Obviously, the news cycles continue to be dominated by the Russian invasion of Ukraine and the ongoing struggle. Time is on the side of the Russian invaders and now the question is what is Putin’s endgame? The Ukrainian resistance has surprised the world, and a peaceful, compliant Ukraine becoming part of a new Russian empire seems unlikely in the near term. Russia with its overwhelming might and ruthless tactics will likely capture key areas, but controlling the hearts and minds of the people looks like a big lift for the Russians.
Leaders around the world are looking for an exit strategy for Putin, but to date efforts to find a pathway to stopping the war has been elusive. China, with its 2,500 mile border with Russia has a lot of skin in the game and could play a central role to finding a resolution. Turkey, France Germany and Israel have been active in discussions with both sides. However, things look grim as the weekend approaches.
Budget
Thursday night the Congress gave final approval to a $1.5T budget for the remainder of the current fiscal year that began on October 1, 2021 and runs until October 1, 2022. Since October of last year Congress has been approving a series of Continuing Resolutions (CR) that has funded the government at the spending level in the last Trump budget approved by Congress in 2020. The new budget passed both chambers with large bipartisan votes, last night the Senate gave its approval on a vote of 68/31.
The new budget makes some long-overdue changes in spending priorities in both defense and non-defense programs. Defense budgets are increased by 6% and non-defense spending will go up by 6.5%. In the final days a supplemental request to give $14B to Ukraine was put into the legislation, which clearly added to the bipartisan support. The bill also included some high priorities for the Democrats, including a renewal of the Violence Against Women Act, and climate initiatives. Republicans got a large increase in defense spending after the White House had originally tried to appease progressives by asking for a smaller amount.
In the coming weeks Congress will start to work on the budget for fiscal year 2023 which begins on October 1. Agreement on budgets have been tough for years and it is even more difficult in election years; hence Congress is likely to settle on another CR to prevent a government shutdown in October.
Fed
After months of discussion, the moment for Fed rate action has arrived, the FOMC meets next week on Tuesday and Wednesday with the Chair’s press conference and briefing around 2 on Wednesday. Chair Powell has been pretty good about telegraphing his support for a 25bps increase, and at Congressional testimony a week ago he reiterated his support for the increase. The war in Ukraine doesn’t appear to have pushed the expected increase off-track; but it did kill any talk of a large rate hike.