US week in a nutshell - Nomura

Analysts at Nomura summed up the US week in a nutshell.

Key Quotes:

"Tax and Budget Policy The House Ways & Means Committee voted the House tax bill out of committee on Thursday, setting the stage for a full vote in the House next week. Separately, at the end of the week, the Senate Finance Committee released details on the Senate’s tax proposal. It plans to start detailed consideration of the Senate bill next week. The House and Senate plans have a similar structure, but there are some significant differences. Those differences indicate that there is no a clear path for implementing the Republican tax plan. We continue to expect that a stripped down tax bill is likely to be approved early next year. 

With Congress focused almost exclusively on tax reform, the 8 December expiration of the budget deal struck in September is looming in the background. We view the risk of a government shutdown during this round of negotiations as slightly higher than usual. However, we believe the most likely outcome will be another spending agreement from Congress that will keep the government open.

Monetary Policy 

The Senate Banking Committee announced that the confirmation hearing for Governor Powell’s nomination to be the next chair of the Federal Reserve Board will be held on 28 November. We expect the Banking Committee to advance Powell’s nomination to the full Senate. We expect Powell to offer a general endorsement of the FOMC’s current gradual path of interest rate and balance sheet adjustment, while avoiding, as much as possible, saying anything specific on the likely changes to the course of monetary policy. Nonetheless, the hearing could provide for some interesting moments. The current Banking Committee Chair, Sen. Crapo (R-ID) has said that he will support Powell’s nomination. But Crapo voted against Powell’s nomination to the Board in 2014.

The New York Fed announced that current President Bill Dudley is likely to step down sometime in mid-2018, roughly six months before his current term ends. The search process is in the early stages. Dudley’s departure completes a significant change in leadership at the top of the Federal Reserve. Over about nine months, the Chair, Vice Chair and President of the Federal Reserve Bank of New York will be replaced. This will be a discrete change after the relatively gradual evolution of Federal Reserve leadership that we have seen since Bernanke replaced Greenspan in 2006.

No news came out this week regarding other potential nominations to the Federal Reserve Board. At the moment, three seats on the Board are vacant. With Powell moving to Chair, a possible fourth seat could open if current Chair Yellen leaves at the end of her time as Chair (3 February). Additionally, current Governor Brainard (whose term does not expire until 2026) could retire, opening up a fifth seat. However, Governor Powell could ask Yellen and Brainard to stay on a bit longer, at least until President Trump and the Senate can fill some of the existing vacancies on the Board."