FOMC minutes and Fed nominee, midterms and Ukraine
Key Takeaways
- FOMC minutes to be released Wednesday at 2:00. Focus on direction of rate policy.
- Senate hearing on Michael Barr to be final Biden pick for FRB.
- Midterms: Trump endorsed candidates did well last week in PA and NC, but some unrest could be seen this week in GA where Gov. Kemp seems headed to victory over Trump endorsed candidate. But Trump supported Senate candidate Walker seems headed to victory.
- Ukraine aid demonstrates growing divide in Republican ranks.
Washington economic news is likely to be highlighted this week by the release at 2:00 on Wednesday of the Federal Open Markets Committee (FOMC) minutes of the May meeting. Chair Powell and the other members of the Fed leadership know that the views of the Governors and other FOMC members will be released to the public and I believe this frames their comments after each meeting. There clearly has been a de-escalation of talk about a 75bps move since the Chair’s post FOMC press conference and I assume that will be reflected in the minutes. The minutes will likely also reflect the Committee’s determination to raise rates to a point where progress can be seen on the fight against inflation.
With the recent confirmation by the Senate of two of President Biden’s nominees, the Federal Reserve Board now has six of its seven Members. Since the May meeting the Senate has given final approval to Lisa Cook on a partisan 51 – 50 vote and Philip Jefferson on a bipartisan vote of 91 – 7. However this still leaves the Fed Board one member short of its full seven member authorized level. Last week the Senate Banking Committee began hearings on the final Biden nominee, Michael Barr.
Mr. Barr served in both the Clinton and Obama Administrations and focused on issues such as community development and consumer banking issues. Barr played a leading role in the creation of the Consumer Financial Protection Bureau where he became an ally of now Senator Elizabeth Warren.
Last week the Senate Banking Committee held a confirmation hearing on his nomination and in his testimony he seemed to emerge unscathed. Importantly, swing Democratic Senator Joe Manchin announced that he would vote to confirm Mr. Barr.
The Senate will break at the end of this week for a Memorial Day recess, so it is not clear if Barr will be confirmed by the next meeting of the FOMC on June 14-15. It will be no later than the July meeting. The Federal Reserve Board will have three new Democratic Governors and also Democrat Lael Brainard who has been named Vice Chair of the Board.
The seven Governors hold a majority of the 12 member FOMC and it will be interesting to see if having four Democratic Governors has any policy implications as the Fed continues to push interest rates up in the fight against inflation.
Midterms
This coming week President Trump is likely to face his most noticeable rebuke by Republican voters as Georgia holds it primary election. Georgia Governor Brian Kemp became the focus of the former President’s rage when he certified the 2020 results in a state President Trump thought he had won. President Trump personally persuaded former US Senator David Purdue to challenge Kemp, but every poll shows that Kemp seems to be headed to a large victory. However, Trump’s role will be on display as Republicans nominate former football great Hershel Walker to be their candidate in the Senate race to defeat Democrat Raphael Warnock. Walker would not have been a serious candidate without the former President’s backing.
Last week saw primaries in PA and NC that again demonstrated the central role President Trump is playing in the Republican Party. In North Carolina, President Trump endorsed a rather obscure Member of the US House in the race for the Senate seat being vacated by Republican Senator Richard Burr. Trump’s candidate Rep. Ted Budd easily defeated former Republican Governor Pat McCrory.
In Pennsylvania, Trump endorsed a candidate for Governor, State Senator Doug Mastriano, who easily won the Republican nomination despite concerns by state Republican officials that he could be too conservative for the moderate state electorate and have problems in November.
In the PA Senate race, Trump endorsed candidate Dr. Oz has a very narrow lead over investment banker David McCormick. When the uncertainty of the race became apparent the former President urged Dr. Oz to declare himself the winner and let the chips fall where they may. To date Dr. Oz has not followed that advice and as absentee ballots are still being counted the race remains too close to call.
Ukraine
Last week the Senate sent to President Biden the $40B Ukraine aid bill on a strong bipartisan vote of 86 to 11. As in the House all the NO votes in the Senate were cast by Republicans. The bill funds programs ranging from new arms to money that can be used to rebuild communities decimated by the war.
For Republicans, Ukraine has become a major example of a growing divide within the Party between officials led by Republican Senate Leader Mitch McConnell that have a more traditional global view of policy and those sharing the more isolationist viewpoint centered on President Trump and his America First approach to global issues. Indeed, prior to the vote former President Trump came out against the package; but the majority of Senate Republicans voted for passage.
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