- DC digs out of a real snowstorm.
- House Democrats may name new members to the remaining Committees, including the House Financial Services Committee.
- The State of the Union is scheduled for January 29th.
- At some point in the future the rest of the Government will be funded (hopefully)
House Passes Piecemeal Funding Bills – But Partial Government Shutdown Now Longest Ever
With the House, Senate and White House unable to come to a deal last Friday, the partial government shutdown officially became the longest ever. With both the House and Senate expected to be in recess – though that may change – for the week of Martin Luther King Day, the failure to resolve the funding issues this week could mean that the government could still be shut down when the President appears for the State of the Union on January 29th.
In an effort to keep pressure on the White House and the Senate, this past week House Democrats, with an ever-growing number of their Republican colleagues passed several individual spending bills – first to reopen the Treasury Department and several financial regulators on Wednesday, followed by Department of Agriculture-FDA and Transportation-HUD bills Thursday and Interior and Environment funding on Friday. While nearly a dozen Republicans joined in these efforts it was not the mass defection that could be perceived as eroding support for the White House. At this point, these bills are stuck in limbo since they are not currently supported by President Trump and until that changes Senate Majority Leader Mitch McConnell (R-KY) has said he will not bring them to the floor.
It is worth noting that these bills – including the Financial Services and General Government spending bill – are nearly identical to legislation that the Senate had previously passed last year and thus are devoid of any of the riders that were part of an earlier passed House version.
At this point no one is sure how this shut down will end. During the past week there was an on-again, off-again sense that the President would declare a "state of emergency" that would allow him to reallocate funding towards a border wall. However, on Friday, the President appeared more cautious about this avenue. At a roundtable discussion at the White House, he commented "What we're not looking to do right now is national emergency…I'm not going to do it so fast." Perhaps in large part to the conservative pushback against this type of unilateral executive authority.
Democratic Additions to A-List Committees Finalized
On Wednesday, the Democratic Steering and Policy Committee finalized assignments for three "A" Committees—Ways and Means, Appropriations, and Energy and Commerce. Despite efforts by outside groups affiliated with progressive, most of the appointments belonged to the moderate members of the Democratic Caucus – the New Dems and the Blue Dogs. Keeping with caucus norms of seniority, all those assigned to these prestigious committees possess previous Congressional experience. While expected, the preference for veteran members has prompted some pushback from freshman seeking larger than normal committee influence given the large number of formerly Republican seats flipped in November. Those added to the various committees are as follows:
WAYS AND MEANS COMMITTEE
- Congressman Don Beyer of Virginia
- Congressman Brendan Boyle of Pennsylvania
- Congressman Dwight Evans of Pennsylvania
- Congressman Steven Horsford of Nevada
- Congressman Dan Kildee of Michigan
- Congresswoman Gwen Moore of Wisconsin
- Congresswoman Stephanie Murphy of Florida
- Congressman Jimmy Panetta of California
- Congressman Brad Schneider of Illinois
- Congressman Tom Suozzi of New York
ENERGY AND COMMERCE COMMITTEE
- Congresswoman Nanette Barragán of California
- Congresswoman Lisa Blunt Rochester of Delaware
- Congresswoman Robin Kelly of Illinois
- Congresswoman Ann Kuster of New Hampshire
- Congressman A. Donald McEachin of Virginia
- Congressman Tom O’Halleran of Arizona
- Congressman Darren Soto of Florida
- Congressman Marc Veasey of Texas
- Congresswoman Cheri Bustos of Illinois
- Congressman Ed Case of Hawaii
- Congressman Charlie Crist of Florida
- Congresswoman Lois Frankel of Florida
- Congresswoman Ann Kirkpatrick of Arizona
- Congresswoman Brenda Lawrence of Michigan
- Congresswoman Norma Torres of California
- Congresswoman Bonnie Watson Coleman of New Jersey
Four of those members left the House Financial Services Committee for these new assignments meaning there are even more vacancies there. That Committee roster is expected to be announced this week, while Republican committee assignments will be set once ratios are finalized.
McHenry Seeks Status Update on IG Recommendations
On Monday, House Financial Services Committee Ranking Member Patrick McHenry (R-NC) sent a letter to the Inspectors General (IG) of the nine agencies under the Committee’s oversight asking for an update on their efforts to combat waste, fraud, and abuse. The Council of Inspectors General on Integrity and Efficiency’s (CIGIE) 2016 semiannual report included recommendations to achieve $45.1 in savings across federal agencies, many of which remain unimplemented. With this in mind, Ranking Member McHenry’s letter calls on the recipient IGs to (1) identify the three most pressing recommendations yet to be implemented at their respective agencies and (2) describe their office’s audit and investigative priorities for FY 2019. Agencies receiving letters included the Departments of Treasury and Housing and Urban Development, the Federal Reserve, and several financial regulators.
Grassley Supports NAFTA Pullout Sans USMCA Approval
On Wednesday, Senate Finance Committee Chairman Chuck Grassley (R-IA) said that he would support a decision by President Trump to pull out of the North American Free Trade Agreement (NAFTA) should Democrats resist passing or attempt to amend his United States-Mexico-Canada Agreement (USMCA) replacement deal. In a conversation with several reporters, Chairman Grassley commented “if they’re reaching the point where they have to go back to the negotiating table, I would encourage the president to pull out of NAFTA." However, he also was optimistic of the possibility of engaging with committee Democrats prior to any withdrawal and raised the possibility of addressing enforcability and labor and environmental concerns through additional side letters. Over the past two years, President Trump has repeatedly used the threat of NAFTA termination in order to prompt action—first from Mexico and Canada and now from Members of Congress wary of having no trade deal in place at all—on his renegotiation of the trade deal.
Committee Leadership Announced
This past week the Senate Appropriations Committee announced its Subcommittee Chairs and Ranking Members. At the Financial Services and General Government Subcommittee, Senator John Kennedy (R-LA) will assume the Chairmanship, making him the 3rd Chairman in as many years. Senator Chris Coons (D-DE) continues as the Ranking Member. Also this past week, the Senate Commerce Committee announced the Chairs of its six subcommittees, with former Chairman John Thune becoming Chair of the Telcom subcommittee as anticipated.
Select Highlights from the Administration
The White House
Trump to Call for More Tariff Power in SOTU
On Tuesday, media reports emerged that the White House is pushing for legislation that would expand the President's powers to impose tariffs. Per Bloomberg, the legislation—coined the US Reciprocal Trade Act—would provide the President with broad authority to increase tariffs on countries he or she determines to have overly restrictive trade practices. According to reports, White House trade advisor Peter Navarro apparently drafted the bill, and is being circulated by the Rep. Sean Duffy (R-WI). Despite this Republican support other members of the President’s party have not been as supportive, with Senate Finance Chair Grassley publicly expressed his intention to prevent the legislation from becoming law. The President is expected to promote the legislation in his State of the Union address on January 29.
Fed Nominee Liang Withdraws
On Monday, Federal Reserve Board of Governors Nominee Nellie Liang withdrew her nomination citing concerns of being left in “professional limbo” while she awaits confirmation. First nominated in September, Dr. Liang did not receive a hearing by the Banking Committee during the 115th Congress and had faced skepticism from some GOP Senators—including Banking Committee members Sens. Pat Toomey (R-PA) and Thom Tillis (R-NC)—over her support for certain banking regulations and tenure as the first head of the Fed’s Office of Financial Stability Policy and Research. Her withdrawal will allow President Trump to nominate a replacement to the Fed Board after already having nominated three of its five current members and elevating Chair Jerome Powell to the Chairmanship over the past two years.
It remains to be seen if Marvin Goodfriend, the President’s nominee to other open position, will be renominated. Opposition from Senate Democrats as well as Sen. Rand Paul (R-KY) stalled his nomination for all of 2018 and his hawkish stance on inflation is seen as contrasting with President Trump’s vocal criticism of the Fed raising interest rates, however the increase in the number of Republican Senators may alter the political calculation.
Federal Reserve Releases Company-Run Stress Test Reform Proposal
On Tuesday, the Federal Reserve released its proposed regulation implementing several changes to company-run stress testing contained in the Economic Growth, Regulatory Relief, and Consumer Protection Act. Required by Section 401 of S. 2155, the banking relief bill, the proposed regulations would: (1) raise the asset threshold for mandatory company-run stress tests from $10 billion to $250 billion; (2) move most firms from an annual stress test cycle to biennial one; and (3) eliminate the hypothetical adverse scenario for company run stress tests currently included on top of a “severely adverse scenario.” The proposal mirrors similar proposals already issued by the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC).
Quarles: Fed to Propose New Insurance Capital Rule
On Wednesday, Federal Reserve Vice Chairman for Supervision Randal Quarles delivered a speech to the American Council of Life Insurers in which he indicated that the Fed would release a new proposal for insurance capital rules in the “not-too-distant-future.” Applying to insurance holding companies supervised by the Fed given that they also offer banking functions, the new regulations would take a “building block” approach that aggregates the capital positions of an insurance holding company's various holdings, Vice Chairman Quarles said. Additionally, he noted that the regulations would build on state insurance capital requirements, recognized the risk benefits of insurers’ long-term investment strategies, and cautioned that global insurance capital standards being discussed at international bodies would “face implementation challenges.”
Powell Indicates Prolonged Shutdown Will Negatively Impact Economy
On Wednesday, while speaking at the Economic Club of Washington, Federal Reserve Chair Jerome Powell said that a prolonged government shutdown would have a two-fold impact on the economy. First, would be the obvious impact of less economic activity, but second, he noted that an extended shutdown would preclude the Department of Commerce from being able to report on a variety of data points that helpful to assessing the country’s economic picture. At the event, Chair Powell also reiterated that the Fed does not plan to raise interest rates more than two times this year.
Internal Revenue Service
IRS to Call Back Furloughed Employees for Tax Season
On Monday, White House Office of Management and Budget (OMB) Acting Director Russell Vought told reporters that 2018 tax refunds would go out on time, despite the Internal Revenue Service (IRS) being affected by the government shutdown. That evening, IRS released a press release confirming the news and announcing that a “significant” portion” of the IRS workforce will be called back to work in the coming weeks. While tax refunds themselves are funded by permanent, indefinite appropriations, most of the employees responsible for processing return forms have been furloughed, as only 12 percent of IRS staff have been deemed essential and continued to work—prompting concerns that the shutdown would cause delays in issuing tax refunds. Even with many employees recalled, some services such as answering taxpayer inquiries are still likely to be limited during the shutdown.
Under the Anti-deficiency Act, employees designated as essential during a shutdown report to work without pay, a designation that OMB’s decision would apply to currently furloughed IRS employees. The administration’s announcement has prompted significant criticism from Congressional Democrats who claim that the move is an attempt by President Trump to mitigate negative political consequences of the shutdown that would be worsened by a delay in tax returns—House Majority Leader Steny Hoyer (D-MD) for instance called the action “illegal." During previous government shutdowns, tax returns have traditionally not been considered essential government activities.
Consumer Financial Protection Bureau
CFPB Releases Five-Year Review of Mortgage Rules
On Thursday, the Consumer Financial Protection Bureau (CFPB) released five-year evaluations of two mortgage rules: the Ability to Repay and Qualified Mortgage rule and the mortgage servicing rule. The report found that the Ability to Repay and Qualified Mortgage rule—which requires lenders to make a reasonable effort to ensure that borrowers can repay a loan—"was generally not associated with an improvement in loan performance." However, it should be noted that when the rule went into effect, a tight credit period meant that delinquency rates were already historically low, partially accounting for the rule's limited impact on delinquency. The second rule, the mortgage servicing rule—which requires mortgage servicers to provide delinquent borrowers with more information about mitigation options—was in contrast found to increase the probability that delinquent lenders recover from delinquency.
World Bank President Kim Resigns
On Monday, World Bank Group President Jim Yong Kim resigned his position with three years remaining on his term. Given that the United States as the bank’s largest shareholder traditional selects its President, Dr. Kim’s resignation likely provides President Trump an opportunity to pick his replacement. However, in light the bank’s heavy focus on development finance, developing countries have increasingly argued for better representation on the Bank’s leadership, a dynamic many observers believe may set the stage for a potentially more contentious selection process.
This Week’s Schedule
As of this publication there were no events of note scheduled for this week