Tomorrow will be a big day for Fed watchers as the minutes of the February meeting are released. As I have written in the past when Chair Powell meets with the press after the Federal Open Markets Committee (FOMC) meetings, his remarks are fact checked when three weeks later the minutes of the meeting are released.
As always, it will be interesting to see how closely the minutes reflect the Chair’s comments both at the post meeting presser and his later remarks. Additional interest will be created by the widely expected official announcement last week that Fed Vice Chair Lael Brainard will leave the Board to become President Biden’s director of the National Economic Council. In this position she will be playing a key role in developing the Administration’s future economic policy.
The departure of the Vice Chair leaves an important opening at the central bank and jockeying for the position has already begun. Several Hispanic Members of Congress are suggesting that it is way past time that a Hispanic serve on the Federal Reserve Board. The timing of the replacement is uncertain, but the new Board member is unlikely to be nominated and confirmed prior to the next meeting on March 21/22.
Munich Security Conference
With tensions running high in Europe over the war in Ukraine, and Chinese/US relations strained by the spy balloon, world leaders met this weekend at the annual Munich Security Conference.
One of the most anticipated meetings on the sidelines of the Munich Conference was a sit-down between US Secretary of State Blinken and his Chinese counterpart Wang Yi.
The meeting between Blinken and Yi was not finalized until the last minute but demonstrated that talking is better than not talking. Both sides kept to an anticipated script focusing on issues ranging from the spy balloon to Taiwan, but the meeting lasted an hour and is part of a Biden Administration policy to try and deescalate tensions. The Administration is walking a fine line between being tough on security with the takedown of the spy balloon, but also making clear they want to lower the temperature between the two superpowers.
The US and European allies also talked about the ongoing war in Ukraine. President Zelensky addressed the conference remotely. Both Democratic Leader Chuck Schumer and Republican Leader Mitch McConnell attended the meeting in a display of bipartisan support for the US effort to help Ukraine in the war with Russia. With some growing divisions in the Republican House, the two leaders attending the Conference is an important signal of US resolve. This was of course followed yesterday with the surprise visit of President Biden to Ukraine.
Debt Ceiling
With Congress out this week for the Presidents Day break it is unlikely that any developments on talks around the debt ceiling will occur; however, there continue to be behind the scenes discussions. Senate Leader McConnell has made clear that there will not be a US default. McConnell may be serving his last term in the Senate as he is 80 and doesn’t have to run again until 2026. If McConnell is going to retire, he would very much like to be Majority Leader with Republicans taking control of the Senate after the 2024 election.
The math for Senate control in 2024 favors the Republicans. Of the 32 seats up next year 22 are held by Democrats and only 10 by Republicans. All the Republican seats up in 2024 are in states that Trump carried in 2020. On the other hand, Democrats are defending seats in Republican strongholds of West Virginia, Ohio, and Montana. Plus, Democrats have a challenge in Arizona where Senator Sinema has become an independent and is likely to face a Democratic challenger. In a three way race most observers give the edge to the Republican candidate.
McConnell is a political animal and knows that Republicans have an edge, but a default by the US Treasury, blamed on Republicans, is the kind of event that could cause unexpected Democratic victories. With the electoral map tilting favorably for Republicans, he doesn’t want to see an unforced error over the debt ceiling. Hence, talks are going on behind the scenes to find an exit strategy for Speaker McCarthy and House Republicans.