Key Takeaways

  • Chair Powell got through Senate confirmation hearing and is on path to second term.  Biden nominates three more Board Members: two blacks, two women: more diversity.
  • Fed rate decisions: surprise vs telegraph – Fed telegraphing March increase.
  • Congressional appropriators meet to try and find agreement on budget for current fiscal year as February 18 deadline approaches.
  • Biden/Democratic agenda: voting rights legislation dies but hope for some election reform.

Powell and Fed

Last week Fed Chair Jay Powell testified before the Senate Banking Committee and escaped with no damage done to his pathway to confirmation for a second term as Chair.  Much of the discussion was focused on inflation and Powell made clear the Board would take whatever steps are needed to keep it under control.

Over the years Fed Chairs have debated the best course of major policy changes related to interest rates.  Some felt that surprise was the best weapon, making sure that no market participant had any advantage and also thought that the surprise was itself a policy tool.  As the Fed approaches a major policy move it is pretty clear that a 25bps increase will occur during the March meeting of the FOMC.  The Committee will meet this month 25-26 and I would expect a pretty clear signal of the March move as the meeting ends and the Chair talks to the press.  Then the FOMC meets again on March 15-16 when an increase is likely to be announced.

The Biden Administration last week nominated three candidates to fill vacancies on the Board.  They represent a concerted effort to add diversity to the central bank.  Lisa Cook, if confirmed, would be the first Black woman to serve on the Fed Board.  The White House also announced the nomination of Philip Jefferson who, if confirmed, along with Cook will be the fourth and fifth Black Board Members.  The third candidate is Sarah Bloom Raskin.  While having taken progressive views on the environment she has served as Banking Commissioner of Maryland, Deputy Secretary of Treasury, and also previously served as a Fed Governor. 

Nominations have been removed from the threat of filibusters and I would imagine that all 50 Democrats would support these nominees and there may be some Republican support as well.

Budget

As the February 18 deadline approaches Congressional leaders have started to talk about passing a so-called Omnibus Budget Agreement that would change spending levels and priorities rather than just another CR that maintains spending at FY 2021 levels.

A new term seems to be entering DC jargon – “the four corners.”  The four corners represent the four top members of the House and Senate Appropriations Committees: Chair and Ranking Republican in both the House and Senate.  The four met last week and while no specifics were leaked all agreed that talks would continue.

Republicans and many Democrats want to see the new funding that Congress authorized earlier this month for defense to become part of the FY 2022 spending plan.  Similarly, there is widespread support to put money approved in the Bipartisan Infrastructure Bill into the budget.  Congress has often put together a bipartisan majority for new spending by dividing increase levels between defense and domestic spending.  While both sides would like more for their preferred programs the compromise has the advantage of funding more programs and changing fiscal priorities.  While there is no certainty that a deal can be ironed out by February 18, there are discussions going on to try and achieve this goal.  The alternative is likely to be one more short term CR.

Biden/Democratic agenda

This week the Senate will see the unsuccessful conclusion of the Democrats’ effort to pass voting rights legislation.  Two House passed bills will be brought up in the Senate, Republicans will mount a filibuster against the bills, Leader Schumer will take the measures required to stop the filibuster with 60 votes, and Democrats Manchin and Sinema will vote with Republicans and the effort will come to an end.

However, efforts to pass some voting and election reform is not dead.  A bipartisan group of Senators is working to deal with the Electoral Count Act of 1887 (ECA), which put in place rules on the counting of the electoral college.  In 2021, the weaknesses in the ECA came out when votes could be objected to with just one House and one Senate objection.  Also legal experts in the Trump camp developed theories that gave extraordinary powers to the Vice President in the count.  Talks have advanced that would increase the number of objectors to a state’s count and also clarify the ceremonial role of the Vice President in the official count. If a strong bipartisan majority can be put together to modernize the ECA there is some support to adding a few of the less controversial provisions in the Democratic Voting Rights bills into the bipartisan bill.

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