Senate Confirms Waller; Powell and Mnuchin Update Congress
Senate Confirms Waller; Powell and Mnuchin Update Congress
The Senate confirmed Christopher Waller to the Federal Reserve Board on Thursday on a party-line vote, except for Rand Paul (R-KY) who dissented. Mr. Waller is the less controversial and visible Trump nominee, when compared with Judy Shelton and Herman Cain. Ms. Shelton’s nomination still is very unlikely to be taken up since the GOP majority has gotten thinner with recent the swearing in of the new Democratic Senator from AZ, Mark Kelley. Mr. Waller was Head of Research at the St. Louis Fed.
Federal Reserve Chairman Jay Powell and Treasury Secretary Steve Mnuchin made their rounds on Capitol Hill this week, first going before the Senate Banking Committee and next to the House Financial Services Committee, to give Congress an update on the CARES Act. The hearings were particularly contentious for Mr. Mnuchin who was the target of attacks from the Democratic side of the aisle over his termination of several Fed emergency lending programs on December 31st. The GOP praised the move as fiscally prudent. Mr. Powell mostly tried to stay above the fray, saying only he would have preferred to have the funds at his disposal while repeatedly chiding fiscal authorities for not coming to agreement on more stimulus. He also stressed the importance of preventing the coming layoffs, a million of which have already occurred, that will be required by law in states who have lost significant tax revenue. He mentioned states that are reliant on tourism as particularly vulnerable.
Some in the bond market do appear to be betting that—as the Fed has had the emergency funds taken off the table—an increase asset purchases may be likely, perhaps even at the longer end of the curve. Minutes from the previous Fed meeting, released last week, suggest that given the “extraordinarily uncertain outlook,” the Federal Open Market Committee is ready on a moment’s notice to ratchet up significantly the number and types of assets it is purchasing.
In a perfect example of why the FOMC has sometimes jokingly been referred to as the “Federal Open Mouth Committee” in an interview with the Wall Street Journal Dallas Fed President Kaplan said he thought that after a tough upcoming period, the Fed would need to start thinking about winding down asset purchases in a ‘tapered’ fashion.
The Fed released the ‘Beige Book’ on December 2 which clearly showed economic activity slowing down. While most districts reported ‘moderate’ growth compared with the last period four of them reported no growth, or close to it. Banks across districts are reporting increasing delinquencies on loan portfolios exposed to the pandemic in areas like retail, leisure and hospitality. Business sentiment is generally optimistic, but the level of optimism is declining due to rising COVID-19 cases and the prospect of new lockdowns.
Asset purchases continued at a pace of $40 billion a month for MBS and $80 billion a month for Treasuries. The benchmark yield on the 10-year Treasury is 0.97% up 13bps from last week 0.84%.
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