Obama Returns From Hawaiian Holiday to Second-Term Challenges

President Barack Obama returns to Washington today from his annual family vacation in Hawaii for a week that includes a meeting with Afghan President Hamid Karzai, deliberations about new cabinet members and preparations for his second-term inauguration.

Obama is scheduled to return to the White House before noon Washington time. Before his departure last night from Honolulu, the president was gearing up for a political fight next month with Republicans over raising the U.S. debt limit. In his weekly radio address, taped in Hawaii and aired yesterday, the president reiterated a warning that he won’t negotiate with Republicans over borrowing authority.

The president will probably name former Republican Senator Chuck Hagel of Nebraska, 66, as his choice to be the nation’s next defense secretary as early as tomorrow, according to a person familiar with the cabinet-selection process.

The president is to meet with Karzai on Jan. 11. As the U.S. war in Afghanistan winds down, Karzai is visiting Washington to discuss concerns including the size of U.S. troop levels in his country after 2014 and the future U.S. financial commitment to his country.

Obama has yet to name a new head of the Central Intelligence Agency. John Brennan, the president’s counterterrorism chief, is said to be among the leading candidates.

Other future decisions include a replacement for Treasury Secretary Timothy F. Geithner, and may include a new chief of staff if Jack Lew is named as Geithner’s replacement. In December, Obama announced his choice of Massachusetts Senator John Kerry to replace Hillary Clinton as secretary of state.

Two-Part Vacation

Obama was to have spent two weeks in Hawaii, where he was born and raised, to recharge following his re-election campaign and work on the Jan. 21 address he is to deliver for his second- term inauguration.

His plan was interrupted by the congressional standoff over how to prevent automatic tax hikes and spending cuts from going into effect beginning Jan. 1 that forced him to cut short his trip on Dec. 26.

Obama returned to Hawaii Jan. 2 and signed the law raising income-tax rates on couples to 39.6 percent for annual income above $450,000 while extending tax cuts for lower incomes and delaying automatic spending cuts until March 1.

Market Rally

Markets rallied in response to the agreement, even as Obama and congressional Republicans are poised for a new fight over the U.S. government’s debt ceiling.

The Standard & Poor’s 500 Index rose 4.6 percent to 1,466.47, the highest level since December 2009. All 10 industry groups in the S&P 500 advanced in the holiday-shortened week. Bank of America Corp. and Caterpillar Inc. (CAT) climbed at least 6.6 percent, pacing gains among financial and industrial companies. An index of consumer stocks jumped to a record as Ross Stores Inc. (ROST) and TJX Cos. announced same-store sales that topped estimates. General Motors Co. (GM) and Ford Motor Co. rallied more than 5.4 percent as auto sales beat forecasts.

The U.S. reached its $16.4 trillion legal debt limit on Dec. 31, and the Treasury Department began using extraordinary measures to finance the government. It will exhaust that avenue as early as mid-February, the Congressional Budget Office says.

“One thing I will not compromise over is whether or not Congress should pay the tab for a bill they’ve already racked up,” Obama said in his address. “The last time Congress threatened this course of action, our entire economy suffered for it.”

Brink of Default

After partisan gridlock last brought the government to the brink of default in August 2011, the stock market fell and Standard & Poor’s cut the nation’s credit rating to AA+ from AAA. House Speaker John Boehner, an Ohio Republican, withdrew from negotiations on July 22, 2011, and the S&P 500 Index fell more than 16 percent in the next 11 trading days.

Bond investors were unrattled. Yields on 10-year U.S. Treasury notes declined from 2.96 percent on July 22 to 2.56 percent on Aug. 5, 2011, the day of the S&P downgrade. Yields continued to drop, reaching 1.72 percent on Sept. 22 of that year.

House Ways and Means Committee Chairman Dave Camp offered assurances that, even with the disagreements between congressional Republicans and the White House, lawmakers would raise the $16.4 trillion debt limit in time to avoid missing payments on U.S. obligations.

“Absolutely, we’re going to not default,” Camp said on Bloomberg Television’s “Political Capital with Al Hunt” airing this weekend. “That’s just not even part of the issue.”

Camp, in the Republicans’ weekly address yesterday, said the U.S. government “spends too much and wastes too much,” and “the spending problem is getting worse, not better.” Camp also advocated changes to the tax code.

“We have to start to work on real solutions to return accountability to our tax code by eliminating special-interest loopholes,” Camp said in the address. “I believe in a simple principle: when it comes to the tax code, everyone should play by the same rules.”

To contact the reporters on this story: Margaret Talev in Washington at mtalev@bloomberg.net; Carter Dougherty in Washington at cdougherty6@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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