Big week for Powell and government budget
Key Takeaways
  • Tuesday Senate Banking Committee vote on Powell for Fed Chair and Raskin, Cook and Jefferson for Board vacancies.
  • March rate increase approaches with growing talk about increases.
  • Friday deadline for government shutdown but House passage of new March 11 deadline gives Senate option to avoid crisis.
  • Congressional leaders appear to have made progress on new Budget outline for remainder of FY 2022.
  • Senator Lujan makes video demonstrating recovery and return to Senate in coming weeks.
  • The Made-in-Russia Ukraine crisis will overhang Washington and global affairs all week with 100% of the decision making in the hands of Putin.

The Fed is going to be front and center this coming week as talk about rate increases continues and the Senate Banking Committee is scheduled to vote on the nominations for Powell to be chair and three other candidates to fill vacancies on the Board.
 
March 15/16 meeting of the FOMC is quickly approaching and is when the Fed Chair has made clear that the Fed will likely raise interest rates.  In recent weeks there has been increased speculation that the Board may move more than the 25bps that has been widely anticipated.  Fed watchers took note when St. Louis Fed President said that he supports raising rates by 100bps by this summer.  While this may seem high, there are meetings scheduled for March, May, June and July.  Obviously, 25bps at each meeting gets rates up to 1.00 to 1.25%.   
 
Fed Chair Powell has been pretty clear that rates are going up. Opinions are split, however, on whether or not the current inflation is transitory caused by the pandemic or more structural and will need more hawkish action.  There will be a great deal of attention in the coming weeks to any new comments by the Chair or other Board Members, and Powell will likely send signals at his press conference in March.
 
With attention as to rates, the Tuesday meeting of the Senate Banking Committee to consider the nomination of Jay Powell to serve a second term as Fed Chair becomes even more critical. The Committee will also vote on the Biden nominations of Sarah Bloom Raskin, Lisa Cook, and Philip Jefferson for the open seats on the Board.  The three represent an effort by the Biden Administration to diversify the Board’s membership.  If confirmed, Lisa Cook would become the first Black woman to serve on the Board, and along with Jefferson, would place two Black members on the Board.

The big issue to watch when the Committee takes its vote is the partisan breakdown for Chair Powell.  Powell is opposed by progressive Democrats led on the Banking Committee by Massachusetts Democratic Senator Elizabeth Warren.  In an evenly divided Senate, Powell will have to pick up Republican support to make up for Democrat losses.  Powell was originally nominated by President Trump, and he is expected to get a good deal of Republican support, but the guessing will end when the vote is taken this week.  I will be watching both how many Democrats defect from the Biden nomination and how many Republicans vote to support Powell now that he has been nominated by a Democratic President.
 
Raskin, Cook and Jefferson are all left of center nominees and in a 50/50 Senate, with one Democratic Senator out with illness, no nominee can be approved on a strictly party line vote.  If Republicans oppose any of the Board members the President can choose to delay the votes until Senator Lujan returns, or pull the nomination for someone who can get bipartisan support.  This strategy assumes that the nominees can get all the Democratic support; and it is important to recognize that both Manchin and Sinema have voted in favor of nearly all Biden nominees.

Budget Deadline

The current Continuing Resolution (CR) expires on Friday, and to prevent a government shutdown Congress needs to either pass a new federal budget or a new CR.  Before the House left last week they passed a three-week CR running until March 11. The general expectation is that the Senate will pass the House CR bill this week and prevent a shutdown crisis.

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