Key Takeaways
- Powell confirmed for second term as Fed Chair, two Biden Fed Governors approved by Senate. Next FOMC meeting June 14/15.
- Ukraine aid moving quickly through Congress. Trips by Speaker Pelosi and Senate Republican Leader McConnell demonstrate rare bipartisan agreement.
- Large crypto losses likely to lead to increased interest in DC.
The Federal Reserve Board of Governors has seven statutory Governors, but when Governors Quarles and Clarida resigned at the beginning of the year it left three vacancies on the Board. With the rise of inflation, and the critical role the Federal Reserve plays in the economy, there was obviously some urgency to have a full Board to deal with critical economic decisions.
President Biden named three new nominees: Sarah Bloom Raskin, Lisa Cook and Philip Jefferson. Sarah Bloom Raskin, who had served both on the Board as a Governor and in a senior position at Treasury, had to withdraw her name after Democratic Senator Manchin joined united Republican opposition in wake of writing by Raskin that the Fed should do more to discourage banks from lending to oil and gas companies.
In addition to Bloom Raskin, President Biden had also nominated economists Lisa Cook and Philip Jefferson to the Board. The hang-up was united Republican opposition to Lisa Cook, a Michigan State economics professor. In Committee she failed to get any Republican votes. Senator Pat Toomey, the ranking Republican on the Senate Banking Committee, felt that Ms. Cook didn’t have any experience in monetary policy and was an advocate for far left economic policies that he and other Republicans oppose. However, swing Democratic Senator Joe Manchin announced support for the Cook nomination. She will become the first Black woman to serve on the Board.
Not only did the Senate need to act on the new Governors, but Chair Powell’s term as Fed Chair had expired in February. President Biden re-nominated Powell for a second term, but that action too had to be confirmed by the Senate.
Senate Democratic Leader Chuck Schumer was committed to getting Cook confirmed along with the less controversial Jefferson and the second term as Chair for Powell. In a tied Senate, Schumer was stymied when Covid cut attendance by Democrats, and also hit VP Harris whose vote would be needed if the Senate tied on the vote for Cook.
Last week all the pieces came together and the nomination of Lisa Cook came before the Senate and, as anticipated, the Senate was tied 50/50, meaning that her confirmation to the FRB was accomplished by a tie-breaking vote by the Vice President. With Cook confirmed the Senate then moved on to approve Jefferson with a vote of 91 to 7, and Chair Powell to a second term on a vote of 80 to 19. Interestingly, the 19 NO votes on Powell were cast by a bipartisan group of Senators to the far left and right. Opponents ranged from Democratic Senators Warren and Sanders to Republicans Paul and Cruz.
This action means that when the Federal Open Markets Committee (FOMC) meets again June 14/15 there will be two new Democratic appointed Governors on the Committee. At this point it is unclear if the two new voting members of the FOMC will make any difference, but it will be interesting to watch how they establish a relationship with the Chair and the other FOMC members.
Ukraine
Last week after Speaker Pelosi’s surprise trip to Ukraine and meeting with President Zelensky, the House moved quickly to act on the Biden Administration’s request for $33B in aid for Ukraine. Initially some Democrats wanted to tie the Ukraine aid to money for Covid therapeutics, but after the Speaker’s trip to Kyiv that roadblock quickly disappeared. The amount of aid quickly increased from $33B to $40B and House voted 368 to 57 in favor of the legislation. All 57 of the NO votes were cast by Republicans.
After the Speaker’s trip to Kyiv and meeting with President Zelensky, Senate Republican Leader McConnell took a delegation of three other Republican Senators to Kyiv this past weekend and assured Zelensky of the bipartisan support Ukraine has in Congress.
The trip came in the wake of the House-passed Ukraine bill stalling in the Senate due to opposition from Kentucky Republican Rand Paul. McConnell’s trip should assure Republican support for a cloture vote on Monday evening to stop Senator Paul’s stalling action and the Senate will likely pass the $40B package by midweek.
DC and crypto
I don’t pretend to have the deep background in crypto that the FSinsight team led by Sean Farrell has, but I do know DC, and the large losses suffered last week by crypto investors are going to get the attention of Washington. Both Treasury Secretary Yellen and SEC Chair Gensler have had questions and the collapse of UST and LUNA are going to increase the calls for regulation.
In Congress, Senate Banking Chair Sherrod Brown has also been a crypto skeptic and I would expect him to hold some hearings on the sharp declines and look at any consumer losses later this summer. It’s too early to tell what direction regulation might take, but appropriate regulation may be the key to greater acceptance of crypto in the real economy and everyday economic activity. Both Congress and the SEC are likely to look to losses suffered by smaller investors, and what I describe as “60 Minute” risk. Watch for stories of consumers losing their life savings and retirement in the crypto markets as this is often the triggering event for hearings and legislation. Having put together Congressional hearings I know to get press attention the topic needs to be relatable to consumers/voters. The simpler the story the bigger the headlines and chances for legislation.
