Biden on robust jobs numbers: The ‘critics and cynics are wrong’

President Joe Biden took a victory lap Friday amid a blowout jobs report, telling Americans his economic plan is working.

“For the past two years, we’ve heard a chorus of critics write off my economic plan. They said it’s just not possible to grow the economy from the bottom up and the middle out. They said we cannot bring back American manufacturing. They said we can’t make things in America anymore, that somehow adding jobs was a bad thing,” Biden said, speaking in the South Court Auditorium of the White House.

“Today’s data makes crystal clear what I’ve always known in my gut: These critics and cynics are wrong.”

The president’s last-minute remarks were added to his schedule Friday morning after the Labor Department announced the U.S. economy created a whopping 517,000 jobs in January, a shockingly high number that underscores a growing and resilient labor market. The unemployment rate fell to 3.4 percent, the lowest level since 1969.

Biden cheered the report as evidence the economy has bounced back after the pandemic — and that economics’ predictions of an incoming recession are overblown. The data also arms the White House with another line of defense against Republicans’ attacks over the Biden administration’s spending policies.

And the timing doesn’t hurt either, with the president set to deliver his State of the Union address before Congress next week. “But today, today I’m happy to report that the state of the union and the state of the economy is strong.”

The president’s public remarks were more giddy than West Wing reactions behind closed doors, as officials had hoped for a less-robust figure. Inflation continues to plague the economy, and Friday’s numbers mean Fed Chair Jerome Powell will have to blunt growth in order to curb prices. Powell is concerned that a hot jobs market will drive high wages, further fueling inflation.

But asked whether he should take blame for inflation rates, Biden was definitive: “No, because it was already there when I got here.” He noted that when he took office, “jobs were hemorrhaging, the inflation was rising, and we were not manufacturing a damn thing here, and we were in real difficulty.”

In December, inflation continued to steadily trickle down to 6.5 percent, falling from the Consumer Price Index’s June peak at 9.1 percent. Powell is working to get inflation down to the central bank’s target range of 2 percent, and the Fed raised interest rates by a quarter of a percent on Wednesday — the eighth straight increase.

He warned on Wednesday that more rate hikes were coming, noting that “the job is not fully done.”

Ben White contributed to this report.

Wall Street’s biggest bear: Fed’s Jerome Powell

Federal Reserve Chair Jerome Powell is locked in a battle with stock market investors, who can’t wait to celebrate the gradual easing of inflation. His message: Stop it.

Powell, whose Fed is cranking up interest rates at the fastest clip in decades to kill the spike in consumer prices, finds himself in the odd position of pushing against financial markets because he wants to squeeze the flow of money pouring into the economy.

That’s not sitting well with many investors — from Wall Street hedge funds to ordinary workers with 401(k)s — who suffered punishing losses in 2022 and are itching to see the markets rebound in the new year. But Wall Street’s pain has been key to the Fed’s success in fighting inflation, bolstering its efforts to make it harder for businesses to borrow and for Americans to tap into their assets. The government’s latest report on consumer prices on Thursday showed that inflation eased for the sixth consecutive month.

“It is a very peculiar tango that we’re dancing here,” said Torsten Slok, chief economist at Apollo Global Management. “On the one hand, the Fed must surely be very happy with inflation going down. But they don’t want markets to complicate the speed with which we’re going down.”

The struggle between the Fed and the markets is ultimately a good sign for President Joe Biden and Congress because it suggests that the U.S. may be in the endgame of its war against this bout of inflation. But the conflict underscores the central bank’s delicate position: While it maintains broad support among both political parties for its campaign to drive down prices, it’s also rankling many Americans, including some lawmakers and labor activists, who complain that higher rates are unfairly burdening ordinary people and that the Fed is hell-bent on bringing on a recession.

The markets are looking for a mid-year pause in the rate hikes followed soon after by cuts, but Fed officials are signaling that they’re determined to keep their vise-like grip on the economy through the end of 2023.

Even amid signs that wage growth is slowing and price spikes are cooling, policymakers like San Francisco Fed President Mary Daly and Atlanta Fed President Raphael Bostic have warned in the last week that the war against inflation is not over. In a dour press conference last month, Powell said conditions in financial markets need to reflect the “policy restraint” from the Fed. And the central bank’s rate-setting committee stressed that “unwarranted” optimism from markets, in the form of higher prices and lower rates on bonds, could hinder their attempts to bring down inflation.

Thursday’s Consumer Price Index report showed a drop not only in inflation but also in overall prices during the month of December, thanks in particular to falling gas prices. But the annual rate of inflation is still multiples above the Fed’s 2 percent goal. Prices rose 6.5 percent over the past year, down from 7.1 percent in November, driven by rising rents.

But as new data continues to show a steady downswing from a peak of 9.1 percent last June, markets will rightly assess that we’re closer to the end of the Fed’s rate hike campaign. But that’s only as long as stocks don’t soar and bond rates don’t drop so much that spending is being fueled again.

“I’ve spent enough time around Wall Street to know that they are culturally, institutionally, optimistic,” Minneapolis Fed President Neel Kashkari told the New York Times. “They are going to lose the game of chicken, I can tell you that.”

At the heart of the disconnect is this: Investors expect inflation to drop more quickly than the Fed is forecasting, giving the central bank leeway to not only soon halt their rate increases but also to begin cutting rates later this year.

Fed policymakers, meanwhile, have gone out of their way to say they don’t expect to lower rates from the grueling levels in 2023. They have projected that their main policy rate will sit above 5 percent at the end of the year, at least three-quarters of a percentage point higher than where it is now.

But “talk is cheap,” said Mark Cabana, head of U.S. Rates Strategy at Bank of America Global Research. He argued that the Fed instead should explicitly set out thresholds for unemployment and inflation that would begin to trigger rate cuts.

“Unless you’re willing to write it down, then you’re not credible,” he said.

The ground could also shift markedly under Powell’s feet later this year. The job market has held up remarkably well in the face of rapid increases in borrowing costs — unemployment dropped to 3.5 percent last month, equal to its lowest level in more than half a century. But that could change as rate hikes have more time to feed through the economy and take a greater toll on spending.

That could actually be an argument for the central bank to do the last leg of its rate hikes at a slightly faster pace, said Derek Tang, an economist at research firm LH Meyer Monetary Policy Analytics.

“There’s a window to rate hikes, and it’s closing pretty rapidly if you think about how likely it is for the labor market to weaken,” Tang said. “At that point, a lot of the support for rate hikes is going to start to evaporate. If they really feel like they need to get to that 5.1 percent peak rate, they might want to do it while they have the full support of the [Fed’s rate-setting] committee but also the public to do so.”

Another lurking threat: the non-zero possibility that Congress might not agree to raise the debt limit before the government runs out of cash, causing it to default on some of its obligations. Cabana said this would be a shock to markets and also lead to a sudden contraction in government spending.

“That’s bad for the economy,” he said. “What does the Fed do in that circumstance? You can’t be so confident that you’re not going to cut rates in 2023.”

Yellen to stay on as Treasury chief through Biden’s term

Treasury Secretary Janet Yellen has told President Joe Biden she will remain in her post for the next two years as the White House faces growing challenges including the need to raise the nation’s borrowing limit, people familiar with the matter said.

Yellen, whose decision has been the subject of internal chatter for months, agreed to a request from Biden to stay on in the administration’s top economic policymaking post during a recent one-on-one meeting, said two senior White House officials, who asked to remain anonymous to discuss a personnel issue.

Speculation about Yellen’s fate began circulating last year as inflation soared and the White House struggled to deliver a coherent economic message. Yellen also drew criticism for acknowledging that she had been mistaken in believing that inflation would be “transitory,” a view that was shared by Federal Reserve Chair Jerome Powell and many others.

But in recent months inflation has eased, Democrats performed surprisingly well in the midterm elections and pressure to make sweeping changes on the Biden economic team waned.

People close to Yellen, the first woman to serve as both Treasury secretary and Fed chair, also said she had considered leaving for family reasons and because the Treasury job is highly political — and would become more so with Republicans in control of the House.

The question of whether she would stay has also held up other talks on possible lower-level moves on the White House team, administration officials have said.

“Janet is staying,” said one senior White House adviser. “So that’s settled.”

Another official close to Yellen said that while she weighed returning to private life, she has remained energized about the implementation of policies enacted during Biden’s first two years. These include hundreds of millions of dollars in tax credits for electric vehicles and semiconductor manufacturers, and new money for Internal Revenue Service tax enforcement. She has also been the point person on the administration’s efforts to implement a global price cap on Russian oil exports.

One of her biggest fights will center on the need to raise the government’s debt limit later this year. Some conservative Republicans are demanding steep spending cuts first, and they hold greater power in the House following concessions agreed to by Speaker Kevin McCarthy to secure the gavel.

“There is a lot to do and a lot of it is going to be very hard, and it’s good for the world that Janet is still going to be there to do it,” said the second official who is close to Yellen.

Yellen’s conversation with Biden about the job was first reported today by Bloomberg News.

Yellen, one of the world’s preeminent macroeconomists, joined the Biden administration in early 2021, as the initial economic gains from Congress’s pandemic-relief programs had begun to peter out and new Covid variants were pushing up cases across the country.

In choosing Yellen, Biden leaned on a well-known figure who was trusted and beloved by most Democrats, respected by many Republicans, acceptable to Wall Street and aligned with the president’s no-surprises approach. She was overwhelmingly confirmed by the Senate, then was instrumental in pushing Congress to approve $1.9 trillion in Covid relief spending, on top of the historic $4 trillion the government had already authorized.

But she also wielded less influence in the West Wing than her recent predecessors did in the job and sometimes found herself out of step with the White House, say people familiar with the matter.

Kate Davidson contributed to this report.

U.S. inflation slowed sharply to 7.1 percent over past 12 months

Inflation in the United States slowed again last month in the latest sign that price increases are gradually cooling despite the pressures they continue to inflict on American households.

Consumer prices rose 7.1 percent in November from a year ago, the government said Tuesday. That was down from 7.7 percent in October and a recent peak of 9.1 percent in June. It was the fifth straight slowdown.

On a month-to-month basis, the consumer price index rose just 0.1 percent in November, down from 0.4 percent in October.

Even with last month’s further easing of inflation, the Federal Reserve plans to keep raising interest rates. On Wednesday, the Fed is set to boost its benchmark rate for a seventh time this year, a move that will further raise borrowing costs for consumers and businesses. Economists have warned that in continuing to tighten credit to fight inflation, the Fed is likely to cause a recession next year.

Tuesday’s government report showed that inflation in November was slowed by less expensive gasoline, electricity and used cars, among other items.

Several trends have started to reduce price pressures, though they won’t likely be enough to bring overall inflation back down to levels that Americans were used to anytime soon.

The national average for a gallon of regular gas has sunk from $5 a gallon in June to $3.26 as of Monday. Many supply chains have also unsnarled, helping reduce the costs of imported goods and parts. Prices for lumber, copper, wheat and other commodities have fallen steadily, which tends to lead to lower construction and food costs.

To some economists and Fed officials, such figures are a sign of improvement, even though inflation remains far above the central bank’s annual 2 percent target and might not reach it until 2024.

Fed Chair Jerome Powell has said he is tracking price trends in three different categories to best understand the likely path of inflation: Goods, excluding volatile food and energy costs; housing, which includes rents and the cost of homeownership; and services excluding housing, such as auto insurance, pet services and education.

In a speech two weeks ago in Washington, Powell noted that there had been some progress in easing inflation in goods and housing but not so in most services. Physical goods like used cars, furniture, clothing and appliances have become steadily less expensive since the summer.

Used car prices, which had skyrocketed 45 percent in June 2021 compared with a year earlier, have fallen for most of this year.

Housing costs, which make up nearly a third of the consumer price index, are still rising. But real-time measures of apartment rents and home prices are starting to drop after having posted sizzling price acceleration at the height of the pandemic. Powell said those declines will likely emerge in government data next year and should help reduce overall inflation.

Still, services costs are likely to stay persistently high, Powell suggested. In part, that’s because sharp increases in wages are becoming a key contributor to inflation. Services companies, like hotels and restaurants, are particularly labor-intensive. And with average wages growing at a brisk 5-6 percent a year, price pressures keep building in that sector of the economy.

Services businesses tend to pass on some of their higher labor costs to their customers by charging more, thereby perpetuating inflation. Higher pay also fuels more consumer spending, which allows companies to raise prices.

“We want wages to go up strongly,” Powell said, “but they’ve got to go up at a level that is consistent with 2 percent inflation over time.”

On Wednesday, the Fed is expected to raise its key short-term rate by a half-point, after four straight three-quarter-point increases. That would leave its benchmark rate in a range of 3.75 percent to 4 percent, its highest level in 15 years.

Economists expect the Fed to further slow its rate hikes next year, with quarter-point increases in February and March if inflation remains relatively subdued.

Fed jacks up rates again but Powell hints it might slow down

The Federal Reserve on Wednesday announced another massive interest rate increase in its fight against inflation, tightening its grip on the economy less than a week before midterm elections that will determine control of Congress.

The move brings the central bank’s main policy interest rate — which influences rates on everything from auto loans to mortgages — close to 4 percent just eight months after it sat near zero in the wake of the pandemic. And the Fed’s rate-setting committee said it expects more increases will be needed to ensure that its policies have enough bite to bring inflation down from its four-decade high.

Officials hinted that future rate hikes could be smaller than Wednesday’s three-quarters of a percentage point increase, given how much the Fed has already raised borrowing costs and that the central bank’s actions take time to feed through the economy.

Some investors and U.S. lawmakers like Sen. Elizabeth Warren have warned that the central bank is raising rates too quickly, running the risk of going too far before they realize it. But Fed Chair Jerome Powell emphasized in a press conference that even if the central bank decides to slow down, that doesn’t mean the fight against inflation would be over.

How quickly the Fed raises rates “is now much less important than the question of how high to raise rates,” he said.

Inflation has cooled only slightly and job growth remains strong, but some parts of the economy are already showing signs of strain from the Fed’s rate increases. Manufacturing barely grew in October and the housing market has been hammered by the highest mortgage rates in two decades, leading home sales to decline rapidly and prices to drop in some areas.

Let’s dig some more into what Powell said and what it really means:

“Incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected.”

This remark was a message for investors: Don’t get too excited at the prospect of the Fed raising rates at a slower pace. Central bank officials are even less optimistic about inflation than they were before and now think that rates will have to go higher than they had projected in September. That means its main policy rate could go to as much as 5 percent.

“I don’t have any sense that we’ve overtightened or moved too fast.”

Here Powell is saying he doesn’t think that, despite the warnings, the central bank has broken anything in the economy — or in financial markets — with its policies even though he acknowledged that it would take time for the full effect of Fed moves to take hold. This means two things: the Fed plans to keep raising rates, and future large increases aren’t off the table entirely.

“We’re now 18 months into this episode of high inflation, and we don’t have a clearly identified scientific way of understanding at what point inflation becomes entrenched. The thing we need to do from a risk management standpoint is to use our tools forcefully but thoughtfully.”

One of the Fed’s biggest fears is that households and businesses will start expecting prices to keep rising at a rapid clip, a psychological effect that can prolong and worsen inflation. Powell is saying he doesn’t know whether we’ve already reached that point, but the Fed will do everything it can to convince the public that it’s committed to stopping this persistent price spikes.

“We keep looking for signs … of the beginning of a gradual softening [in the labor market]. Maybe it’s there, but it’s not obvious to me.”

Powell has repeatedly said that Fed officials want to restore the balance between supply and demand in the labor market, i.e., there are way too few workers for all the jobs out there. Despite rapid increases in interest rates this year, the labor market has so far proven remarkably resilient. Job creation is still strong, while improvement in the labor-force participation rate has essentially stalled, he said. Wage increases are not accelerating, but are still rising at a level higher than officials see as consistent with their 2 percent inflation target. In short, he’s essentially saying the labor market is giving Fed officials little reason to pause rate increases.

“I don’t think wages are the principal story of why prices are going up… I also don’t think we see a wage-price spiral. But … once you see it, you’re in trouble.”

The Fed’s feelings toward the job market are complicated right now. Powell says he wants to see wages going up, but not so fast that they make prices rise even faster. He’s saying that he doesn’t think that wages, which haven’t kept pace with inflation, are the main reason why prices are increasing so rapidly. But unemployment is very low and demand for workers is very high, so he’s still worried about that dynamic appearing.

Voters remain gloomy despite recent economic gains

The U.S. economy is growing. Gas prices are lower and wages are rising. Voters, however, are still in a sour mood.

Two-thirds of voters believe the economy is in a recession, despite new data released last week showing that the economy grew in the third quarter by a healthy annualized rate of 2.6 percent, according to the latest POLITICO/Morning Consult poll. It was the 16th consecutive week in the poll that more than 60 percent of voters said they believe the U.S. economy is already in a recession.

The results suggest that voters’ dim view of the economy is locked in ahead of election day on Tuesday. That was underscored by other questions in the poll showing that voters were more likely to have heard about the country’s record-high inflation than they were about declining gas prices or recent increases in wages.

The third quarter GDP increase followed two quarters of decline. Fifty-eight percent of voters said they hadn’t heard that GDP was up, according to the poll. Democratic men were the most likely to have heard the latest growth statistic, with 58 percent, and Republican women were the least likely, at 28 percent.

A plurality of voters — 43 percent — said that economic issues are the top priority they will take into consideration in choosing candidates, ahead of abortion, health care and education.

There were partisan differences between voters and their knowledge of recent economic indicators. Fifty-four percent said they hadn’t heard much or anything at all about declining gas prices, including 59 percent of independent voters and 60 percent of Republican voters. A full 70 percent of voters said they had not heard that wages have increased by an annual rate of 1.2 percent, including a majority of Democrats, Republicans and independents.

Voters, however, were very aware of inflation. Sixty-five percent, with a majority of voters from both parties and independents, said they had heard about record-high inflation while only 18 percent said they hadn’t heard anything about it.

The poll also found that 26 percent of voters have already cast their ballots, either by mail or by early in-person voting. Thirty-seven percent said they planned to vote in-person on election day.

There was a partisan split in voters’ methods of casting their ballots, with twice as many Democrats as Republicans saying they had already voted by mail. Just 13 percent of Republicans said they had voted early by mail and 8 percent more have voted early in person. Twenty-three percent of independents have also already cast their ballots, 18 percent by mail and 5 percent in person. By contrast, 33 percent of Democrats have already voted early, 26 percent by mail and 7 percent in person.

Republicans were more likely than Democrats or independents to say they plan to cast a ballot in-person on election day. Those waiting to vote on Nov. 8 include 48 percent of Republicans, 33 percent of independents and 28 percent of Democrats.

Of the voters who ranked the economy as their top issue this election cycle, 41 percent also plan to wait until election day to cast their ballots in person. Twenty percent of this group have already voted.

Voters also remain divided over how much trust to have in the election system. Thirty percent of voters said they have a lot of trust in the U.S. election system and 34 percent said they have strong trust in their state’s system. Democrats and independent voters were the most likely to have high trust in the election system.

Voters are also braced for election challenges. About half of respondents said they believe former President Donald Trump and congressional Republicans will challenge the results of the midterm election in their state. An additional 32 percent think the Biden administration will challenge results, and 33 percent think congressional Democrats will. Democratic voters are more likely than Republicans or independents to believe that the election results will be challenged.

The latest POLITICO/Morning Consult poll was conducted Oct. 28-30, surveying 2005 registered voters. The margin of error is plus or minus 2 percentage points.

U.S. economy returned to growth last quarter, expanding 2.6 percent

The U.S. economy grew at a better-than-expected 2.6 percent annual rate from July through September, snapping two straight quarters of economic contraction and overcoming punishingly high inflation and interest rates.

Thursday’s estimate from the Commerce Department showed that the nation’s gross domestic product — the broadest gauge of economic output — grew in the third quarter after having shrunk in the first half of 2022. Stronger exports and steady consumer spending, backed by a healthy job market, helped restore growth to the world’s biggest economy.

Consumer spending, which accounts for about 70 percent of U.S. economic activity, expanded at a 1.4 percent annual pace, down from a 2 percent rate from April through June. Last quarter’s growth also got a boost from exports, which shot up at an annual pace of 14.4 percent.

Housing investment, though, plunged at a 26 percent annual pace, hammered by surging mortgage rates as the Federal Reserve raises borrowing costs to combat chronic inflation.

The outlook for the overall economy has darkened. The Fed has raised interest rates five times this year and is set to do so again next week and in December. Chair Jerome Powell has warned that the Fed’s hikes will bring “pain” in the form of higher unemployment and possibly a recession.

The government’s latest GDP report comes as Americans, worried about inflation and the risk of recession, have begun to vote in midterm elections that will determine whether President Joe Biden’s Democratic Party retains control of Congress. Inflation has become a signature issue for Republican attacks on the Democrats’ stewardship of the economy.

With inflation still near a 40-year high, steady price spikes have been pressuring households across the country. At the same time, rising interest rates have derailed the housing market and are likely to inflict broader damage over time. The outlook for the world economy, too, grows bleaker the longer that Russia’s war against Ukraine drags on.

Last quarter’s U.S. economic growth reversed annual declines of 1.6 percent from January through March and 0.6 percent from April through June. Consecutive quarters of declining economic output are one informal definition of a recession. But most economists have said they believe the economy skirted a recession, noting the still-resilient job market and steady spending by consumers. Most of them have expressed concern, though, that a recession is likely next year as the Fed steadily tightens credit.

Preston Caldwell, head of U.S. economics for the financial services firm Morningstar, noted that the economy’s contraction in the first half of the year was caused largely by factors that don’t reflect its underlying health and so “very likely did not constitute a genuine economic slowdown.” He pointed, for example, to a drop in business inventories, a cyclical event that tends to reverse itself over time.

Higher borrowing costs have weakened the home market, in particular. The average rate on a 30-year fixed-rate mortgage, just 3.09 percent a year ago, is approaching 7 percent. Sales of existing homes have fallen for eight straight months. Construction of new homes is down nearly 8 percent from a year ago.

Still, the economy retains pockets of strength. One is the vitally important job market. Employers have added an average of 420,000 jobs a month this year, putting 2022 on track to be the second-best year for job creation (behind 2021) in Labor Department records going back to 1940. The unemployment rate was 3.5 percent last month, matching a half-century low.

Hiring has been decelerating, though. In September, the economy added 263,000 jobs — solid but the lowest total since April 2021.

International events are causing further concerns. Russia’s invasion of Ukraine has disrupted trade and raised prices of energy and food, creating a crisis for poor countries. The International Monetary Fund, citing the war, this month downgraded its outlook for the world economy in 2023.

More voters trust Republicans on economy as interest in midterms hits high, polls say

Voters trust Republicans more than Democrats on top issues including the economy, according to an ABC News/Ipsos poll conducted less than three weeks before the midterm elections. The findings underscore the uphill battle for the president’s party to rally enthusiasm as voters continue to perceive the economy as poor.

On both the economy and gas prices, 36 percent of Americans trust Republicans more than Democrats —12 and 14 points higher than the percentage of people who trust Democrats on those issues, respectively.

Democrats still lead in voter trust on abortion, climate change, Covid-19 and gun violence, according to the poll, which was conducted last week and released on Sunday on ABC’s “This Week.” However, the economy and inflation are the issues most on the minds of voters, according to a POLITICO/Morning Consult poll released last week, giving a late bump in political momentum to Republicans.

House Speaker Nancy Pelosi said on Sunday on MSNBC that she didn’t “subscribe” to the idea that voters don’t trust Democrats on the economy.

Republicans “don’t have a solution to inflation,” she said.

Americans in both parties have shown record-high interest in this midterm election, according to an NBC News poll released on Sunday: 70 percent of registered voters expressed interest in the upcoming election as a “9” or “10” on a 10-point scale, the poll said — the highest NBC has recorded in a midterm survey at this time of year.

Republicans showed more enthusiasm, with 78 percent showing a high interest, compared with 69 percent of Democrats.

In the ABC poll, Republicans were within the margin of error on the issue of handling immigration, with 35 percent of Americans saying they trusted them more, compared with 32 percent favoring Democrats.

The president’s party typically loses congressional seats in the midterm elections, though some polling showed Democrats closing in on Republicans’ lead earlier in the cycle, especially over the summer.

The ABC News/Ipsos poll was conducted Oct. 21-22 in English and Spanish, among a random national sample of 686 adults. It had a margin of sampling error of plus or minus 4 percentage points.

The NBC News poll was conducted among 1,000 registered voters Oct. 14-18. It had an overall margin of sampling error of 3.1 points, and a margin of sampling error among likely voters of plus or minus 3.47 points.

Soaring tax revenue, spending plunge spark record drop in budget deficit

The U.S. government posted a record decline in federal deficits in fiscal 2022, as surging tax revenue and waning pandemic spending helped cut the budget gap in half.

The annual budget shortfall totaled $1.37 trillion, compared to $2.77 trillion in the previous fiscal year, the Treasury Department said Friday. That’s due in part to record high tax receipts, which jumped last year thanks to a strong economy that drew more people into the labor market, pushing up the amount the government collected in individual and corporate taxes. Federal spending also declined, as fewer people collected jobless benefits and other pandemic-related programs wound down.

“Today’s joint budget statement provides further evidence of our historic economic recovery, driven by our vaccination effort and the American Rescue Plan,” Treasury Secretary Janet Yellen said in a statement.

But the deficit wasn’t as small as the $1 trillion that White House officials had forecast in August, primarily because of higher spending on education that reflected President Joe Biden’s student debt-forgiveness program, which the Congressional Budget Office has estimated will cost $400 billion.

The Biden administration for months has touted the sharp drop in budget deficits as evidence that the president’s economic policies are strengthening the economy and improving the fiscal outlook, and used it to push back against GOP criticism that the president is piling on government debt.

Deficits as a share of the economy fell to 5.5 percent in the fiscal year that ended Sept. 30, down from 12.3 percent in fiscal 2021 but still higher than in 2019, before the pandemic.

But critics say the administration is taking too much credit for the deficit drop. The Committee for a Responsible Federal Budget attributed the decline entirely to shrinking or expiring spending programs enacted during the pandemic.

Federal spending fell by $550 billion, an 8 percent decline from the previous fiscal year, driven by lower spending by the Small Business Administration, the Labor Department and the Department of Housing and Urban Development. That’s a record decrease, and the first decline since 2013, when government spending fell by $84 billion, Treasury officials said.

Tax receipts jumped by a whopping $850 billion to $4.9 trillion, a 21 percent increase from last year. Taxes withheld from people’s paychecks climbed 14 percent, thanks to increasing wages and employment.

Non-withheld receipts rose 37 percent, reflecting in part last year’s run-up in the stock market. Corporate receipts climbed 14 percent, the agency said.

Brian Faler contributed to this report.

Yes, the Liz Truss debacle matters for Americans

Queen Elizabeth II lasted more than seven decades in the job. The reign of Elizabeth Truss lasted less than seven weeks. Trussonomics — the idea that unfunded tax cuts could revive a nation — was dead within seven days.

The so-called “special relationship” between the U.S. and the U.K. has survived wars, and it’s not fundamentally at risk, regardless of who occupies Downing Street.

So is there any reason for Americans to care about chaos in Britain?

Aside from gaining satisfaction from knowing there are other countries with messed-up democracy, here are four ways the departure of Liz Truss matters for Americans:

The second coming of Boris Johnson

The rallying cry of the U.K. Conservative Party’s base is Bring Back Boris.

Johnson is not certain to return — but he’s the bookmaker’s second favorite, reflecting an extraordinary turn of events for a politician chased out of office in July. Back then, Johnson was derided as an unethical liar by many of his colleagues, senior civil servants and the broader public.

Former Chancellor Rishi Sunak is Johnson’s top rival for the Downing Street keys. Given Johnson’s ability to dominate the media and charm his colleagues, his chances are likely to increase as the race wears on.

But Johnson’s resurrection would leave the White House in an awkward position.

President Joe Biden couldn’t bring himself to name check Johnson when he departed Downing Street. The sniffy send-off was the culmination of years of Biden frustration at Johnson.

Johnson suggested former President Barack Obama’s part-Kenyan ancestry predisposed him to a “dislike of the British Empire,” he compared Hillary Clinton to “a sadistic nurse in a mental hospital,” and he not only supported Brexit, but appeared willing to risk Irish border arrangements — and therefore peace in in Ireland — as a political bargaining chip.

But, Conservative MPs don’t have the White House top of mind when their own careers are at stake — and around 200 of the 357-strong caucus would lose their jobs if an election were called tomorrow.

If the choice is unemployment or Boris Johnson, many MPs will likely choose Johnson.

Getting there would require the request of more than 100 MPs. If more than two candidates reach that threshold, then Conservative Party members would pick their preferred prime minister. If only one reaches the threshold, they are crowned the winner. King Charles then asks the winner to form a government.

Central banks can trump governments, and markets like it

Markets called many of the shots in this prime ministerial resignation.

Have you been checking your 401k balance lately? You likely didn’t appreciate the balance you saw. That isn’t Liz Truss’ fault — but she certainly didn’t help.

Beyond investor fears about recession, inflation, supply chains and nuclear war — markets simply didn’t trust the unfunded tax cuts that formed the basis of Trussonomics.

The plans, announced Sept. 23, spooked financial markets: They punished the pound, drove up Britain’s cost of borrowing, and pushed the nation’s pension funds to the brink of collapse.

The only thing that calmed markets was the Bank of England promising to buy up to $70 billion in government debt.

Now, the end of Truss and short-lived Chancellor Kwasi Kwarteng’s control of Britain’s purse strings permanently removes a risk factor from investment strategies in financial centers from New York to Hong Kong.

The Bank of England blew through nearly as much cash as Truss would have, if she’d had time to implement her tax cut plan. Unlike Truss, bank Governor Andrew Bailey still has his job.

Parties can move away from their extreme wings

It took a monumental crisis, but the British Conservatives junked their traditional system for electing their leader to deal with the Truss crisis.

The bad news is you’ll be stuck hearing about the race to replace Truss for the next two weeks.

The good news is — if you are frustrated with the direction of America’s Democrats or Republicans — parties in major democracies can perform serious surgery on themselves to preserve their electoral viability.

“The Tories could sink themselves for a generation,” the conservative magazine The Spectator editorialized today. “MPs have a choice: to fight each other to the death, or unite to salvage what they can.”

Your window for a cheap British holiday is closing.

After falling to parity with the U.S. dollar in late September, in the depths of the Trussonomic tax cut debacle, the pound has steadily increased in value over the past two weeks.

The pound rose when Truss and Kwarteng backflipped on his policy to cut the top rate of income tax from 45 to 40 percent.

The pound rose further when Kwarteng was fired and replaced by Jeremy Hunt, who proceeded to dump the rest of the tax plan, including corporate tax cuts.

And finally the pound rose again as Truss was giving her resignation speech.

For every $1,000 you would have spent on a holiday in Britain booked two weeks ago, you would spend $1,120 now.

Bon voyage!