The Republican Presidential candidates have their fourth debate this week on Wednesday. The field continues to narrow and the only three confirmed participants are Governor Ron DeSantis, former SC Governor Nikki Haley, and businessman Vivek Ramaswamy. Former NJ Governor Chris Christie is trying to qualify in the days leading up to the debate.
As in the previous debates, former President Trump will not participate. As I have written prior to the past debates, as someone who has done debate strategy and prep for US Senate candidates, I would have advised the former President to skip the debate. He already has a commanding lead and 100% voter name recognition. The debate can only create an embarrassing moment for Trump caused by a sloppy answer or give extra attention to one of his opponents if they lay a solid punch on the leading candidate.
This may be the last time voters in Iowa and New Hampshire see the candidates vying to be Trump’s top challenger before the votes start to be counted. The Iowa Caucus in on January 15, followed by the New Hampshire primary on January 23. These two events could be the moment when voters clearly indicate who will be President Trump’s top opponent. He can skip the debates, but push comes to shove for the former President when the first votes are counted.
Budget, wars and border
Congress is working on two budget issues: passing the 12 spending bills to fund the government and acting on President Biden’s $105B supplemental for Ukraine, Israel, Pacific and the Southern Border.
Lots of talking on the 12 budget bills but no specific actions to date. However, last week there was one potential positive development when it was reported that the conservative Republicans in the Freedom Caucus had reluctantly agreed to let the new Speaker negotiate the FY 2024 budgets based on the topline spending number that Speaker McCarthy and President Biden had agreed to as part of the debt ceiling legislation.
The debt ceiling agreement called for flat spending with a top number of $1.59T. The Freedom Caucus had been working on a $350B cut from that number for a total spending level of $1.47T. While there will still be many details to work out, having an agreement on a top number should allow staff for the Appropriation Committees to start serious discussions between the House and Senate.
As part of the last CR, Congress accepted Speaker Johnson’s idea of a “laddered” deadline with January 19 as the date for the less controversial budgets and February 2 for the rest of the government. If this topline spending agreement holds, it improves the chances that at least some of the budget can be approved and avoid a total government shutdown early next year.
Regarding the Supplemental Funding legislation, talks broke down on Friday in the Senate for the effort to try and come to an agreement on an immigration/asylum deal. Republicans have made it clear that to provide the needed votes to pass a supplemental with money for Ukraine and Israel immigration/asylum, reform needs to be part of the package. There remains some hope that talks can restart this week and that an agreement can be reached and get the package through before the holiday break.
Fed
On Friday Fed Chair Jay Powell spoke to a session at Spelman College moderated by the College President Dr. Helene Gayle. The Fed Chair gave his usual disclaimer that the FOMC decisions are data driven, but importantly Chair Powell said that in June inflation started coming down very rapidly and inflation is moving in the right direction.
I believe Chair Powell is proud that he has been able to lead the hike in rates and then the current pause with unanimous votes of the FOMC. There are clearly a few hawks on the Committee that supported the recent pause with some reluctance. In my view the hedging in the Chair’s comments is aimed at the hawks to let them know that a pause is not baked in, but that the Committee’s decision will be data dependent. I believe many market participants appreciate this and that helps to explain the positive market move after the Chair’s talk.