Overview
Global investors’ focus on Federal Reserve Board policy intensifies one last time this year on Wednesday when the usually unflappable Chairman Jerome Powell explains a shift in language after a White House meeting before the announcement of Board appointees. Senate Democrats’ race against the clock grows more urgent and less certain as negotiations focus on distributional impacts at the top and bottom of the income scale. Stablecoins get another flip at the Senate Banking Committee on Tuesday, while US-Russia relations join the growing list of US policy matters linking this year and next. Other than the Fed, near-term Covid-19 risk assessments lead most investors’ watchlist.
Fiscal
The Senate Finance Committee release of a nearly 1,200-page bill is both a step to floor consideration later this week and a caution that Democrats are not yet ready for reconciliation prime time. That the Senate parliamentarian reviews all twelve committee sections for possible Byrd Act violations gnaws at the calendar. Risks are rising that the bill spills into January (our second scenario) or ends in the Senate (our third). Our core view remains that Congress sends President Biden legislation before leaving for yearend holidays.
Global Value Chains
House passage of HR 4996 won’t affect the current supply chain sclerosis. The Ocean Shipping Reform Act would strengthen the Federal Maritime Commission (FMC) found structurally insufficient to fulfill some of the agency’s original charter. This mismatch between the FMC and the handful of conglomerates controlling global shipping pricing is also the subject of White House and competition policy agencies. Of the 424 House members voting, 86% supported the bill despite the lack of a committee hearing. This type of momentum implies the legislation will become law next quarter if not this month. The legislation is a catalyst for unions and management to avoid dock strikes next summer when the Longshoremen and shipping companies try to complete a new labor agreement.
Irrespective of marketplace developments over the coming year, the regulatory review of shipping concentration is certain to gain speed next year. Technologists working to rebuild supply chains more reliant on artificial intelligence than people should continue to benefit from on-going efforts to reduce GVC inefficiencies.
Digital Money
The Tuesday 10:00 a.m. hearing scheduled by Senate Banking Committee Chairman Sherrod Brown on stablecoins probably will sound much like a similar House hearing last week: vociferous debate of risks and benefits. The Bank of International Settlement’s quarterly review published December 6 leads with a renewed call for systemic regulation of the non-bank financial sector.
Lastly, the Fed Board on Friday formalized bank and supervisor risk management practices in the aftermath of the Archegos $10 billion mistake.
Outlook
The enactment of reconciliation 40 years ago led to transformative fiscal policy by each president lucky enough to have a congressional majority. It also created predictable pronouncements of dire consequences from those policies (1981, 1993, 2001, 2009, 2017, and this year). This reaction is all presidential opponents have left once the law takes away super-majority roadblocks. If a slim version of Build Back Better is enacted, consumer goods sectors, green energy companies (especially EVs and others steering the multi-decade transition away from fossil fuels), and others working on 5G open networks should benefit.
