Congress Returns While Markets Digest Fed Minutes
- Congress returns this week, and two Senators who had been on leave for health issues are also expected to go back to work.
- The biggest legislative priority will be the raising of the debt ceiling, but history suggests progress will be unlikely until the deadline is imminent.
- It remains unclear whether the Fed will pause or hike rates 25 bps at the May FOMC meeting.
After a two-week break Congress returns next week, with developing a political strategy to increase the debt ceiling being a major concern.
On the housekeeping front, several Senators who have been missing have announced their intention of returning. Chief among these is Senate Republican leader Mitch McConnell, who was out for over a month recovering from a concussion caused by a fall at a private dinner event. While his top lieutenants kept the trains running, the Kentucky Senator is a skilled legislative practitioner, and having him back will make negotiations with Senator Schumer and the Democrats run slightly more smoothly.
On the Democratic side, Pennsylvania Senator John Fetterman is scheduled to return. However, tension is building over the extended absence of California Senator Dianne Feinstein, who at 89 has a serious case of shingles that is keeping her away from DC.
Clearly the biggest issue facing both the Congress and the Biden White House is the need to increase or suspend the debt ceiling. Prior to the Easter/Passover break, Speaker McCarthy sent a letter to the President urging another sit-down to begin serious talks about a compromise bill. The response from the White House was less than enthusiastic, and no date for new talks has been set. The Treasury Department has not revised its initial estimate of the “x-date” for the debt ceiling as being in June; other fiscal experts believe it to be later. Washington often works best when faced with a deadline, hence, it is not clear that a bill can gain momentum months ahead of the showdown.
The Federal Reserve
This past Wednesday, the Fed released the minutes from the March 2023 meeting of the Federal Open Markets Committee (FOMC). The headline grabber was the comment that the Fed staff thought a recession later this year was more likely after the banking industry troubles, but they have been wrong over this inflation cycle and there appeared to be little support for this view from the members of the Committee.
The FOMC meets again on May 2-3, which means there will be some more data for the Committee members to digest prior to the meeting. Interestingly, all talk of a 50bps increase has completely disappeared and the focus of discussions is between a 25bps increase and a pause. At this point I truly believe that Chair Powell and the others on the Committee are still digesting incoming data and that both options are on the table.
