Inside the Beltway: Congress
With the elections over, the 117th Congress will be working to finish up all sorts of loose ends before the end of the year using a so-called “lame duck” session.
One of those loose ends could impact the rules for retirement accounts. The Securing a Strong Retirement Act of 2022 (SECURE Act 2.0) passed the U.S. House by a vote of 414-5 on March 29, 2022. The Enhancing American Retirement Now Act (EARN Act) passed the U.S. Senate unanimously on June 23, 2022. Additionally the RISE & SHINE Act has been approved by the Senate Health, Education, Labor, and Pensions Committee, but is still pending in the U.S. Senate.
All three of these bills contain numerous provisions that would make changes to Required Minimum Distributions (RMDs), penalties for missed RMDs, and some contribution limits for retirement plans.
Given the bipartisan nature of these bills, it is likely that a final version will pass both chambers of Congress by year-end. It may even serve as the vehicle that Congress uses to finalize the federal budget for this fiscal year which started on October 1.
Lame duck sessions are rarely used to enact controversial legislation. However, that is not outside of the realm of possibility.
Inside the Beltway: Federal Reserve
The Federal Reserve continued to tighten monetary policy at its meeting on November 2, raising its overnight target interest rate by another .75%. Its target interest rate now rests between 3.75% and 4.00% which is higher than it has been since the Global Financial Crisis.
While the Fed would prefer not to push the U.S. economy into a recession to vanquish their inflationary foe, they view inflation as the greater threat at this time.
Additionally, the monetary tools they have at their disposal (interest rate changes, asset purchases/sales) are much more effective at stoking a weak economy than tamping down raging inflation expectations. Thus, if they accidentally tip the economy into recession, they are confident in their ability to reverse that in short order. However, they are quite fearful of imbedded inflation over which they believe they have much less control.
We are still in that weird zone where good news on the economy (more jobs, less unemployment, higher wages) is bad news to the financial markets. Until the Fed starts to see visible signs of cooling job market and inflation, they are likely to continue increasing interest rates to further reduce economic activity.
As of this writing, bond traders are thinking that the Fed may dial back their rate increase at the next Fed meeting on December 14. They are pricing in a 50% chance of a .50% increase and a 50% chance of a .75% increase (Source: CME FedWatch Tool).
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