As Monette Ferguson braces for the looming government shutdown to strip funding from her Head Start program for disadvantaged children in Connecticut, she harkens back to a decade ago when another congressional budget fight forced her to close preschools.
This time around she is more prepared, with money in reserve to keep serving around 550 children at 14 Head Start sites operating in three different towns. But only for about 30 days.
“It’s like a gut punch to our system,” said Ferguson, who is the executive director of the Alliance for Community Empowerment.
If the shutdown isn’t averted, Head Start programs serving more than 10,000 children would immediately lose federal funding, including Ferguson’s program. Lawmakers have until Saturday to reach a deal, but that is looking less and less likely.
The programs set to lose money serve just a fraction of the 820,000 children enrolled nationally at any given time. Located in Florida, Alabama, Connecticut, Georgia, Massachusetts, and South Carolina, they are in trouble because their grants start on Sunday, just as the shutdown would begin, said Tommy Sheridan, the deputy director for the National Head Start Association.
They wouldn’t necessarily close their doors immediately. Various entities run the programs, including school districts, YMCAs, and other nonprofits. Depending on how deep their pockets are, some of these operators, like Ferguson’s program, could readjust their finances to keep the programs going, at least short term.
“But from the ones that I’ve spoken to, there are some that really don’t have extensive possibilities,” Sheridan said.
Many are located in poor communities, close to the families they seek to lift out of poverty with programs that include preschool as well as services to infants and toddlers that include home visits. Over the course of a year, as children come and go, the number served tops 1 million.
Programs whose grants don’t start on Sunday will continue getting money, said Bobby Kogan, the senior director of federal budget policy at the Center for American Progress, a liberal think tank. But, he said, if the shutdown drags on, the number of affected programs will grow as more grants come up for renewal.
“This will get worse and worse and worse,” he said.
That’s what worries Lori Milam, executive director of the West Virginia Head Start. One of its grants is up for renewal in November, so she’s been making back-up plans and reassuring worried staff and parents.
“It’s consuming an enormous amount of our time,” she said.
Complicating the situation further, one budget proposal would cut $750 million from the nearly $12 billion program, which would eliminate tens of thousands of spots. All the uncertainty has spooked some workers into considering looking for what “they believe is a more stable job,” said Philip Shelly, a spokesperson for Democratic U.S. Rep. Nikki Budzinski, of Illinois.
This is a particular concern with nearly 20% of Head Start staff positions vacant nationwide, according to the National Head Start Association.
The timing couldn’t be worse. Childcare programs were propped up during the pandemic with $24 billion in federal relief, but the last of the money has to be spent by Saturday. Another pot of COVID-19 relief funds that helped Head Start ran out in the spring.
Some states, like Minnesota, New York, and Maine, have chipped in extra money to fill in the gaps as the federal funding dries up, but those efforts are not universal, said Maureen Coffey, a policy analyst on the early childhood policy team at the Center for American Progress.
“It’s going to be a really messy time for child care,” she said.
Child care already was strained before the pandemic closed some centers, said Lynn Karoly, a senior economist at the Rand Corp., a nonprofit global policy think tank.
“We haven’t addressed really, in most cases, the fundamental problem of an underfunded system overall,” she said. “But now you have the potential of a shutdown on top of it.”
The 16-day October 2013 shutdown was the last to hit Head Start hard, affecting 19,000 children and shuttering programs in several states.
About half as many programs are affected now because many moved away from having their grant start date coincide with the beginning of the federal fiscal year. One reason, Sheridan said, is that the Oct. 1 date makes them more vulnerable when Congress deadlocks over the budget.
It was so bad a decade ago that Connecticut chipped in emergency funds, which allowed Ferguson’s program to reopen.
Meanwhile, John and Laura Arnold, a wealthy Houston couple, pledged up to $10 million to the National Head Start Association to help other programs. Among the programs the donation helped reopen was one in Florida.
Tim Center, the chief executive officer at the Capital Area Community Action Agency, lived through that mess. This time around he has a backup plan that will allow him to keep serving more than 370 kids and families at six centers in three counties in northern Florida for several weeks. But it means tapping into savings and a line of credit.
Families still are spooked. Laketia Washington, a mother of eight whose 3- and 5-year-olds attend Head Start programs in Tallahassee, Florida, lamented the turmoil as she rang up customers at a discount store.
“The nerve-wracking thing,” she said, “is not knowing what’s next.”
Recent data suggests that the end of the post-pandemic inflation may be within reach. The August Personal Consumption Expenditures Price Index, the preferred inflation measure of the Federal Reserve, revealed the most favorable inflation dynamics in almost three years. Core PCE inflation, which excludes food and energy, increased by only 0.1% last month, the lowest since November 2020. Over the past three months, it has risen at an annualized rate of 2.2%, close to the Fed's 2% inflation target. Overall inflation was slightly higher at 0.4% for the month, driven by a surge in energy prices.
While rising gasoline prices may still affect people's ability to pay their bills, the underlying evidence suggests that price pressures peaked over a year ago and are now subsiding. If this trend continues, it will reassure Fed officials that they do not need to raise interest rates again this year, contrary to previous expectations. Futures markets currently indicate a 67% probability of no further rate hikes this year, up from 58% a week ago.
It is worth noting that there is still somewhat higher inflation when looking at the Consumer Price Index. White House economists have discussed the technical reasons behind the significant discrepancy between the two measures in a recent blog post.
The slowdown in inflation aligns with a moderation in consumer spending in August, signaling a shift from robust spending earlier in the summer to more measured consumption patterns that are less inflationary. Inflation-adjusted personal consumption expenditures only rose by 0.1% in August, following increases of 0.3% in June and 0.6% in July. However, this spending could face further pressure in the fall as the labor market softens, gas prices remain high, and student loan payments resume.
Economists expect that consumer spending will lose momentum as the labor market weakens, inflation remains elevated, interest rates rise, and income gains slow down. This controlled landing of the economy is attributed to these factors.
Promisingly, the positive trends in inflation are not limited to the United States. British and eurozone inflation numbers have also shown improvement. British inflation came in lower, leading the Bank of England to pause interest rate hikes. Similarly, eurozone consumer prices rose by 4.3% in September compared to the previous year, down from 5.2% in August. This is the lowest inflation rate in the eurozone since October 2021.
The European Central Bank recently raised its interest rate target, but the new inflation data provides confidence that it will not further increase rates. Market interest rates across Europe decreased in response to the news, including a drop in the German 10-year yield.
In conclusion, the fight against inflation appears to be making progress both in the United States and internationally. The latest data reinforces this positive outlook and supports the decisions of central banks to hold or adjust interest rates accordingly.
An inflation gauge closely tracked by the Federal Reserve rose in August, boosted mainly by higher gas prices. But measures of underlying inflation slowed in the latest sign that overall price pressures are still moderating.
Friday’s report from the Commerce Department showed that prices rose 0.4% from July to August, up from just 0.2% the previous month. A 10% monthly spike in prices at the gas pump drove the increase.
Excluding volatile food and energy prices, though, “core” inflation rose by the smallest amount in nearly three years, evidence that inflation pressures continue to ease. Fed officials pay particular attention to core prices, which are considered a better gauge of where inflation might be headed. Last month’s modest rise in core inflation could raise the likelihood that the Fed will leave interest rates unchanged at its next meeting on Oct. 31-Nov. 1.
Core prices edged up 0.1% from July to August, down from July’s 0.2%. It was the smallest monthly increase since November 2020. Compared with a year ago, core prices were up 3.9%, below July’s reading of 4.2%. That was the slowest such increase in two years.
In the meantime, while Americans kept spending in August, they did so at a much more modest pace. Friday’s government report showed that consumer spending, adjusted for inflation, ticked up just 0.1% after having risen 0.6% in July.
“Overall, spending remains positive and inflation is slowing, which will be welcome news to policymakers,” Rubeela Farooqi, chief U.S. economist at High-Frequency Economics, said in a note to clients.
Compared with a year earlier, overall prices rose 3.5% in August, slightly higher than the 3.4% increase in July. It was the second straight rise in the year-over-year figure, which has tumbled from its 7% peak in June 2022 but still exceeds the Fed’s 2% inflation target.
The spike in gasoline prices is eating away at Americans’ incomes. After some solid gains last spring, inflation-adjusted incomes fell in August for a second straight month.
The burden of rising energy costs is hitting Europe as well, even as new data released Friday showed inflation there declined sharply in September to the lowest level in two years. A recent surge in oil prices, however, has cast a shadow over prospects for quickly beating inflation down in Europe to the central bank’s target of 2%.
The combination of higher gas prices in the U.S. and sluggish income growth could weaken consumer spending in the months ahead. If so, it would mark a slowdown from last summer’s healthy pace of spending, which is believed to have fueled solid economic growth in the July-September quarter.
The inflation gauge that was issued Thursday, called the personal consumption expenditures price index, is separate from the better-known consumer price index. Earlier this month, the government reported that the CPI rose 3.7% from a year earlier, down from a peak of 9.1% in June 2022, though its core measure also slowed.
The latest data will likely bolster hopes among Fed officials that they will be able to bring inflation back to its target without driving up unemployment or causing a deep recession as many economists have feared. When the Fed released its quarterly economic forecasts last week, it showed that the central bank’s policymakers envision only a small rise in unemployment by the end of 2024: They expect joblessness to rise from its current 3.8% to a still-low 4.1%, along with a gradual drop in core inflation to just 2.6%.
Many economists now expect core inflation, as measured by the Fed’s preferred gauge, to drop by the end of the year to below the central bank’s estimate of 3.7%. That might show sufficient progress for the Fed to avoid any further rate increases this year.
Still, threats to a so-called “soft landing” — in which inflation would fall back to the Fed’s 2% target without a deep recession — have been growing. Congress is on track to shut down parts of the government by this weekend because a group of hard-right House Republicans have blocked a spending agreement.
How much a shutdown would weaken the economy would depend on how long it lasts. A short closure probably won’t have much impact on the economy. But it would likely have a more far-reaching impact than previous shutdowns did because a larger portion of the government will close.
In earlier shutdowns, for example, legislation had been approved to pay members of the military. That hasn’t happened this time, which would leave upwards of a million service members without paychecks.
And in October, millions of people will have to restart student loan payments, reducing their ability to spend on other items. At the same time, long-term interest rates keep rising, which will likely further swell the cost of mortgages, auto loans, and business borrowing. The interest rate on the 10-year Treasury note, a benchmark rate for mortgages, has reached nearly 4.6%, close to its highest level in 16 years.
Higher gas prices are also eating up a bigger share of Americans’ paychecks, with the average national price for a gallon of gas hitting $3.84 on Thursday, up seven cents from a year ago.
On Thursday, Austan Goolsbee, president of the Federal Reserve Bank of Chicago, expressed optimism that what he called the “golden path” — lower inflation without a recession — was still possible.
“The Fed,” Goolsbee said, “has the chance to achieve something quite rare in the history of central banks — to defeat inflation without tanking the economy. If we succeed, the golden path will be studied for years. If we fail, it will also be studied for years. But let’s aim to succeed.”