Congress and the White House
The economy takes center stage today in Washington. At 2:00 the Federal Reserve Open Market Committee will announce its decision on interest rates. A third straight 75 basis point increase is expected. Federal Reserve Chairman Jerome Powell will hold a press conference and provide “forward guidance” about the Fed’s inflation outlook and potential policy responses – like additional rate increases. Additionally, the CEOs of JPMorgan Chase, Bank of America, Wells Fargo and Citigroup will testify before the House Financial Services Committee.
The state of the economy is a major issue in the upcoming midterm elections (58 days to go). Voters continue to rate it as the top concern and it remains an area where President Biden has a poor approval rating. Therefore, any data point or economic trend that indicates which way the economy is headed takes on greater political significance. But the trend and overall picture is not going to change much in the next 58 days. Unemployment is low and the labor market is strong. Because of global instability and economic weakness in Europe and China the dollar has strengthened significantly. That makes imports cheaper and exports more expensive. Inflation remains persistent and real wages are declining for the majority of U.S. workers. Housing, food, and energy prices in particular continue to rise. It is an issue that is likely going to help Republicans in the midterm elections.
House Democrats, however, believe there are issues that favor them. Donald Trump and January 6th being one of them. Traditionally, midterm elections are a referendum on the sitting president. But the reemergence of former President Trump -- the Mara Lago document situation, the January 6th hearings and Trump’s increased public presence gives Democrats hope that the midterm elections can be more of a choice between Biden and Trump. Today, House Democrats will put a bill on the floor to reform the Electoral Count Act – sponsored by Rep. Liz Cheney (R-WY) and Zoe Lofgren (D-CA). The bill differs significantly from the bipartisan bill in the Senate and the House version is certain to not become law – but it will provide a full day of debate on the House floor about January 6th – an issue House Democrats are counting on to help them in the midterm elections.
The House Republican leader is modeling his party blueprint on 1994's Contract With America and aiming for conservative buy-in that isn't a given. Kevin McCarthy will announce it in a red Pittsburgh suburb, not on the Capitol steps. In most other ways, though, his Friday GOP agenda rollout will mirror Newt Gingrich’s 28-year-old Contract With America. The blueprint that the California Republican plans to unveil is designed to serve as a voter messaging guide for party incumbents and candidates. Just as Gingrich’s “contract” aimed to do, this year’s Commitment to America is expected to set out the GOP’s plans for addressing pressing national problems before a midterm election that’s likely to hand it the House majority. “From the first day I became leader, the whole job was: You got to unite before you can win. Unite the conference. And then, it’s much better to unite in the minority before you get there, so we’ve talked about the tough issues,” McCarthy said in an interview. “It is so you’re prepared on Day 1. This is the product of a work in a conference for the last year and a half.”
In what has become an annual ritual, the CEOs of the major U.S. banks will appear in front of Congress this week to sell themselves as shepherds of a helpful industry at a time of financial and economic distress for many Americans. Democrats have called JPMorgan Chase, Bank of America, Wells Fargo and Citigroup to Washington to talk about pocketbook issues as households contend with the highest inflation since the early 1980′s and the midterm election looms just weeks away. While billed as a hearing on everyday finances, the CEOs are also likely to face difficult political questions with Washington in the midst of an election year. Republicans are almost certain to use the opportunity to ask about the tracking of gun store sales as well as whether banks should weigh in on hot-button social issues. Democrats are likely to ask about Wall Street’s lending to oil and gas companies, racial and wealth equity issues, CEO pay and overdraft fees.
They see protecting the transition of presidential power as a potentially winning issue this fall, tying GOP candidates to Donald Trump. House Democrats are rapidly pushing ahead on a new bill designed to prevent future election challenges. It carries the added benefit of helping them put Donald Trump back on the midterm ballot. Lawmakers are voting Wednesday on a proposal to modernize the 135-year-old law that Trump backers tried to use to their advantage on Jan. 6. After weeks of testing a MAGA-focused message on the campaign trail and the airwaves — one that scorches Republicans for the roles some played in Trump’s failed attempts to claim the second term he lost — the vote gives Democrats a chance to back it up with action.
It’s not what the Federal Reserve does, but what it says it could do in the future that will be most crucial when the central bank ends its two-day meeting Wednesday. The Fed is expected to fire off another three-quarter point rate hike — its third in a row. It will also release quarterly forecasts for inflation, the economy, and the future path of interest rates Wednesday at 2 p.m. ET. The Fed’s projections are always important, but this time they are even more so because investors have been trying to game how high it will raise interest rates and how much officials expect their actions could affect the economy. Fed Chair Jerome Powell speaks at 2:30 p.m. ET, and he is expected to emphasize the central bank will do what it takes to fight inflation and it is unlikely to reverse its rate hikes anytime soon.
The German government announced Wednesday that it would nationalize the country’s biggest importer of Russian gas, Uniper, expanding state intervention aimed at preventing an energy shortage because of Russia’s war in Ukraine. The move builds on a 15 billion euro rescue package from late July that was intended to stabilize the gas giant, which supplies 40 percent of the natural gas used across Germany. Through the additional 8 billion euro capital increase, the German government will now take ownership of 99 percent of the company. The deal still needs to be approved by the European Commission.
The Ukraine war is driving up energy costs in Europe, while relatively stable prices and green-energy incentives are luring companies to the U.S. A big winner from the energy crisis in Europe: the U.S. economy. Battered by skyrocketing gas prices, companies in Europe that make steel, fertilizer and other feedstocks of economic activity are shifting operations to the U.S., attracted by more stable energy prices and muscular government support. As wild swings in energy prices and persistent supply-chain troubles threaten Europe with what some economists warn could be a new era of deindustrialization, Washington has unveiled a raft of incentives for manufacturing and green energy. The upshot is a playing field increasingly tilted in the U.S.’s favor, executives say, particularly for companies placing bets on projects to make chemicals, batteries and other energy-intensive products.
Driven by a surge in Chinese electric-vehicles sales, the sharp rise in a key commodity for batteries could slow adoption of EVs globally. Surging prices for lithium are intensifying a race between auto makers to lock up supplies and raising concerns that a shortage of the battery metal could slow the adoption of electric vehicles. Lithium carbonate prices in China, the benchmark in the fast-growing market, stand at about $71,000 a metric ton, according to price-assessment firm Benchmark Mineral Intelligence. That is almost four times as high as a year ago and just below the record set this March in yuan terms. “Lithium is really following the Chinese EV market and that’s just taking off,” said Edward Meir, a metals consultant at brokerage ED&F Capital Markets. “This is a preview of what could await us in the U.S.,” Mr. Meir added.
The War in Ukraine
Russian President Vladimir Putin’s announcement of a “partial mobilization” of troops was condemned by United States and European officials as a dangerous escalation as the invasion in Ukraine falters. Putin framed the move to call up reservists as an attempt to defend Russian sovereignty against a West that seeks to use Ukraine as a tool to “divide and destroy Russia.”
Ukraine has mounted a successful counteroffensive in the northeast, and Kremlin-backed officials are pressing ahead with staged referendums that could result in Moscow illegally annexing occupied parts of Ukraine — which would mark a major escalation in the conflict. Ukrainian President Volodymyr Zelensky is set to address the U.N. General Assembly on Wednesday, after members voted to exempt him from a rule requiring in-person speeches at this year’s session. President Biden will deliver a “firm rebuke” to Russia in his own speech to world leaders in New York, the White House said.