This Week: The House debated legislation to fund several departments and agencies for fiscal year 2020, including Defense, Labor, and Health and Human Services. It also passed legislation giving the House expanded investigative authority in its pursuit of information from the White House and Justice Department relating to the Mueller report. The Senate continued its work to approve a number of Trump administration nominations.
Next Week: The House will finish consideration of a government funding bill it debated this week and take up another funding bill that covers other departments and agencies. The Senate will vote on five judicial nominations and begin debate on the fiscal year 2020 defense authorization bill.
Financial Services Issues
BSA/AML Reform. After months of work, a bipartisan group of Senators on the Banking Committee unveiled legislation to modernize the existing Bank Secrecy Act (BSA) regulatory regime for combatting money laundering. Notably, the bill would require business entities to provide details on their beneficial ownership to a new federal registry, a topic that will be the focus of a Banking Committee hearing next week. It also would promote greater use of new technologies towards BSA and Anti-Money Laundering (AML) compliance and improve information sharing between banks and regulators. Separately, the House Financial Services Committee this week approved by a 43 to 16 margin its own bill to create a new federal beneficial ownership registry, with some Republicans voting against it because of concerns about both the privacy of the information to be collected and the burdens that business owners would face in terms of providing that information. The House will pass the beneficial ownership bill with other reforms in the coming months. With a bipartisan consensus emerging in the Senate, BSA/AML reform is building steam, although the path to becoming law won’t be smooth or easy.
Other Issues in Play
US-Mexico Trade and Immigration. Markets and lawmakers were relieved when the US and Mexico struck a deal late last week to avert higher tariffs on Mexican exports to the US that were threatened to go into effect this week. The lingering question now is whether this deal can last. Mexico has agreed to take specific actions to stem the flow of Central American migrants entering Mexico en route to the US and to hold more migrants in Mexico. Mexico's more active involvement in assisting the US to address the tide of migrants will likely be helpful, but can it fulfill the high expectations set by President Trump? If it doesn't, the tariff threat will quickly emerge again. Our gut tells us that this issue isn't over and we will see higher tariffs threatened again. Fighting with a neighbor is always messy and carries big risks, and we see a high level of tension hanging over relations between the US and Mexico for the foreseeable future.
Asylum Relief Debated. The Senate next week will try to advance legislation to provide the Trump administration with $4.5 billion to deal with the ongoing asylum crisis along the southwest border. Most of the money will be directed toward food, shelter, medical care and housing for detained migrants. One senator noted yesterday that there are 13,347 children who have crossed the border recently without an accompanying adult and are now held in a US detention facility. The legislation will likely attract enough Democratic support to clear the 60-vote threshold needed for passage as long as it doesn't specifically contain funds for a border wall. The question will then become whether the House will consider the measure. Many House Democrats don't consider the border situation a real crisis and have been critical of the administration's tough law-and-order approach. Does the broader public see this border challenge as a crisis? If so, Democrats will be hard-pressed to oppose some form of funding relief to address the situation despite the lack of trust between the President and House Democrats.
US-China Talks. There have been no developments of note to report on the trade talks, but it will be worth watching how the protests in Hong Kong will impact the talks and overall relations between the countries. A lot will depend on how strongly Chinese President Xi reacts to the protests and how President Trump responds to that action. China doesn't need the bad publicity from around the globe that would come from an overly aggressive confrontation with protesters, especially with global leaders' meetings in Japan occurring at the end of the month. Meanwhile, the US doesn't want to be seen as being too aggressive in any condemnation of China in its backyard. If this situation in Hong Kong increases tension between the two countries, a meeting between the two presidents in Japan later this month may not occur and a trade deal would become even more difficult to work out.
Fed Independence. We believe people expressing concerns over the independence of the Federal Reserve Board's actions in setting interest rates are over-reacting. Fed Chairman Jerome Powell and the four other Fed governors certainly are aware of President's Trump's frequent criticism and advice to them as they make policy decisions but they are not significantly influenced by it. Unlike past presidents who mostly interacted with Fed officials in private, President Trump has his own style and prefers to tweet and speak publicly about the Fed's deliberations. It's clear to us that the President has consistent and strong views on the direction of interest rates and views their increase as a threat to the strong economy. His public comments are meant more to allow him to blame the Fed if rates rise and the economy suffers rather than to provide meaningful input to the Fed policymakers.
Pay Raise for Lawmakers? The House was poised to vote this week on a pay raise for Members of Congress but postponed this action due to opposition from a handful of lawmakers. Members of Congress make an annual salary of $174,000, while elected leaders from both parties make a bit more. The Speaker of the House draws the largest salary of $223,500. These salary levels haven't changed since 2009. We can attest that the vast majority of Members from both parties work hard and put in long hours. But, how about the results of that work? That is the most standard criterion in most job evaluations. Public polling suggests the public (the boss of the 535 lawmakers) doesn't think much of the production from lawmakers as is evident with their collective approval rating in recent national polls hovering around 20%. The political optics of advocating for a pay raise is horrible for any lawmaker, and our guess is that this proposed pay raise will fade from consideration and not go into effect anytime soon.
Gulf States' Weapons Purchase. A battle is brewing between the Senate and White House over the administration's plans to sell over $8 billion of military aircraft and other weapons to Saudi Arabia, the United Arab Emirates and Jordan. A bipartisan majority exists in the Senate to force a vote of disapproval of these sales, a measure the administration will strongly resist. That vote could be held next week and if it passes the Senate, it would easily pass the House. However, the bill would be vetoed by President Trump and the sales would very likely proceed. President Trump believes the sales are needed to help more friendly Gulf countries counter Iran in the region. Opponents of the sale aren't convinced that the Gulf countries, particularly Saudi Arabia in the wake of the murder of journalist Jamal Khashoggi, are deserving of the military assistance. This development is important because it underscores strains in the relationship between the President and Republicans in the Senate on another national security issue as well as Saudi Arabia's declining reputation among lawmakers.
The Final Word
Trump Re-election. President Trump is scheduled to officially announce his re-election next week. Remember that he has already filed officially to run for office, which he quietly did five days after he was sworn into office for his first term in early 2017. With the official paperwork submitted, the President has been able to raise over $100 million for the 2020 contest, almost a third of what he raised for the entire 2016 presidential race. President Obama also filed for re-election in 2012 relatively early – 19 months before the actual election date. Prior to that, most presidents seeking re-elections filed their paperwork later in the process. An earlier filing allows candidates to raise money, hire campaign staff and generally get a head start on the re-election process. Going forward, this will be the norm for presidents seeking re-election.