Fed Gets GOP Rebuke On Climate; FOMC Meets Next Week

It was a relatively quiet week for the Federal Reserve. Members of the House GOP sent a letter that was considered “a shot over the bow” to the Fed for its recent inclusion of climate change in the Financial Stability Report. The Fed has also requested admission into a group of international central banks and regulators called the Network for Greening The Financial System (NGFS).

Since the Financial Stability Report is directly connected to the annual Supervisory Stress Test scenarios, the letter's thrust was urging the Fed to use extreme caution and assess the potential impact of stress testing banks for their exposure to climate change. The concern articulated in the letter is that it could lead banks to unilaterally cut their exposure to the oil and gas industry and cite supervisory concerns as their justification. The letter, which enjoyed pretty diverse support from Republicans in the House, urged the Fed to engage with the NGFS sparingly. This is likely just the first iteration of many partisan skirmishes on this issue.

All eyes are on the FOMC meeting Dec. 15-16, particularly given the pandemic.

The continued lack of progress on stimulus talks makes any further accommodative action from the Fed next week all the more important. However, if you're waiting for positive news from next week's meeting, you may be disappointed.

We surveyed all FOMC voting members' comments since their last meeting to try to decipher any intent on monetary policy. The overwhelming thrust of the FOMC members' comments was to join the ever-growing chorus of policy experts and economists saying that fiscal stimulus is what is needed. Several members commented on how significant and effective the current programs are; not a good sign for more asset purchases in the short-term, although we cannot predict the future. We only found one member who vocally advocated more monetary accommodation, Eric Rosengren, President of the Boston Fed. The biggest congruence in the Fed members' comments was their emphasis on the need for fiscal authorities to act promptly.

We also wanted to give you a bit more info on Christopher Waller, the Fed's newest member. If you haven't spent the time reading the Fed's new AIT framework, then you may have missed just how overwhelmingly dovish the Fed has become. Christopher Waller was Head of Research for Jeremy Bullard at the St. Louis Fed and is considered far more 'dovish' (in the newest sense of the word in that he essentially will never raise rates because unemployment is too low) than Raphael Bostic of the Atlanta Fed, who is on record saying that the policy of getting unemployment as low as possible is a "short-sighted perspective that doesn't ultimately serve the economy and American workers well."

The Fed has become so dovish that Mr. Bostic, who may under previous circumstances have been considered a great potential pick for Chair in a Biden administration is now likely considered too 'hawkish' for the post.

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 is 0.89% up or down from last week 0.97%.

Upcoming: Again, the FOMC meets Dec. 15th-16th. No fireworks expected.

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