- Yellen sets December 15 deadline for debt ceiling hike
- House will debate Build Back Better bill today and intends to vote on Thursday or Friday
- U.S. housing starts expected to remain strong
- 20-year T-bond auction
Biden expects to name new Fed Chair pick by week’s end — President Biden on Tuesday said he is still deciding on his pick for the new Fed Chair but will make an announcement within the “next four days,” meaning by Friday or Saturday. Mr. Powell’s term as Fed Chair expires in February 2022.
Bloomberg reported yesterday that Mr. Biden has narrowed down his choice to reappointing Jerome Powell as Fed Chair, or nominating current Fed Governor Lael Brainard. The White House is in the process of gauging support for each nominee in the Senate to make sure there is enough support to easily confirm whomever Mr. Biden chooses. More Senators are openly supporting Mr. Powell but there also appears to be sufficient support for Ms. Brainard.
Mr. Biden may soon announce his picks for other Fed positions since there is one Fed Governor position open now and Vice Chair Clarida’s term is up in January. Mr. Biden also needs to appoint someone to serve as the Vice Chair for bank supervision since Randal Quarles’ term expired last month.
The betting odds at PredictIt.org are 63% for Mr. Powell and 37% for Ms. Brainard as the new Fed Chair. However, the odds tightened Tuesday, with Mr. Powell falling -4 points from Monday, while Ms. Brainard rose by +5 points.
The next Fed Chair will prevail over the critical decision about when to start raising interest rates. The FOMC already announced that it will conclude its QE tapering program by mid-2022, leaving the door open for interest rate hikes starting in July 2022.
The federal funds futures market shows that the market is fully discounting the Fed’s first +25 bp rate hike in Q3-2022 and a second rate hike in Q4-2022.
Yellen sets December 15 deadline for debt ceiling hike — Treasury Secretary Yellen on Tuesday set a deadline of December 15 for Congress to pass a debt ceiling hike. Without a debt ceiling hike, the Treasury will be at risk of running out of cash and starting to default on its financial obligations.
Democrats this time around seem to have no choice but to pass a debt ceiling hike through the budget reconciliation process. Senate Minority Leader McConnell received serious flak from his party the last time around for helping Democrats pass a temporary debt ceiling hike into December. Mr. McConnell seems unlikely to help Democrats out this time around.
House will debate Build Back Better bill today and intends to vote on Thursday or Friday — House Majority Leader Steny Hoyer on Tuesday said that the House will debate the Democrat’s $1.75 trillion Build Back Better social spending bill today and likely vote on either Thursday or Friday. House leaders want to release the House on Thursday for the Thanksgiving recess but a vote on the Build Back Better bill may stretch to Friday or even Saturday depending on the extent of the CBO scoring information demanded by House Democratic moderates.
After the House approves the bill, it will move to the Senate for consideration in December. The fate of the bill in the Senate continues to be up in the air mainly because of the theatrics by moderate Senators Manchin and Sinema.
President Biden on Monday signed the $550 billion infrastructure bill. The fiscal stimulus from that bill should be supportive of the economy as various infrastructure projects are carried out over the coming years.
U.S. housing starts expected to remain strong — The consensus is for today’s Oct housing starts report to show an increase of +1.6% m/m to 1.580 million units, reversing Sep’s -1.6% decline to 1.555 million. Housing starts have fallen back from March’s 15-year high of 1.725 million units but remain well above the pre-pandemic levels of less than 1.4 million units.
Yesterday’s Nov NAHB housing market index rose by +3 points to 83, which is only 7 points below the record high of 90 seen in November 2020. U.S. homebuilder confidence remains very strong thanks to continued strong demand for homes and low mortgage rates.
The current 30-year mortgage rate of 2.98% is well below this year’s high of 3.18% posted in April and is far below the pre-pandemic level of 3.74% seen at the end of 2019.
20-year T-bond auction — The Treasury today will sell $23 billion of new 20-year T-bonds. The size of today’s auction is down by $3 billion from August’s comparable 20-year T-bond auction of $27 billion since the Treasury’s borrowing requirement is starting to fall back from the pandemic spike. The 20-year T-bond yield yesterday rose +4 bp to 2.07% and posted a 3-week high.
The 12-auction averages for the 20-year are as follows: 2.34 bid cover ratio, $3 million in non-competitive bids, 6.6 bp tail to the median yield, 104 bp tail to the low yield, and 60.2% taken at the high yield. The 20-year T-note is moderately below average in popularity among foreign investors and central banks. Indirect bidders, a proxy for foreign buyers, have taken an average of only 60.2% of the last twelve 20-year T-bond auctions, which is moderately below the median of 63.7% for all recent Treasury coupon auctions.
