit to the country this week that they would kill President Mohamed Bazoum—whom they’re holding under arrest—if ECOWAS took military action against the coup leaders. 
• Ecuador’s government deployed troops across the country yesterday to enforce a state of emergency in response to the assassination of a presidential candidate a day earlier. Six Colombian suspects were arrested for allegedly plotting the deadly shooting of Fernando Villavicencio—a fierce critic of corruption and gang activity—after a campaign event in Quito. Ecuador is set to hold its presidential election on August 20.
• Ukraine ordered the evacuation on Thursday of almost 40 towns and villages in the country’s northeast near the city of Kupyansk, as Russian forces moved in recent days to recapture areas liberated by Ukraine in September. Approximately 12,000 people are being told to flee to safer parts of the country, making this the largest evacuation order from Ukrainian authorities since October. At least one woman was killed Thursday by Russian shelling in the area. 
• Russia launched its first lunar mission in almost 50 years yesterday, racing India to be the first country to land on the moon’s south pole—a potential water source. The unmanned Lunar-25 rocket, which blasted off from eastern Russia on Thursday, is estimated to reach the moon around August 16 before landing on its surface around August 21—roughly the same time as the Indian craft launched several weeks ago. The Russian ship will take and analyze soil samples and make other scientific observations for about a year. 
• The Supreme Court on Thursday temporarily blocked a $6 billion bankruptcy settlement by Oxycontin maker Purdue Pharma yesterday, agreeing to hear arguments on the matter in December. If approved, the settlement would shield the Sackler family—which owns the company—from thousands of civil lawsuits related to its role in the opioid epidemic.
• A group of researchers at the Chicago-area Fermilab claimed yesterday that they measured the behavior of muons, an elusive subatomic particle, more precisely than has ever been accomplished before. The group found that the particles behave contrary to the Standard Model—a core scientific theory which has for a half century explained particle physics by four fundamental forces—building on a similar experiment from 2021 and potentially confirming the existence of a fifth force of nature.
• Former President Donald Trump and Walt Nauta—Trump’s aide and co-defendant—both pleaded not guilty Thursday to the superseding charges alleging Trump illegally retained classified documents at his Mar-A-Lago hotel and that he, Nauta, and the third, newly charged co-defendant, Carlos De Oliveira, conspired to conceal those documents from federal authorities. Trump was not present at the hearing in Florida. De Oliveira, who was present, did not lodge a plea because his local counsel had not yet officially filed notice to represent De Oliveira. The federal magistrate judge overseeing the hearing ordered De Oliveira to return with local counsel Tuesday in order to be arraigned. 
• Special counsel Jack Smith requested a January 2, 2024, start date for former President Donald Trump’s trial over his alleged efforts to overturn the 2020 election, according to a court filing yesterday. Trump’s legal team will likely attempt to delay the trial, but if accepted, Smith’s proposed start date would come just two weeks before the beginning of the GOP presidential primary calendar.
• President Joe Biden declared a federal disaster in Hawaii yesterday as wildfires continue to ravage the Big Island and Maui. The fires have killed at least 55 people and scorched buildings across Hawaii, including in the historic town of Lahaina in Maui. The declaration will provide aid for damaged property and fund other programs to assist with the recovery.

Inflation Cools, but Gas Prices Start to Heat Up

Economists and officials at the Federal Reserve have been obsessed for months now with how the airplane that is the U.S. economy will “land.” Is it resilient enough to weather the headwinds of the Fed’s historic rate-hiking campaign, lowering inflation without tipping into a recession? Or, will the elevated rates bring the plane crashing down on the tarmac, sparking a recession in an election year? July’s inflation numbers, released yesterday, provide additional evidence supporting the former “soft landing” scenario, showing the rate of price increases is continuing to cool as wages and job growth remain stable. But some economists remain concerned about the stickiness of high service prices going into next year and the effects that oil production cuts abroad will have on prices at the pump.

The Bureau of Labor Statistics (BLS) released its Consumer Price Index (CPI) report for July yesterday, and it was another good one. Both overall CPI and core inflation—a measure that excludes volatile food and energy prices—rose just 0.2 percent month-over-month in July, mirroring June’s similarly positive numbers. Annual inflation ticked up slightly in July from 3 to 3.2 percent, but that can largely be attributed to some wonky base effects—because the rate of inflation began to moderate in July 2022, comparisons to July 2023 don’t look as stark. “The huge numbers [from June 2022] are rolling off, so now you’re comparing them to numbers from 12 months ago that weren’t so outrageous,” Brendan Walsh, a principal at Markets Policy Partners, tells TMD. “So, it is a little harder for the year-over-year ones to keep dropping so precipitously.”

That’s why some analysts and economists argue a shorter time horizon—like a quarter of a year—paints a better picture of the progress made in bringing inflation down. Three-month annualized headline inflation, for example, fell to 1.9 percent in July—the lowest figure since June 2020. Core inflation for the same period was 3.1 percent—the lowest it’s been since September 2021. There’s “no unambiguously good unit of time to use,” said Jason Furman, Harvard economist and chair of the Council of Economic Advisers during the Obama administration. “The longer the window the more you reduce noise but the more you increase the staleness of the data.” 

There were other positive signs in yesterday’s report. Prices for new and used vehicles fell month-over-month, as did airfare and hotel prices. And the largest factor driving that headline 3.2 percent increase—housing, which accounted for 90 percent of the CPI growth—will start to fall in the coming months, as there’s a six- to 12-month lag in how the BLS calculates housing prices. More contemporary and up-to-date metrics have shown an easing. “We know that rents have come off and housing prices came off a lot in the last eight months,” Walsh tells TMD. “So, now the housing component and the rent component are just starting to slow down. For the next six to 12 months, those are going to keep coming down.”

But there are signs of turbulence in the energy market. Gas prices ticked up at the end of July, and are expected to continue that rise thanks to oil production cuts by Saudi Arabia and Russia that have driven crude oil prices to their highest level since January. Plus, summer heatwaves and hurricane season in the Atlantic could put pressure on U.S. oil refining, which is already operating at near capacity. “The reason headline inflation is so much lower than core is entirely because of oil prices,” Walsh explains. “We probably will have a higher headline number on a month-to-month basis in August than the core.”

Some economists argue that elevated inflation may stick around longer than expected. Goods and energy prices may have fallen sharply in the last 13 months, but core inflation could prove harder to bring back down to the Fed’s 2 percent target. “While core CPI is showing signs of slower trend growth, future progress in the fight against inflation will be harder, not easier,” said John Leer, chief economist at Morning Consult. “The longer inflation remains elevated, the more entrenched it becomes.” 

The Fed will remain focused on core inflation as it considers whether to pause its rate-hiking campaign at its next meeting in mid-September, leaving the federal funds rate at the current target range of between 5.25 and 5.5 percent. Yesterday’s report seems likely to solidify that decision, with investors putting the probability of the Fed holding steady at 89 percent—up from 86 percent before July’s CPI was released. But a higher headline inflation number in August driven by high gas prices might make the Fed’s messaging a job a little more difficult. “It will be a communications headache for the Fed as they’ll need to remind people that there’s a lot of noise in the data,” said Brian Jacobsen, chief economist at Annex Wealth Management.

Meanwhile, with price increases less of a political problem than they were a year ago, President Biden is busy trying to rebrand his signature legislative package, the Inflation Reduction Act. “I wish I hadn’t called it that,” he said yesterday at a fundraising event in Park City, Utah, “because it has less to do with reducing inflation than providing alternatives where we generate economic growth.”

If only someone had said something at the time.

Georgia Nuclear Reactor Goes Online

When Georgia Power first proposed plans to build four nuclear reactors along the Savannah River on the Georgia-South Carolina border, the year was 1970, and the Treaty on the Non-Proliferation of Nuclear Weapons had just gone into effect. Units 1 and 2 went online in the late 1980s, but the fate of Units 3 and 4 hung in limbo—for decades, it’d turn out.

Unit 3 finally went online last week, and the fourth reactor is reportedly closing in on final completion. After years of delays—and with a price tag more than double the initial estimate—the facility became the first brand-new, U.S.-built domestic reactor to go online in decades.

The reactor generates more than 1,000 megawatts of energy—enough to power about 500,000 homes and businesses in Georgia, Florida, and Alabama. Unit 4 also surpassed a crucial hurdle last month when the Nuclear Regulatory Commission cleared Georgia Power to load fuel into the reactor, keeping the final facility on track to enter commercial operations early next year—long after its projected completion in 2017.

“It is important that we make these kinds of long-term investments and see them through so we can continue providing clean, safe, reliable and affordable energy to our 2.7 million customers,” Kim Greene, Georgia Power’s chairman, president, and CEO said last Monday. “Georgia Power Today’s achievement is a testament to our commitment to doing just that, and it marks the first day of the next 60 to 80 years that Vogtle Unit 3 will serve our customers with clean, reliable energy.”

Most nuclear reactors in the United States were built in the 1970s and 1980s, but catastrophes at Three Mile Island and Chernobyl brought construction to a near-halt for decades. As the U.S. remained skeptical toward nuclear energy, though, developing countries like China and India have been betting big on the alternative clean energy source. China, which approved 10 new reactors last year, now has the world’s third-largest supply of nuclear reactors (behind France and the U.S.) and is home to more than 40 percent of the world’s reactors currently being built.

Expanding nuclear energy is key to the Biden administration’s goal of transitioning to a fully carbon-free power grid by 2035, but progress on new plants has been slow. Nuclear power currently accounts for about 18 percent of the country’s electricity, with 93 operable nuclear reactors. And as construction of new reactors trudges along, more than a dozen others are in various stages of decommissioning, with some retiring prematurely and others approaching the expiration dates of their operating licenses.

At the same time, public support for nuclear energy is on the rise, and decades of data have shown that the public safety risks of nuclear reactors are far lower than most people realize.

“Nuclear is the only industry that takes care of its waste,” Chris Barnard, the vice president of external affairs at the American Conservation Coalition, tells TMD. “And, so far, the safety track record of that in the U.S has been absolutely stellar. It is done in an incredibly safe and effective way. You could take all the nuclear waste in America from the last 60 or 70 years and stack it up together in a single Walmart. You’re not talking about an enormous amount of waste.”

Aside from capturing its own waste, the appeal of nuclear energy comes largely from its ability to produce electricity consistently without polluting the air with greenhouse gasses. And unlike other sources of renewable energy, nuclear plants do not rely on external factors like sunlight and wind. According to the Nuclear Energy Institute, the U.S. cuts its carbon dioxide emissions by more than 470 million metric tons a year by way of nuclear energy.

But for the Georgia project to serve as a model for future nuclear development, its exorbitant costs will need to be taken into account. A financial report from the Municipal Electric Authority of Georgia in May put the total price tag of the project at $30.34 billion—and that excludes the $3.68 billion that the original contractor paid to the owners after it went bankrupt. Several experts told the Nuclear Regulatory Commission that the ballooning costs of the Vogtle projects have likely canceled out any economic benefit from low costs of nuclear fuel in the future.

The Vogtle expansion was plagued by regulatory hurdles, the need for thousands of trained workers, supply chain delays, and the COVID-19 pandemic. Experts also say the project could have avoided years of delays by holding off on construction until the design was completed.

“I really have my doubts as to whether nuclear power is economic with natural gas prices anywhere near what they are now,” Benjamin Zycher, a senior fellow on energy and environmental policy at the American Enterprise Institute, tells TMD. Zycher says he’s not convinced the environmental benefit of transitioning nuclear power is substantial enough to warrant its cost.

The logistical and economic challenges associated with the Vogtle expansion has—at least to some extent—tempered the willingness of developers to invest in large nuclear reactor projects. Instead, power companies are racing to develop reactors that are smaller, cheaper, and easier to build. 

“I think this will probably be the last large reactor that we see added in the U.S.,” Doug Vine, the director of energy analysis at the Center for Climate and Energy Solutions, tells TMD. “I think the future is smaller and modular and more incremental amounts of electricity in various regions.”

The Tennessee Valley Authority has plans for a fleet of small reactors in the South, and Vogtle creator Westinghouse is hoping to build a small reactor by the end of the decade. Another company, NuScale Power Corp., secured the first certification from the Nuclear Regulatory Commission for a small modular reactor design in January. A Department of Energy spokesperson tells TMD the Office of Nuclear Energy is focused on accelerating the development of advanced reactor technology with the goal of generating a committed order book of about 10 reactors of the same design by 2025.

“The Office of Nuclear Energy believes that small modular reactors, larger reactors like the AP1000, and other advanced reactor designs will all play a critical role in our decarbonization efforts,” the spokesperson said. “The lessons learned from the construction of Vogtle units 3 and 4 will help optimize future new build projects as we work towards the clean energy transition.”

Worth Your Time

• Responding to a Heritage Foundation piece breaking down U.S. spending on the Ukrainian war effort, National Review’s Dominic Pino points out just how small a line-item such security assistance is in the grand scheme of things. “Reasonable people can disagree about whether support for Ukraine is a good idea for geostrategic purposes,” he writes. “It’s much harder to make the fiscal case against it. The unspoken assumption behind the $900-per-household number is that if only it weren’t for Ukraine aid, that money would come back to taxpayers. It would not. The government did not raise taxes to fund Ukraine spending, and it would spend those $900 on something else. Hyping up aid to foreign countries as a fiscal concern is an age-old tactic in American politics. It’s much easier to argue for cutting spending when the beneficiaries of that spending don’t vote in American elections. But America’s spending problems are driven by health-care programs, interest payments, and Social Security. The U.S. has indeed spent $900 per household on Ukraine aid in the past year and a half. Based on this year’s projected outlays of $5.3 trillion, the federal government is spending about $14.5 billion per day, $605 million per hour, $10 million per minute, and $168,000 per second. Ukraine spending isn’t the problem.”

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Toeing the Company Line

• In the newsletters: In the latest edition of The Collision, Mike and Sarah clarify distinctions between witness tampering and trash-talking following the latest Trump indictment. In Boiling Frogs (🔒), Nick predicts the end is nigh for Ron DeSantis’ campaign. 
• On the podcasts: Sarah is joined by Steve and Jonah to discuss the GOP presidential primary and the results of the Ohio special election and what it means for both the pro-life movement and the legacy of the Dobbs decision.
• On the site: Charlotte details China’s changing relationship with Europe and Kevin digs into the Supreme Court’s latest order on regulating “ghost guns.” 

Let Us Know

Should nuclear energy play a major role in U.S. economic and energy development?