While the House and Senate continue their Easter/Passover break for another week and President Biden heads to Northern Ireland and the Republic of Ireland, there will be news out of DC on Wednesday when the Fed releases the minutes from the March meeting of the FOMC. In the last minutes from February, there was a discussion of sentiment within the Committee for an increase of 50bps rather than the eventual increase of 25bps. The question to look for in this week’s minutes release is whether the March minutes reflect any sentiment for a pause after the banking troubles that preceded the FOMC meeting?
The minutes have a three week lag in order to give all the FOMC participants and Fed staff time to review the final product. Chair Powell was pleased at his March post-meeting presser that the vote for a 25bps increase was unanimous; the minutes should tell if there were any reservations by FOMC members in the discussion prior to the vote.
On the legislative policy front, China/Taiwan policy is one area that shows bipartisanship.
Taiwan President Tsai Ing-wen came to the US last week and met with House Speaker Kevin McCarthy and a bipartisan group of House Members who serve on the House Select Committee on the CCP. While Republicans and Democrats in the House seem at odds on nearly every issue, defending Taiwan and concern with China is unifying. Unlike his predecessor, Speaker McCarthy didn’t fly to Taiwan but met with President Tsai in California. The reaction from Beijing was forceful but at least to date more muted than the Pelosi visit. It comes at a time when Chinese President Xi appears to be making an effort to repair relations with the West and welcomed French President Macron and EU President von der Leyen to the Chinese capital.
Before Congress left for the current break Congress found mostly bipartisan agreement as they questioned the President of Tiktok who appeared before the House Energy and Commerce Committee. The Committee is considering a ban on the social media app in the US. The two largest global economies remain intertwined and finding the right policy options will be a challenge for the Biden Administration as Congress appears ready to take action against the Communist nation.
Prior to the Congressional break Speaker McCarthy wrote to President Biden asking for a follow-up meeting so that the two leaders could start a discussion of how the debt ceiling can be raised. Biden is demanding a clean debt ceiling bill and McCarthy is demanding large budget cuts – reducing federal spending to the level established in the FY 2022 spending bills.
Democrats point to the failure of Republicans to introduce their own budget proposal that would allow negotiations between the House Majority and the White House. In his letter the Speaker suggested legislative initiatives that included new policies and money at the border to energy actions that would encourage new exploration. While there may be some room for compromise in these policy areas, cutting spending is always difficult.
Spending cuts are further complicated by the politics of national defense and programs for seniors. Both Republicans and Democrats have taken cuts in Social Security, Medicare and Defense off the table. The area of veterans is a good example of the problems that surround cuts.
Last year Congress created a new program to help Vets who were exposed to toxic materials during their service in Iraq and Afghanistan. It is estimated that 3.5 million veterans need this type of assistance. In last year’s budget Congress started funding the “Cost of War Toxic Exposures Fund” with $5B. In his FY2024 budget President Biden increased the funding to $20.3B. Some House Republicans raised concerns with the new higher number, but support for veterans, especially those with toxic exposures during their service in the military, runs strong in both parties.
Before he left for the break Speaker McCarthy expressed deep concern as to where the debt ceiling talks stood; he knows it will be a tough sell to get some Republicans to vote for any ceiling increase. Timing of the debt ceiling “drop dead” date is still unclear, but it remains a significant threat to the economy that Congress must deal with between now and the summer.