Russia trade legislation proceeds as Congress goes home for recess, Fed watch is on, Early look at 2022 Election

Key Takeaways:

• Congress passes legislation stripping Russia of favorable trade treatment with US.
• Fed telegraphing 50bps rate hike in May.
• Midterm elections: House likely to flip, Senate tight races, first look at PA.

Congress has gone home for two weeks for the Easter/Passover break.  With Congress out of town I will start to look at some of the key races that will determine control of the Congress in this year’s elections.

First, before Congress went home, in a rare moment of genuine bipartisanship the House and Senate  passed a resolution stripping Russia of the trade advantages gained by being granted Most Favored Nation (MFN) or Normal Trade Relations (NTR) in bilateral trade.  The House vote was 420 to 3 and the Senate vote was 100 to 0.  The three NO votes in the House were cast by Marjorie Taylor Greene (R,GA), Thomas Massie (R, KY) and Matt Gaetz (R, FL).

In a Congress that is deeply divided on nearly every issue, Vladimir Putin has done the impossible by getting a substantive bill through the Senate on a vote of 100 to 0!  The vote demonstrates the broad support the Biden Administration’s Ukraine policy has in the Congress, and that nearly all Republicans are walking away from former President Trump’s embrace of President Putin. 

Fed rate action

Over the last months I have written that as Fed Chair Jay Powell has taken the position that when the Fed acts on interest rate policy, moves should be well telegraphed to the public before the action is taken to remove surprises for market participants.  In the past, different Fed Chairs have taken different policies.  Paul Volcker thought surprise was one his weapons and sometimes changed policy outside of scheduled meetings with conference calls of the FOMC. Greenspan tried to let markets know and Powell seems inclined at the present to follow this thinking. Chair Jay Powell wants to telegraph rate actions, allow markets to react, and avoid surprises. 

One of the most significant signals came from the release of the minutes of the March FOMC meeting.  The minutes indicated that there was considerable support for hiking by 50bps in March instead of 25bps, but uncertainty created by the war in Ukraine led to restraint.

In a second signal of a 50bps increase at the May FOMC meeting, Governor Lael Brainard spoke out last week and said that “it is of paramount importance to get inflation down” and said that there was an urgency to doing it quickly.  This is important as she has not only become an ally of the Chair but her nomination is pending before the Senate to serve as the Fed’s Vice Chair under Powell.  As both a Powell ally and incoming Fed Vice Chair it is unlikely she would  speak out if she believed it was not the direction the majority of the Board wants to go.  The next meeting of the FOMC is May 4/5 and the groundwork seems to be underway for a 50bps increase.

2022 Midterms

Over the coming months I will be writing about this year’s midterm elections.  The general consensus is that the Republicans have a very good chance of taking control of the House.  In 17 of the 19 midterms since World War II the Party in control of the White House has lost an average of  27 House seats. Today there are 209 Republicans, 221 Democrats and 5 vacancies.  This gives Democrats only a six seat majority making it very difficult to beat the historical trends.  Democrats also face a President with dismal polling numbers, with voters blaming the White House for everything from high inflation and gas prices to the ebb and flow of Covid.

The Senate is more complex.  First the trend is the same but not as drastic.  In the 19 midterms since World War II the Party controlling the White House has lost 13 of the 19. This year the Democrats are only defending 14 seats to the Republicans 21.  Additionally, the Republicans are defending three seats where the popular Republican is retiring and two of the three, OH and PA, are in states that have one Democratic Senator.  The third Republican retirement is in NC which has become more of a tossup state and currently has a Democratic Governor.

Republicans are looking at four states: NH, GA, NV and AZ that have Democrats running for re-election where they believe they have a good chance of defeating the incumbent.

The three states with Republican retirements will have competitive primaries for both Republicans and Democrats; on May 17 PA will have their primary where Senator Pat Toomey is retiring.

On the Republican side television host Dr. Oz has entered the race, and over the weekend got the endorsement of former President Trump.  The former President knows first-hand the advantage of being a media star. Some conservatives have complained that Dr. Oz’s past positions make him too liberal to support, but the stamp of approval from President Trump could go a long way to overcome such suspicion.

Most observers believe that Dr. Oz’s biggest challenger is David McCormick who is CEO of Bridgewater Associates, the world’s largest hedge fund.  McCormick has hired Hope Hicks and other Trump aides and his wife, Dina Powell, worked in the Trump White House as Deputy National Security Adviser.  There are five other candidates who are less well known; all are running as the MAGA candidate, but failing to get Trump’s endorsement may hurt that strategy.

On the Democratic side there are three elected officials running against each other for the opportunity to run in November:

• Connor Lamb is a Member of the House who won a special election in 2018 replacing a Republican.  He is only 37 and has won in the Republican western part of the state.

• John Fetterman is the current Lt. Governor and is trying to run as a moderate Democrat, to a degree sharing the same space as Lamb.  Fetterman has the advantage of having run statewide, while Lamb has only run in his Congressional District.

• The third main candidate is State Representative Malcolm Kenyatta who is the leading progressive Democrat.  Many in Washington worry that he may be the weaker of the three in the general election; but he is an effective campaigner and has won endorsements from some progressive leaders.

No matter who is nominated by either Party this will be a race gaining national attention in November.