Moody's downgraded the U.S. sovereign credit rating on Friday due to concerns about the nation's growing $36 trillion debt pile. This move could complicate President Donald Trump's efforts to cut taxes and send ripples through global markets.
FOCUS ON DEFICITS
MARKET FRAGILITY
Consumer sentiment dips further in May.
US consumer sentiment edged down further in May, to 50.5 from 52.2 in April, according to the University of Michigan Survey of Consumers. That brings the index to just above its June 2022 level of 50, which was the lowest level on record.
The consumer sentiment index is arbitrarily set to 100 for 1966. So the absolute number is not meaningful, but rather the change in the index over time. The extent and speed of the recent sentiment drop is unusually large by historical standards, suggesting a rapid souring of consumers’ view of current and prospective US economic conditions. Consumer sentiment has been shown to have a predictive effect on actual consumer spending behavior, although the impact is limited.
Inflation expectations rose further. Consumers surveyed now expect on average that inflation will be 7.3% over the next twelve months, up from 6.5% expected last month. Over the next five years, they expect inflation to average 4.6%.
Are these inflation expectations justified? A very cursory (AI-assisted) review suggests that nearly all (perhaps 90%) of a US tariff increase is passed through to the prices faced by US producers and consumers. At the currently imposed rates, tariffs have increased from less than 2.7% before Trump’s actions to about 18% today. At these rates, the increased tariffs might raise import prices and costs by, say, 13-14%. Since, by some estimates, consumer goods have a total direct and indirect import content of roughly 10%, consumer prices might rise perhaps 1-2 percentage points.
(Clearly, this deserves a separate post, but that’s my quick back-of-the-envelope estimate. Ya’ll can tell me how this is wrong…)
This suggests to me that consumers’ expectations of tariff-related inflation may be overblown, unless tariffs are ultimately raised substantially above their current levels. (Of course,e they may have other reasons to think that inflation will rise, such as burgeoning federal deficits or deportation-related labor shortage concerns.) The inflationary tariff impact, when it comes, is likely to be a one-time burst, not a persistent increase in annual inflation, as long as higher inflation expectations do not feed through to higher ongoing annual wage and intermediate goods price hikes.
In any case, US consumer sentiment continues to sour, with tariffs and trade policy a major problem. How trade issues and related uncertainties are resolved in the coming weeks or months may go a long way to determining whether consumers continue to have a bleak outlook about the course of the economy and inflation, and therefore whether they will more aggressively cut back on spending, significantly weakening the overall US economy.
TRUMP BLASTS 'GRANDSTANDERS'
'WRITING CHECKS WE CANNOT CASH'
Charter Communications has offered to acquire Cox Communications, a $34.5 billion merger that would combine two of the top three cable companies in the U.S.
Cox is the third-largest cable television company in the country, with more than 6.5 million digital cable, internet, telephone, and home security customers. It has a strong foothold in states spanning from California to Virginia. Charter Communications, known more widely as Spectrum, has more than 32 million customers in 41 states.
The cable industry has been under assault for years from streaming services like Disney, Netflix, Amazon, and HBO Max, as well as internet plans offered by mobile phone companies. Comcast, which is of nearly equal size to Charter, spun off many of its cable television networks in November as consumers increasingly swap out their cable TV subscriptions for streaming platforms.
So-called “cord-cutting” has cost the industry millions of customers and left them searching for ways to successfully compete.
Charter said Friday that it will acquire Cox Communications’ commercial fiber and managed IT and cloud businesses. Cox Enterprises will contribute Cox Communications’ residential cable business to Charter Holdings, an existing subsidiary partnership of Charter.
Cox Enterprises will own about 23% of the combined company’s outstanding shares.
The transaction, which needs approval from Charter shareholders as well as regulators, includes $12.6 billion in debt.
“This merger exemplifies the strategic consolidation reshaping media and telecom,” Scott Purdy, KPMG U.S. Media Industry Lead, Strategy, said in a statement. “By pooling resources, these companies will create scale, drive significant cost synergies, and strengthen their competitive positioning in a challenging market.”
The proposed deal is one of the largest in over a year. Mars announced a $30 billion deal with Kellanova last summer, and Exxon Mobil’s approximately $60 billion acquisition of Pioneer Natural happened in late 2023.
The combined company will change its name to Cox Communications within a year after closing. It will keep Charter’s headquarters in Stamford, Connecticut, and have a significant presence on Cox’s Atlanta, Georgia, campus following the closing.
After the deal is complete, Charter CEO Chris Winfrey will become president and CEO of the combined company. Cox CEO and Chairman Alex Taylor will serve as chairman.
Cox will be able to keep two directors on the 13-member board. Advance/Newhouse, which is part of Charter, will retain its two board members.
The transaction is expected to close at the same time as Charter’s merger with Liberty Broadband, which was approved by Charter and Liberty Broadband stockholders in February.
Shares of Charter rose slightly in afternoon trading. Cox is a private company.
A federal judge in Texas struck down guidance from a government agency establishing protections against workplace harassment based on gender identity and sexual orientation.
Judge Matthew J. Kacsmaryk of the U.S. District Court for the Northern District of Texas on Thursday determined that the U.S. Equal Employment Opportunity Commission exceeded its statutory authority when the agency issued guidance to employers against deliberately using the wrong pronouns for an employee, refusing them access to bathrooms corresponding with their gender identity, and barring employees from wearing dress code-compliant clothing according to their gender identity because they may constitute forms of workplace harassment.
Title VII of the 1964 Civil Rights Act protects employees and job applicants from employment discrimination based on race, color, religion, sex, and national origin.
The EEOC, which enforces workplace anti-discrimination laws, updated its guidance on workplace harassment in April of last year under President Joe Biden for the first time in 25 years. It followed a 2020 Supreme Court ruling that gay, lesbian, and transgender people are protected from employment discrimination.
Texas and the Heritage Foundation, the conservative think tank behind Project 2025, in August challenged the guidance, which the agency says serves as a tool for employers to assess compliance with anti-discrimination laws and is not legally binding. Kacsmaryk disagreed, writing that the guidance creates “mandatory standards ... from which legal consequences will necessarily flow if an employer fails to comply.”
The decision marks the latest blow to workplace protections for transgender workers following President Donald Trump’s Jan. 20 executive order declaring that the government would recognize only two “immutable” sexes — male and female.
Kacsmaryk, a 2017 Trump nominee, invalidated all portions of the EEOC guidance that define “sex” to include “sexual orientation” and “gender identity,” along with an entire section addressing the subject.
“Title VII does not require employers or courts to blind themselves to the biological differences between men and women,” he wrote in the opinion.
Heritage Foundation president Kevin Roberts commended the decision in an emailed statement: “The Biden EEOC tried to compel businesses — and the American people — to deny basic biological truth. Today, thanks to the great state of Texas and the work of my Heritage colleagues, a federal judge said: Not so fast.”
He added, “This ruling is more than a legal victory. It’s a cultural one. It says no, you don’t have to surrender common sense at the altar of leftist ideology. You don’t have to pretend men are women.”
Texas Attorney General Ken Paxton also touted the victory against “Biden’s ‘Pronoun Police’ Rule” in a Friday press release, saying: “The federal government has no right to force Texans to play along with delusions or ignore biological reality in our workplaces.”
The National Women’s Law Center, which filed an amicus brief in November in support of the harassment guidance, blasted the decision in an emailed statement.
“The district court’s decision is an outrage and blatantly at odds with Supreme Court precedent,” said Liz Theran, senior director of litigation for education and workplace justice at NWLC. “The EEOC’s Harassment Guidance reminds employers and workers alike to do one simple thing that should cost no one anything: refrain from degrading others on the job based on their identity and who they love. This decision does not change the law, but it will make it harder for LGBTQIA+ workers to enforce their rights and experience a workplace free from harassment.”
Kacsmaryk offered a more narrow interpretation of Bostock v. Clayton County, the landmark Supreme Court case that established discrimination protections for LGBTQ+ workers, saying in his decision that the Supreme Court “firmly refused to expand the definition of ‘sex’ beyond the biological binary,” and found only that employers could not fire workers for being gay or transgender.
Employment attorney Jonathan Segal, a partner at Duane Morris who advises companies on how best to comply with anti-discrimination laws, emphasized that legal minds may disagree on the scope of Bostock, and Kacsmaryk’s decision is just one interpretation.
“If you assume that a transgender employee has no rights beyond not being fired for transgender status, you are likely construing their rights too narrowly under both federal and state law,” which would put employers in a risky position, Segal said.
And regardless of whether explicit guidance is in place, employers still need to address gender identity conflicts in the workplace, according to Tiffany Stacy, an Ogletree Deakins attorney in San Antonio who defends employers against claims of workplace discrimination.
“From a management perspective, employers should be prepared to diffuse those situations,” Stacy said.
The EEOC in fiscal year 2024 received more than 3,000 charges alleging discrimination based on sexual orientation or gender identity, and 3,000-plus in 2023, according to the agency’s website.
The U.S. Department of Justice and the EEOC declined to comment on the outcome of the Texas case.
EEOC Acting Chair Andrea Lucas, a Trump appointee, voted against the harassment guidelines last year but has been unable to rescind or revise them after Trump fired two of the three Democratic commissioners, leaving the federal agency without the quorum needed to make major policy changes.
But earlier this month, Trump tapped an assistant U.S. attorney in Florida, Brittany Panuccio, to fill one of the vacancies. If Panuccio is confirmed by the Senate, the EEOC would regain a quorum and establish a Republican majority 2-1, clearing the path to fully pivot the agency toward focusing on Trump’s priorities.
“It is neither harassment nor discrimination for a business to draw distinctions between the sexes in providing single-sex bathrooms,” Lucas wrote in a statement expressing her dissent to that aspect of the guidelines.
In her four-month tenure as Acting Chair, Lucas has overhauled the agency’s interpretation of civil rights law, including abandoning seven cases representing transgender workers alleging they have experienced discrimination, and instructing employees to sideline all new gender identity discrimination cases received by the agency.