The good macroeconomic news of recent weeks continues, with President Biden doubling down on the “Bidenomics” framing as talk of a recession remains muted. Half the states now are at or near record unemployment lows. The rate of inflation–the economic issue most salient to everyday Americans–has dropped precipitously in recent months, but polls show pessimism remains, with a majority believing we already entered a recession.
Congress, with only a week left before departing for its August recess, has a packed agenda ahead, with deadlines on everything from the FY24 budget to the Farm Bill re-authorization awaiting Congress’ return in September. Off The Hill, eyes will be on the Fed’s holistic review of big bank regulation and the FOMC’s meeting to set interest rates. A review of the week just passed is below.
Good weekends, all…
Dana
Hearings
This past week saw several key hearings on everything from regulating anticompetitive mergers to updated guidance on banking reform. These could all provide interesting starting points for future legislation as Congress gears up for a packed rest of the year… though Speaker McCarthy’s challenges keeping his majority in line cast a shadow over Congress’ ability to produce.
Appropriations Markups FY24
Both the House and Senate Appropriations Committees moved forward with markups of FY24 appropriations bills.
The House completed full committee markups of the Interior, Environment, And Related Agencies Bill and the Transportation, Housing And Urban Development, And Related Agencies Bill this week, well below the levels agreed to in the bipartisan debt limit deal. The full committee has now finished ten of its twelve appropriations bills, and appropriators plan to bring the Agriculture and Military Construction-VA bills to the floor next week, after narrowly passing the NDAA last week.
House Speaker McCarthy and leadership continue to make concessions to the far right in order to make progress on appropriations. Republican leaders met with House Freedom Caucus members Wednesday night and agreed to make additional cuts to bring total appropriations closer to FY22 levels. Republicans are also expected to pursue more amendments related to abortion and other non-spending issues in future bills, as they did with the NDAA.
The Senate Appropriations Committee approved the Energy and Water Development, State, Foreign Operations, and Related Programs, and Transportation, Housing and Urban Development, and Related Agencies bills this week. Senate appropriators have continued to move forward on a bipartisan basis and hope to finish all twelve bills before August recess. Appropriations Chairwoman Patty Murray (D-WA) and Ranking Member Susan Collins (R-ME) have also reached an agreement to add a $14 billion supplemental to FY24 appropriations, over half of which will go to defense.
As the far right loads up the House appropriations bills with more and more egregious riders, the gap between the House and Senate bills grows. At the moment, it looks like Congress will be unable to complete its annual appropriations process by the September 30 deadline. There has been discussion of a continuing resolution among House Republicans, but at the moment, a shutdown looks imminent.
Senate Judiciary on Vertical Merger Enforcement
On Wednesday, the Senate Judiciary Committee Subcommittee on Competition Policy, Antitrust, And Consumer Rights convened for a hearing on trends in vertical merger enforcement.
Subcommittee Chair Amy Klobuchar (D-MN) highlighted that horizontal mergers – those in which companies that offer similar products or services merge – have been the subject of scrutiny by antitrust enforcers due to their clear implications for competition. Vertical mergers – where a company buys a supplier, distributor or retailer above or below them in the supply chain – have been regarded as potentially beneficial to consumers and companies as efficiencies can arise and lower costs. But in practice, efficiencies gained through vertical integration have often resulted in increased profits for companies rather than lower costs for consumers and give rise to greater structural dangers. Vertical consolidation can create potential conflicts of interest by incentivizing companies to give preference to their own products over those of their competitors.
The hearing put the spotlight on new guidelines on approving mergers that were proposed by the FTC and DOJ on Wednesday. The proposed guidelines outline thirteen principles that bring guidelines on merger approval in line with the modern economy and emphasize the importance of preventing vertical mergers from creating market structures that foreclose competition.
Senate Banking on Deposit Insurance
Yesterday, the Senate Banking Committee continued its series of hearings following turmoil in the banking sector earlier this year with a hearing to consider emerging perspectives on deposit insurance reform. While the committee has been forceful in advancing legislation to hold the executives of failed banks accountable through clawbacks, members took a far more cautious approach to reforming the existing deposit insurance framework.
Chair Sherrod Brown (D-OH) took the opportunity to tout the committee’s recent advancement of the bipartisan RECOUP Act, which seeks to hold the executives of failed banks accountable, but when it came to the issue of deposit insurance, he compared increasing deposit insurance coverage without stronger guardrails to “throwing a lit match into a pile of dried leaves.”
The hearing follows the release of the FDIC’s May report, Options for Deposit Reform, following the failures of Silicon Valley Bank, Signature Bank and First Republic Bank earlier this year. The report suggested several options, including a move towards a system of targeted coverage in which different types of accounts are covered at different thresholds. House Democrats have also focused on the issue over the recent weeks, with House Financial Services Committee Chair Maxine Waters hosting a roundtable on deposit insurance coverage reform featuring experts on the issue.
SEC Division of Corporation Finance, in HFSC
On Tuesday, the House Financial Services Committee Subcommittee on Capital Markets hosted Erik Gerding, the director of the SEC’s division of Corporation Finance, for a hearing nominally focused on changes to the Commission’s July 2020 proxy advisor rule. In actuality, Republicans like Subcommittee Chair Ann Wagner (R-MO) used the hearing to berate Gerding for the SEC’s work increasing ESG disclosure requirements. Republicans have held more than 400 such hearings since taking back the House. Subcommittee Democrats, led by Representative Brad Sherman (D-CA) pointed out that shareholders, not managers, are the owners of companies and deserve to have the information they need to intelligently deploy their money in light of the very real risks that climate change poses to some business activities.
House Judiciary Considers the Right to Repair
On Tuesday, the House Financial Services Committee Subcommittee on Capital Markets hosted Erik Gerding, the director of the SEC’s division of Corporation Finance, for a hearing nominally focused on changes to the Commission’s July 2020 proxy advisor rule. In actuality, Republicans like Subcommittee Chair Ann Wagner (R-MO) used the hearing to berate Gerding for the SEC’s work increasing ESG disclosure requirements. Republicans have held more than 400 such hearings since taking back the House. Subcommittee Democrats, led by Representative Brad Sherman (D-CA) pointed out that shareholders, not managers, are the owners of companies and deserve to have the information they need to intelligently deploy their money in light of the very real risks that climate change poses to some business activities.
On Tuesday, the House Judiciary Committee Subcommittee on Courts, Intellectual Property, and the Internet convened to discuss a critical issue for consumers, independent repair shops and the environment: the right to repair.
The right to repair pits the interests of consumers, who deserve the ability to affordably repair the products they purchase, and the independent repair shops that seek to meet that need, against the intellectual property concerns of manufacturers. As everyday products have become more integrated with technology over the past ten years, and increasingly cheaper to replace than fix, calls for increased protections have grown. The most contentious area of debate has been in the auto repair industry.
The hearing highlighted the need for federal legislation as states have taken to legislating on the issue over the past years, creating a confusing patchwork of solutions, and put the spotlight on a pair of bills introduced this congress to address the issue:
- The Save Money on Auto Repair Transportation (SMART) Act – Subcommittee Chair Darrell Issa (R-CA) highlighted the bipartisan bill he reintroduced with Representative Zoe Lofgren (D-CA) in March. The bill would reduce the period over which automakers can enforce design patents against alternative parts manufacturers on collision repair parts from fifteen to two and a half years.
- The Right to Equitable and Professional Auto Industry Repair (REPAIR) Act – This bipartisan bill was introduced by Representative Neal Dunn (R-FL) in February and would safeguard access to vehicle data which contains critical repair information to provide consumers with choices for the maintenance, service, and repair of their motor vehicles.
Other Developments
Decline in Unemployment Claims
This week’s release of initial unemployment claims declined by 9,000 from last week to 228,000, matching a similar decline in the four week moving average, which fell by 9,250 to 237,500. The four week moving average for continued claims was basically flat. Hopefully these data points indicate a slowdown in the softening of the labor market.
New Housing Data on Existing Home Sales
Existing home sales showed how the increase in mortgage rates has pulled a lot of the air out of that market, as sales in June were 18.9 percent lower than one year ago. This was the year over year decline since 2009, but prices only fell one percent as compared to one year ago. This extreme elasticity measurement indicates the scale of the supply problem in residential housing.
SDNY’s Crypto Ripple Decision
Last week, Judge Analisa Torres of the Southern District of New York issued a surprise ruling bearing on the SEC’s pursuit of Ripple Labs over sales of the token directly tied to their economic success: XRP. The ruling said that sales to informed investors who negotiate directly with Ripple are securities sales, but when Ripple sells those same tokens on public markets, they are not securities. This ruling in effect gives accredited investors more protection than their retail counterparts, which is counter to almost a century of American securities regulation. We are hopeful that the ruling will be overturned on appeal. Until then, the ambiguity it leaves could create pressure on Democratic members to collaborate with the pending McHenry-Thompson crypto legislation.
Republicans have capitalized on the ruling, arguing that it proves their contention that the limits of the SEC’s reach do not cover the vast crypto universe. Politico reported Republican staffers’ speculation that it would bring Democrats to the table for the upcoming McHenry-Thompson bill.
A Look Ahead
After ten consecutive interest rate hikes, the Federal Reserve finally hit the brakes when the FOMC opted not to increase interest rates during the month of June. Ahead of next week’s FOMC meeting, experts are anticipating the central bank will increase rates once again — likely by a quarter of a percentage point — before taking a break of its own until September. But with next week’s meetings and both chambers in session next week, we’ll be watching the items below:
Tuesday, July 25th:
- FOMC Meeting, day one
Wednesday, July 26th:
- FOMC Meeting, day two and Press Conference
- Senate Banking Subcommittee on Financial Institutions and Consumer Protection “Hearings to examine taking account of fees and tactics impacting Americans’ wallets”
- Senate HELP “Meeting to consider an original bill entitled, “Primary Care and Health Workforce Expansion Act”
Thursday, July 27th:
- The Federal Reserve and FDIC boards will meet to vote on the holistic review of capital requirements led by Fed Vice Chair of Supervision Michael Barr
- Comments are due in the Financial Stability Oversight Council’s proposed guidance on designation of nonbank financial firms for Federal Reserve supervision and enhanced prudential standards