The long awaited action by the Fed’s Federal Open Markets Committee (FOMC) was announced last week, and as markets had begun to suspect, the base interest rate was increased by 75bps.
At his press conference after the rate hike announcement Chair Powell said the following; “Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common. From the perspective of today,
either a 50 or 75 basis point increase seems most likely at our next meeting.” Powell added “but the Fed will take the data as it comes.”
The Feds change from 50bps to 75bps was prompted by the high CPI number and the surprising consumer confidence number from the University of Michigan survey. Obviously, there will be a lot more data points before the next FOMC meeting July 26-27. The July meeting is late as there is no meeting scheduled until September.
Another important date to watch in July 6 when the Fed releases the minutes from last week’s meeting. It will be interesting to see if the new Biden appointees to the Board, Governors Cook and Jefferson, made comments on their views with respect to rates. The Senate Banking Committee has approved the nomination of Michael Barr to be the seventh Fed Governor and he should be approved by the full Senate prior to the July FOMC meeting.
Reconciliation
Talks continue between Senate Leader Schumer and Senator Joe Manchin. Biden’s sinking poll numbers have added even more urgency for the Democrats to pass a bill that gives them a positive message for November. The core issues continues to be prescription drugs, climate and energy, and some claw back of the Republican tax cuts passed during the Trump Presidency. Another issue that is on the table is extending some of the Obamacare premium subsidies that expire at yearend.
Speaker Pelosi has been bracing her progressive members to accept a much smaller package than the $2T Build Back Better Bill passed by the House. It will not be easy to keep her most left leaning members in line; with no Republican support and the Democrats razor thin margin, the Speaker won’t be able to lose her progressive members.
Congress leaves for their summer recess on August 5 and they won’t return until after Labor Day, so the hope is to pass the trimmed down Schumer/Manchin package by the break so that Members can talk about it while they are home for the summer.
Trump China Tariffs
The tariffs that President Trump placed on goods coming in from China under the so-called Section 301 authority expires later this summer. President Biden can extend the tariffs, modify them or let them lapse. Last week the White House announced that the President will talk to President Xi of China in the coming days, and trade policy will be on the agenda.
Biden is getting conflicting advice. Organized labor, a key Democratic constituency, favors keeping the tariffs as they believe they protect the jobs of union workers. Some advice is coming from the President’s key economic advisers as they tell the President tariff relaxation could help lower prices of goods coming in from China and help in Biden’s number one priority – fighting inflation. In my view, the decision is too close to call at this point.
Biden to Middle East
The White House announced last week that President Biden will leave on a three day trip to Israel, the Palestinian Authority, and Saudi Arabia on July 13. A major source of friction leading up to the trip is relations between the Saudi Crown Prince Mohammed bin Salman (MBS) and President Biden. US intelligence connected MBS to the brutal killing of Washington Post writer Jamal Khashoggi and some of Biden’s Congressional allies have urged the President not to meet with MBS. However, the war in Ukraine has made global oil supplies a major issue, and a leading cause of inflation in the US, and the Saudis have the ability to impact the supply and price.
The meeting in Saudi Arabia will be with the six members of the Gulf Cooperation Council which in addition to Saudi Arabia includes the UAE, Oman, Kuwait, Qutar, and Bahrain. The leaders of Egypt, Iraq, and Jordan will also join the meetings. At this point it is not clear if Biden will meet one-on-one with MBS.
Midterms
Last week saw more primaries where former President Trump’s role in the Republican Party was again put to the test in two Congressional races in South Carolina. Representative Tom Rice had a 90+ pro-Trump voting record, but he voted in favor of impeachment over the Jan 6 riots. This break with the former President led Trump to endorse his opponent. Rice was badly defeated in the race.
In a second SC House race Representative Nancy Mace had incurred the former President’s wrath when she voted to affirm Biden’s victory. Trump endorsed her primary opponent but Representative Mace touted her pro-Trump credentials with a television ad filmed in front of Trump Tower in NYC. Mace ended up defeating her Trump endorsed opponent 53 to 45 percent.
