New WOTUS Rule Effective Monday, But Supreme Court Ruling Ahead is Key Event

FOMC rate decision | Yellen | Banking crises | New farm bill | Ukraine grain export pact

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March 19, 2023 03:24 PM

FOMC rate decision | Yellen | Banking crises | New farm bill | Ukraine grain export pact

Washington Focus

Key financial focus this week: The Federal Reserve Open Market Committee will begin its quarterly policy meeting Tuesday, with the Fed’s decision coming out on Wednesday at 2 p.m. ET, followed by Fed Chair Jerome Powell’s press conference. More below on what is expected

Major ag focus this week: The Biden EPA’s new definition of Waters of the U.S. (WOTUS) takes effect Monday (link). It will be a key topic Wednesday when EPA Administrator Michael Regan appears before the Senate Environment and Public Works Committee.

Naysayers to the Biden WOTUS approach should take heart because as usual, EPA will take longer than most expect to implement it

Background: Biden’s EPA action would replace the Trump-era WOTUS rule with a new regulation that would expand federal protections for certain bodies of water. The proposed rule was published in the Federal Register on Sept. 3, 2021, and is known as the “Definition of Waters of the United States” rule. Under the proposed rule, the following bodies of water would be considered WOTUS and therefore subject to federal regulation:

Traditional navigable waters
Tributaries that contribute perennial or intermittent flow to such waters
Certain ditches that meet specific criteria related to flow and function
Certain lakes and ponds
Impoundments of otherwise jurisdictional waters
Wetlands that are adjacent to jurisdictional waters

The proposed rule also seeks to provide more clarity around which waters are not considered WOTUS and therefore not subject to federal regulation. For example, the rule would exclude certain types of ditches, ephemeral streams that only flow in response to precipitation, and groundwater. The Biden administration has emphasized that the proposed rule is grounded in science and aims to protect public health, support communities and economies, and address climate change. However, the rule is likely to face legal challenges from industry groups and some states and as noted, the real “clarity” will come by June via the Supreme Court ruling.

Don’t waste your time following congressional efforts to overturn the WOTUS rule under the Congressional Review Act (CRA). Even though it passed the House, and even should it clear the Senate (by no means a certainty), President Joe Biden has already said he would veto it and the votes to override are lacking.

Hearings on a new farm bill continue this week, this time on Thursday where the House Agriculture Committee with a subcommittee hearing on research programs.

Comments: Farm bills of the past have frequently talked a good game on boosting ag research funding, but during the end of the usually lengthy process, the lofty goals are watered down to help find money for other areas. That mistake adds up if it continues, and it did. So much so that China and the European Union now spend more on public ag research funding than the United States. Link to a letter that has some necessary background on why farm-state lawmakers should address this topic.

The Senate Indian Affairs Committee is holding a roundtable discussion Wednesday on farm bill issues important to American Indians.

Livestock regs in the next farm bill. The American Enterprise Institute for Public Policy Research on Wednesday holds a discussion on “Livestock Regulation and the 2023 Farm Bill.” Link for details.

At the American Bankers Association Washington Summit, which began Sunday, Treasury Secretary Janet Yellen will give remarks on the economy and the health of the banking system at the opening session on Tuesday, and Acting Comptroller of the Currency Michael Hsu will discuss his agency’s priorities and policy issues facing the banking industry on Wednesday.

Yellen will testify Wednesday before the Senate Subcommittee on Financial Services and General Government where she will give the Treasury Department’s fiscal year 2024 budget justification.

Office of Management and Budget Director Shalanda Young will testify before the House Committee on the Budget on Thursday to discuss the president’s fiscal 2024 budget.

Other banking/financial events this week include:

Citigroup Inc. CEO Jane Fraser will speak at the Economic Club of Washington, D.C., on Wednesday.
Sheila Bair, former chair of the Federal Deposit Insurance Corp., will join The Washington Post on Tuesday to discuss the path forward for the global banking system.

Too Suisse to fail? UBS has agreed to buy Credit Suisse after increasing its offer to $3.2 billion (link to WSJ for details). Swiss authorities poised to change the country’s laws to bypass a shareholder vote the transaction as they rush to finalize a deal before Monday, the Financial Times reports. UBS made an initial offer of around $ billion for Credit Suisse, which says it was too low.

UBS insists on a material adverse change that voids the deal if its credit default spreads jump by 100 basis points or more, according to the report. Credit Suisse, which has a market value of about $8 billion, believes the UBS offer is too low and would affect pension liabilities based on stock. Discussions are continuing.

Warren: Fed chair ‘failed’ on monetary policy, regulation. Sen. Elizabeth Warren (D-Mass.) on Sunday said Federal Reserve Chairman Jerome Powell has “failed” on his monetary policy and regulation responsibilities as the country grapples with high inflation and issues with banks collapsing.

Warren said Congress should lift the cap on federal insurance on bank deposits from $250,000, as lawmakers mull policy changes in the aftermath of the historic collapse of Silicon Valley Bank.

“I do not think he should raise rates,” Warren said of Powell on NBC’s Meet the Press. “I’ve been in the camp for a long time that these extraordinary rate increases that he has taken on these extreme rate increases are something that he should not be doing.”

Meanwhile, a coalition of midsize U.S. banks has asked regulators to extend FDIC insurance to all deposits for the next two years. “Doing so will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce chances of more bank failures,” the group said.

Still don’t know how to define the Biden administration’s trade policy? U.S. Trade Representative (USTR) Katherine Tai will discuss “The President’s 2023 Trade Policy Agenda” in a Senate Finance Committee hearing Thursday. She will also testify Friday on the same topic before the House Ways & Means panel.

Biden’s “go it alone” approach to trade deals is drawing criticism, the Wall Street Journal reports (link). It says tensions boiled over in recent days amid the administration’s push to forge a free-trade deal on critical minerals to resolve a dispute with the European Union over electric-vehicle subsidies, the latest in a string of such pacts that skirt congressional approval. Some lawmakers raised concerns about such “solo executive agreements.” Congress, which has constitutional authority over tariffs, has traditionally approved trade agreements negotiated by the executive branch. But the last two administrations have regularly skirted Congress, worried that formal deals would fail or flounder in a divided legislature.

The USTR’s office also reported last week progress in bilateral trade pacts with Taiwan and Kenya and agreed to step up trade discussion with the U.K. The administration is also formulating a new economic partnership with a dozen Central and South American countries.

Is a new trade policy strategy needed? “The administration is crystal clear that they don’t plan to seek congressional approval,” said Wendy Cutler, vice president at the Asia Society Policy Institute and a former USTR official. “We need a new playbook on interaction between Congress and the executive branch when it comes to trade agreements because we are not doing traditional FTAs any more.”

USMCA dispute resolution mechanisms. The Wilson Center’s Mexico Institute on Tuesday holds a virtual discussion on “U.S.-Mexico-Canada Agreement (USMCA): Are the Dispute Resolution Mechanisms Functioning as Intended? (Quick answer: No.)

U.S. aid to Ukraine bill markup. On Friday, the House Foreign Affairs Committee will markup HRes 158, requesting President Biden and directing the Secretary of Defense and Secretary of State to transmit certain documents to the House of Representatives relating to congressionally appropriated funds to the nation of Ukraine from Jan. 20, 2021, to Feb. 24, 2023.

Energy-related hearings and events this week include:

Senate Committee on Energy and Natural Resources on Thursday holds a hearing to examine the cybersecurity vulnerabilities to the United States’ energy infrastructure, with opening remarks from sometimes centrist Chairman Joe Manchin (D-W.Va.).
OurEnergyPolicy will host a webinar on Wednesday titled “Tackling the Problem of Permitting,” featuring opening remarks from Rep. Pete Stauber (R-Minn.). Stauber recently introduced the Permitting for Mining Needs Act of 2023, which aims to revisit the National Environmental Policy Act and bolster the domestic production of critical minerals used for clean energy, along with defense and technology needs.
The Center for Strategic and International Studies hosts a discussion titled “Future of U.S. Climate and Energy Leadership” on Monday featuring a keynote from Ali Zaidi, White House national climate adviser.

On the international front, there is a Chinese state visit to Russia by President Xi Jinping, reaffirming his ties with his Russian counterpart Vladimir Putin during a three-day trip that begins Monday.

Meanwhile, Russian President Vladimir Putin visited the occupied Ukrainian port city of Mariupol, which for Russia is a symbol of its goal to control eastern Ukraine and for Kyiv an illustration of Russian atrocities. Putin drove through the streets of Mariupol, which was captured by his forces in May, after arriving there by helicopter, the Kremlin said in a statement.

President Biden on Thursday visits Canada, making his first trip north of the border since entering the White House in a state visit delayed owing to Covid restrictions.

Grain pact extended, but for how long? An agreement that allows Ukraine to export grains and other crops from key Black Sea ports has been renewed, although uncertainty surrounds the duration of the latest extension.

Is it 60 or 120 days? The United Nations and Turkish President Recep Tayyip Erdogan announced the extension, but neither confirmed how long it would last. The U.N., Turkey and Ukraine had pushed for 120 days, while Russia said it was willing to agree to 60 days.

Ukrainian Deputy Prime Minister Oleksandr Kubrakov tweeted Saturday that the deal would remain in effect for the longer, four-month period. But Russian Foreign Ministry spokeswoman Maria Zakharova told Russian news agency Tass that Moscow “agreed to extend the deal for 60 days… Any claim that it’s prolonged for more than 60 days is either wishful thinking or deliberate manipulation,” Russia’s deputy ambassador to the U.N., Dmitry Polyansky, said.

Same arguments are coming from Russia in complaining that shipments of its fertilizers — which its deal with Turkey and the U.N. was supposed to facilitate — are not getting to global markets, which has been an issue for Moscow since the agreement first took effect in August. It nonetheless was renewed in November for another four months.

Facts and figures. Stéphane Dujarric, a spokesman for U.N. Secretary-General Antonio Guterres, said in a statement that 25 million metric tonnes (about 28 millions tons) of grain and foodstuffs had moved to 45 countries under the initiative, helping to bring down global food prices and stabilizing markets.

Key Economic Reports for the Week

FOMC and rate decision Wednesday. Market expectations have skewed firmly towards a 25-basis point rate hike by the Federal Reserve at its monetary policy meeting next week. The shift was spurred by turmoil in the financial sector and the European Central Bank’s decision to hike rates by 50 basis points. The ECB’s move came amid calls for central banks on both sides of the Atlantic to dial back on policy tightening in light of the banking crisis. Ahead of the release of the ECB’s decision, markets were pricing in a 56.8% probability of a 25-basis point hike by the Fed next week, according to the CME FedWatch Tool. The probability of no hike was at 43.2%. Now, the probability of a 25-basis point hike has grown to 76%, with 24% probability of no hike. “The larger issue of protecting the banking system and the economy takes center stage.

Tuesday, March 7

National Association of Realtors reports existing-home sales for February. Consensus estimate is for a seasonally adjusted annual rate of 4.2 million homes sold, 200,000 more than in January. Existing-home sales have fallen for 12 consecutive months to the lowest level in more than a decade, as sharply rising mortgage rates have sent a chill through the housing market.
Companies: Nike reports third-quarter fiscal-2023 results. Adobe, Nvidia, and Roper Technologies hold investor meetings.
Canada’s statistics agency releases February inflation figures. Consumer prices rose 5.9% in January from a year earlier, down from the previous month’s 6.3% rise.

Wednesday, March 8

MBA Mortgage Applications
Treasury Secretary Janet Yellen appears before a Senate subcommittee to discuss President Joe Biden’s fiscal year 2024 budget proposal. She will testify on Thursday before a House Appropriations subcommittee, with the debt-ceiling battle at the forefront.
Federal Open Market Committee (FOMC) announces its monetary-policy decision and Fed Chair Powell holds a presser. Traders are pricing in a 75% chance that the FOMC will raise the federal-funds rate by a quarter of a percentage point to 4.75%-5.00%. Less than two weeks ago, following Powell’s hawkish testimony in front of the Senate, the discussion on Wall Street was whether the central bank would raise interest rates by a quarter or a half percentage point at this meeting. But the collapse of Silicon Valley Bank and Signature Bank has caused historic swings in the bond market, with yields plunging at the swiftest rate in four decades.
Companies: Chewy reports fourth-quarter fiscal year 2022 earnings. Autodesk and Hershey hold their 2023 investor days.
The U.K.’s Office for National Statistics releases February inflation figures. Consumer prices rose 10.1% in January from a year earlier, a slower rate of inflation than the previous month’s 10.5% rise.

Thursday, March 9

Jobless Claims for the March 18 week are expected to come in at 195,000 versus 192,000 in the prior week.
Census Bureau reports new residential-sales statistics for February. Expectations are for a seasonally adjusted annual rate of 635,000 new homes sold, 35,000 less than previously.
Fed Balance Sheet
Money Supply
Companies: Accenture, Darden Restaurants, FactSet Research Systems, and General Mills hold conference calls to discuss quarterly results. Chevron and Elevance Health host investor meetings. Altria Group and Genuine Parts hold their annual investor days.
Bank of England announces its monetary-policy decision. The market sees it as a coin flip whether the BOE will keep its bank rate unchanged at 4% or raise it by a quarter of a percentage point. Expectations that the central bank might stick with the base rate at 4% were bolstered by last week’s public expectations on inflation survey results.
Japan’s statistics agency releases February inflation figures. Core consumer prices rose 4.2% in January from a year earlier, the fastest pace since September 1981. Japan defines core prices as all prices excluding fresh food.

Friday, March 10

Census Bureau releases the durable goods report for February. Economists forecast that new orders for manufactured durable goods will increase 0.6% from January, to $274 billion. Excluding transportation, durable goods are seen gaining 0.5%.
S&P Global releases both its Manufacturing and Services Purchasing Managers’ indexes for March. The consensus call is for a 47 reading for the Manufacturing PMI and a 50.2 for the Services PMI. Both figures are roughly even with the February data.
Federal Reserve: James Bullard speaks.

Key USDA & international Ag & Energy Reports and Events

Several international meetings this week with a host of speakers who know what they are talking about. On Friday, USDA offers another food price update report.

Monday, March 6

Ag reports and events:

Export Inspections
Milk Production
China’s trade data, including country breakdowns for various commodities
MARS monthly report on EU crop conditions
Malaysia’s March 1-20 palm oil export data