Having expended a significant amount of political capital pushing the Build Back Better without passing it, Congressional leaders are mulling how to pass pieces of this legislation before the end of the 117th Congress.
Given current inflation readings, it is unlikely that additional government stimulus is needed. Thus, legislators are more likely to focus on specific policy changes and tax changes to craft legislation that can pass both the U.S. House of Representatives and the U.S. Senate with minimal additional political capital.
Both parties are currently more interested in honing their messaging to voters for the mid-term elections than actually building excellent legislation.
If predictions of potential changes in leadership occur, it is possible that current Congressional leaders will attempt to pass sweeping legislation in the so-called “lame duck” session following the elections.
One bill that has not made any progress is the SECURE Act 2.0 which passed the House on March 29, 2022. This bill could make significant changes in retirement savings strategies if approved by the Senate and signed into law. With strong bipartisan support, it is likely that it will find its way through the legislative process before the end of the year.
Our current national debt stands at $30,416,558,370,122.14 as of May 19, 2022. (Source: U.S. Treasury)
Federal Reserve update
After enacting their first .50% increase in their target overnight interest rate on May 4, the Federal Reserve is poised to repeat that action on June 15 and July 27. This would bring their target interest rate range to 1.75%-2.00% — its highest level since September 2019.
In June the Federal Reserve will begin its process for reducing the $8,900,000,000,000 worth of bonds and mortgages it actively accumulated to keep interest rates extremely low. They will start by permitting $30 billion per month of Treasury bonds and $17.5 billion per month of mortgage bonds to mature (and they will not reinvest the cash).
They plan to keep this pace for three months and then double the caps to $60 billion (Treasuries) and $35 billion (mortgages).
This plan of rate hikes and asset maturities is significantly more aggressive than the last time they went through this cycle in 2015 and 2016. However, they believe these steps are necessary to bring down the rate of inflation — which to some degree was likely created by their ultra-low interest rate policies in addition to other factors.
As of this writing, bond traders are predicting that the Federal Reserve will implement .25% rate increases on September 21, November 2, and December 14. If they are correct (always questionable when predicting the future), this would leave the Federal Reserve’s overnight target interest rate between 2.50% and 2.75%. (Source: CME FedWatch Tool)
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