Key Takeaways:

  • This Tuesday and Wednesday the Fed’s FOMC meets on interest rates
  • Wednesday at 2:00 Chair Powell meets press and will discuss rate decision and direction
  • New Fed Members and role in rate policy
  • Schumer and Manchin continue Budget Reconciliation talks
  • Press will focus on guns and Jan. 6 hearings

FOMC and interest rate hike

This week the Fed’s Federal Open Markets Committee (FOMC) meets and there  is a general anticipation that they will increase rates by 50bps.  One of the interesting aspects of FOMC meetings is that three weeks after the decisions are announced the minutes of the meeting are released.  This means that when Chair Powell addresses the press Wednesday afternoon, at the conclusion of the FOMC meeting, he knows that what the other members of the Committee said will all become public knowledge and that has got to impact how he answers questions of future policy decisions.

One thing I will be watching will be for any indication that the two new Governors, appointed by President Biden, will have any impact on the decisions.  This will be the first meeting where Biden Fed appointees Lisa Cook and Phillip Jefferson will be participating. When the minutes are released on July 6 we will see if they showed any cards on where they think policy should go.  My guess is that the two new Democratic Governors will follow the lead of Obama appointee and Vice Chair Lael Brainard, who a week ago told CNBC that it is: “very hard to see the case” for pausing rate hikes.

By the July meeting this trio of Biden and Obama appointees will be joined by Michael Barr who last week won approval by the Senate Banking Committee.  The vote on Barr in the Committee was 17 to 7 with ranking Republican Pennsylvania Senator Pat Toomey and other Republicans voting in favor of the nomination.  The next step will be the Senate floor for final approval which will definitely be voted on prior to the July FOMC meeting July 27 – 28.  It is later in the month as there is no August meeting.

More so than usual Chair Powell’s post-meeting press conference will be a major focus for markets and Fed watchers.  As I have been writing for months Chair Powell has been clear that he and the Fed will telegraph rate policy and not surprise markets.  This policy is why there is so much confidence that there will be a 50bps increase this week. After last week’s poor numbers on inflation there again are rumblings of tougher action by the Fed. Chair Powell will set the tone in his remarks Wednesday afternoon.

Reconciliation

Democratic Senators remain hopeful that the talks between West Virginia Democratic Senator Joe Manchin and Democratic Leader Chuck Schumer will lead to an agreement containing some of the provision in last year’s Build Back Better proposal. Last week there appeared to be no public progress in talks between Senators Schumer and Manchin on a much scaled back Reconciliation Bill.  The ideas that seem to be part of the talks include subsidies for prescription drugs, corporate tax increases, and incentives for both fossil fuel exploration and clean energy development. 

At this point with little hope of a bipartisan deal a Schumer/Manchin agreement would pass using the Budget Reconciliation process that allows Democrats to pass a bill with their 50 vote plus VP majority and avoid the threat of a filibuster.  An issue that Speaker Pelosi is likely have to deal with is her House progressives who will not be happy with a deal that Manchin helps to write but they have no real alternative.

Guns and hearings

This weekend saw the announcement of a bipartisan agreement on gun legislation.  Importantly, there are reportedly 10 Republicans who have signed on who, along with all 50 Democrats, could stop a filibuster and approve legislation.   Details will come out in the coming week but I believe politically it demonstrates an acknowledgement on the part of Republicans that the swing suburban female vote wants some action on guns to protect their children.

The other big issue in DC is a continuation of the Jan 6 Committee hearings.  Reportedly nearly 20 million viewers saw the first night of testimony.  Time will tell whether or not viewers continue to tune in, and what impact if any there may be on the midterm elections.

Disclosures (show)

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