Key Takeaways
- Wednesday Fed announces FOMC rate decision: 50bps increase expected.
- Powell press briefing after FOMC meeting key to reading future policy.
- Ukraine aid focus of Congress, 33B White House request
- Manchin talks of Democratic agenda
- Ohio primary on Tuesday opening vote in 2022 midterm cycle
Fed action
After weeks of talk and anticipation, the Fed’s Federal Open Markets Committee (FOMC) meets this week to take the next step to fight inflation with an increase of interest rates. The meeting ends at 2:00 on Wednesday and is followed by the Chair’s press briefing. Not only will Powell talk about the 50bps increase the Fed is likely to approve, but he will need to address growing talk of a 75bps increase in June. The next Fed FOMC meeting will be June 14/15.
Chair Powell has done a good job of telegraphing policy and I would expect his candor to continue. When the Fed Chair addresses questions of future Fed policy he knows that the views expressed by the FOMC members will become public when the minutes of the meeting are released. The minutes for this week’s meeting will be released on May 25. By allowing the public to see the minutes it forces the Fed Chair to be fairly explicit on the direction of future rate decisions. Hence, if he knows that the minutes will show broad support for larger increases at future meetings, Powell is likely to address that at his Wednesday briefing. Additionally, he will likely need to address the surprise downturn in the GDP and what impact it may have on FOMC thinking with respect to future rate policy. Obviously, the Fed will leave all its options open; but expect a news-filled Wednesday as the markets digest the FOMC action.
Ukraine
On Sunday the news of a surprise visit to Ukraine by Speaker Pelosi made the headlines. The timing was interesting as it follows the announcement last week by President Biden requesting $33B in additional aide for Ukraine.
Some Democrats in Congress have suggested that the aid for Ukraine should be tied to a proposed $10B Covid program to provide testing and therapeutics; but while Senator Romney has led a bipartisan group to draft a Covid bill, he and other Republicans have made clear they will not support combining Covid and Ukraine.
In a highly partisan DC, support for Ukraine has been a unifying issue. Indeed President Putin has accomplished what no recent US leader has achieved–finding an issue that has overwhelming bipartisan support.
I expect Congress to work on the Ukraine and Covid bills on separate tracks, with the Ukraine legislation moving quickly and on the President’s desk by the Memorial Day break.
Manchin and Biden agenda
While Congress has been focused on Ukraine, Covid, and legislation to increase microchip production, Democrats have continued to meet privately on the former Build Back Better legislation. Last week pivotal Senator Joe Manchin of West Virginia reportedly had some very preliminary talks with Democratic Leader Chuck Schumer.
Last year Congressional Democrats had hoped to use the Budget Reconciliation process to get a trillion dollar social legislation bill passed. However, the Reconciliation process would require all 50 Republican Senators to vote in support, and Joe Manchin made clear he could not support the bill. Now the question in Washington is whether or not some paired-back bill can be approved in order to help Democrats in competitive races this November.
As the rate of inflation continues to rise, Manchin is focusing on a strategy to reduce the deficit, but at the same time give some ground on Democratic priorities. He told reporters that he could support tax increases on corporations and the wealthiest individuals if the new income was split between programs and deficit reduction. This will be a tough sell for Democrats, especially House progressives, but at least a behind-the-scenes discussions have begun.
Ohio primary
This Tuesday Republican voters go to the polls in Ohio to select a candidate to run for the seat being vacated by Senator Rob Portman. This race is worth watching as it is turning into the first test of the power former President Trump has over the Party.
While there are half a dozen candidates in the race, at this point it appears to be a two person race between the State’s former Treasurer Josh Mandel and author/venture capitalist JD Vance. Two weeks ago former President Trump weighed in with an endorsement of Vance. Prior to Trump’s endorsement, Vance was not doing well in the polls. But since the endorsement polling shows him running first, but with Mandel a solid second. Mandel has run as a loyal Trump supporter and had been down to Mar-a-Lago in an effort to win the endorsement.
President Trump seems to recognize that his personal success has been tied to his celebrity status, which led to his endorsement of Dr. Oz in Pennsylvania. The Vance endorsement appears to follow the same strategy that has worked for the former President in the past.
The Democrats have united behind Cleveland area Representative Tim Ryan; one question after the primary will be the ability of Republicans to heal their wounds and be united to hold the seat. Republican hopes for winning a Senate majority are tied to their effort to hold on to seats in OH, PA, and NC where popular Senators are retiring.