Ukraine, new budget, nominees

Key Takeaways

• Ukraine dominates after President ends Europe trip with major misstep calling for regime change in Russia making exit for Putin more difficult.  Remarks quickly walked backed by White House – he didn’t say what he said.
• Could China or Israel help to broker peace deal?
• President puts forward FY 2023 budget, FY 2022 Budget didn’t pass until March 10 of this year. With Midterm elections in mind, Biden has included money for police and the military. Tax on super-rich to be included.
• Pelosi majority shrinks by a vote with Texas Democratic resignation. Guilty verdict for Republican Member likely to see a vacant seat for Rs.
• Two Fed Members passed out of Banking Committee may get Senate floor vote, are likely to be on Board by May FOMC meeting.
• Democrats in House look to score political points by going after big oil.

Ukraine continues to dominate the focus of policy makers in DC.  President Biden was in Europe last week consulting with allies and visiting Poland to give support to their efforts to help refugees.  However, the trip ended on a challenging note when President Biden indicated that Putin would have to be replaced, putting Russian regime change on the table.  The White House tried to walk back the President’s comments, but it can’t be removed from Putin’s calculus.

As I have been writing for the past month, bringing an end to the war in Ukraine will require Ukraine and its allies to find an exit strategy for President Putin; Biden’s statement makes that more difficult.  The war needs to end in a way that saves some face for Russia and doesn’t threaten the rule of Putin.  Never an easy task, now more difficult.

Watch China and Israel as both have an interest in becoming peace makers. Last week White House national security adviser Jake Sullivan said that to date there has been no evidence of China helping Russia.  In my view China is at a policy crossroads as its future is clearly tied to good trade relations with the West but its ties to Russia could allow it to play a critical role in trying to find a road to peace.  Israel and China both have ties to Russia and may be able to find the elusive exit for Putin.  Both may be able to be a counterweight to Biden’s unfortunate remarks this weekend.

Budget

This week the White House will release the President’s budget for FY 2023 that begins October 1.  Reportedly the Administration will be offering a tough minimum 20% income tax for those worth over $100 million. With the midterm elections in mind money for cops and the military will be part of the budget blueprint.

In a 50/50 Senate it is hard to see how this tax increase passes.  Both Manchin and Sinema could find this hard to accept.  Plus the drafting is likely to be very difficult and likely to lose some more moderate Democrats along the way.  Furthermore, it is important to remember that it has been a long time since Congress passed a budget on time.  The current year’s budget didn’t pass until March 10 of this year, five months late.  In fact the Congress has not passed government funding on time since 1997. 

The current year’s budget funding bill, that increased spending by nearly $100B, will serve as the baseline until Congress passes a new budget.  With Republicans assuming that they will win control of Congress in November, they will be in no mood to approve the Democratic budget plans and the nation is likely to run on a continuing resolution  (CR) well into 2023.  Bottom line is, don’t over react to this week’s headlines on the budget proposal, lots of work until anything passes.

Fed and Nominations

In the next few weeks the Senate is expected to act on the nominations of Philip Jefferson and Lisa Cook to fill two vacancies on the Federal Reserve Board.  Both should be seated prior to the FOMC meeting on May 4/5.  While Cook only received Democratic votes in the Committee she may do better on the Senate floor; in any case Vice President Harris would insure her approval by breaking a tie.  Jefferson is likely to get a strong bipartisan vote. 

This week or next the Senate should also act on the nomination of Jay Powell to serve another term as Fed Chair.  When the Senate Banking Committee approved the Powell nomination on a vote of 23 to 1 only Senator Elizabeth Warren voted against.  The vote shows the that Warren has limited sway among her colleagues in the Senate.  Powell should get a strong bipartisan vote for his second term.

Of course the big story in Congress this past week was the confirmation hearing of Judge Ketanji Brown Jackson to serve on the SCOTUS.  Republicans on the Committee appeared to be united in their opposition to the nomination, and on Thursday Republican Leader Mitch McConnell officially announced his opposition.  However, on Friday Senator Joe Manchin announced his support for Judge Jackson, with Vice President Harris holding the tie breaking vote Judge Jackson should win approval in the next few weeks.

House Majority

The House Democrats will lose one more vote with the resignation of Representative Filemon Vela of Texas to be a DC lobbyist.  While causing a one seat reduction in Speaker Pelosi’s majority, Republicans are likely to see their numbers shrink by one vote as Nebraska Representative Jeff Fortenberry of Nebraska will resign after being convicted of lying to the FBI.  Both seats are unlikely to be filled until the November elections.

Oil

The House Energy and Commerce Committee is expected to summon oil company executives for a hearing next month.  There are also reports that the House tax writing Ways and Means Committee will start considering a windfall profits tax on oil companies.  Attacking oil companies is a go-to position for Democrats and as gasoline prices rise this a going to be a big debate in DC in coming weeks.