Fed to Meet, Congress to Investigate

L . Thomas Block
Key Takeaways
  • The recent bank failures will heighten attention on the upcoming meeting of the Federal Open Markets Committee.
  • Chair Powell's traditional post-FOMC press conference will also provide an opportunity for him to address the condition of the U.S. banking system.
  • Tough questions are expected in coming weeks from members of the House Financial Services Committee and the Senate Banking Committee.

The Federal Reserve’s Federal Open Markets Committee (FOMC) meets next Tuesday and Wednesday and, in the wake of the failures of SVB and Signature Bank, all eyes will be on the central bank. 

It was less than two weeks ago that Chair Powell testified before the House Financial Services Committee and the Senate Banking Committee, giving hawkish comments that clearly put a 50 bps increase on the table.  Then last weekend the financial world watched as the Fed, FDIC, and U.S. Treasury stepped in to save the two banks.  Now the Fed meets in a drastically changed environment, with bank liquidity being as big a concern as inflation. 

As Chair Jay Powell has kept the tradition of holding a press conference after the FOMC makes its rate decision, his words have been closely watched for any signs of future rate policy.  At his press conference this coming Wednesday the condition of the US banking system will be front and center along with the rate decision.  The Chair’s press conference is Wednesday at 2:30 p.m.

Congress

After the bank failures last weekend Congress has been relatively quiet. Part of the reason was the fact that the House wasn’t in session so most of the Members were away from the convenient microphones of the Washington press corps; but perhaps more importantly, there was genuine doubt as to what policy options were available for Congress to take.

In the coming weeks I expect both the House Financial Services Committee and the Senate Banking Committee to hold hearings on the banking crisis.  Some have put part of the blame for the bank failures on legislation passed in 2018 reducing the regulatory burden on banks with assets under $250 billion. Both SVB and Signature fell into this category.  Hearings are likely to delve into the causes and to what extent tighter regulation may have made a difference.

The 2018 legislation, which was pushed by smaller community banks, was approved by bipartisan majorities, and none of the Democrats who voted for the bill have expressed support for progressive Democrats who want to reverse the legislation.

No hearings have been scheduled yet, but expect tough questions to be put to government officials in the coming weeks.

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L . Thomas Block
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