As Ukrainians continue their brave battle against the Russian army the NATO alliance and other nations remain united in isolating Russia and looking for ways to assist the Ukrainian fighters. President Zelensky’s Zoom call with over 300 members of the US Congress has solidified support for urgent aid to Ukraine. The White House has proposed $10B in emergency assistance ranging from food and medicine to military equipment.
Congress is facing a Friday deadline to approve some budget action in order to avoid a government shutdown—a shutdown will not happen; some bill will pass.
Last week, before the Zelensky Zoom call, some Republican Senators had threatened a government shutdown if Democrats didn’t give them a vote on funding the government’s remaining vaccine mandates aimed at the military and healthcare workers. While it was not certain what support the threat would have, attaching Ukraine aid to the spending bill eliminates political posturing on Covid at least on this bill.
The current Continuing Resolution, CR, expires on Friday and the Congress must either pass one more short-term CR or the $1.5T Omnibus Spending Bill by midnight on Friday. There is near unanimity in Washington that the government can’t continue to operate on spending levels and priorities established in the last budget Congress approved in 2020. The war launched by Russia and growing tensions with China have highlighted the need for new spending and new allocations for the DoD and other departments of government. Bipartisan leaders have expressed optimism that a budget agreement is close, but the White House changed the equation last week when it announced an emergency request for new money for Ukraine and the fight against Covid.
While the Ukraine money is widely supported, Republicans are reluctant to give new money for Covid and are insisting that the Administration find unspent money in Covid accounts that they believe will be enough for the President’s Covid initiatives. As Biden outlined in the State of the Union address he wants a combination of therapeutics, testing, and vaccine to continue the fight against Covid. The center piece will be giving pharmacies and others the ability to immediately provide free therapeutics to anyone who tests positive.
In the coming week Congress will need to decide whether or not the Omnibus Bill is ready to pass, and what to do about the Biden supplemental requests. If there is an agreement that they need another week to finish all the deals in the Omnibus, I expect both sides to agree to add the Ukraine money to the short-term CR. Rules do allow for long-term additions to a short-short term CR. One way or the other Congress should approve the Ukraine money this week.
Fed
The Senate Banking Committee remains stymied by the Republican opposition to Fed Board nominee Sarah Bloom Raskin and their refusal to attend a Committee meeting to vote out the nomination of Jay Powell to serve a second term as Chair, and three others who President Biden has nominated for vacant seats on the Board. With the Fed’s FOMC meeting fast approaching on March 15/16, I would expect the Committee members to try and find a way out of the stalemate this week ahead of the rate decision meeting.
Rates
Last week Chair Powell gave his semi-annual Monetary Policy Report to Congress. In his preparation he knew that questions would focus on the upcoming FOMC meeting and the long anticipated rate decision. There were obviously going to be questions on the war in Ukraine and possible impact on the FOMC deliberations. Powell responded to the Congressional Committees by giving the strongest signal yet that the Fed will raise rates by 25bps.
Prior to the Russian invasion of Ukraine there has been increased speculation that to fight inflation the Fed might have to increase rates by 50bps at the March meeting, but the Chair made clear that a larger increase was not going to happen. Concern over the economic impact of the war in Ukraine, and the subsequent sanctions against Russia, likely put the final nail in the coffin for any talk about a 50bps increase this month.