This Week:

The Senate passed the annual defense authorization billthat was approved by the House last weekand confirmed various Biden administration judicial nominees (see below).  The House passed a bill that would grant Puerto Rico a vote to determine its legal status (statehood, independence or sovereignty) and a bill that would expand collective bargaining rights for Department of Veterans Affairs’ healthcare employees. 

Both the Senate and House passed a one-week extension of government funding through December 23 (see below).

Next Week:

The Senate and House will finalize negotiations and vote on legislation to extend government funding through the end of fiscal year 2023 (see below).

The Lead

Government Funding Bill. 

The risk of a government shutdown has loomed over Congress for weeks as it has worked on a bill to fund government operations before the current deadline of December 16 (today).  Progress was made this week in crafting a bill to fund the government through the end of the fiscal year (September 30, 2023), but more time is needed to write the many details of that bill.  To provide the additional time, the House passed a measure this week to extend the deadline to December 23 and the Senate passed the extension last night. This action will avert a government shutdown for the time being and put pressure on lawmakers to pass a more comprehensive bill next week, which we believe they will do.  The larger bill will provide increases in funding for the spending priorities of both parties (defense for Republicans and non-defense for Democrats).  The loser will be the federal budget deficit and national debt, which will continue to grow as a result of the bill’s expected passage next week.               

Debt Ceiling Extension. 

While there has been interest among many lawmakers in including an increase in the debt ceiling in the government funding bill, we do not expect that to be included in the final version.  This will leave Congress with the task of passing the debt ceiling increase next year.  That probably will need to happen in the summer or early fall.  With divided government, this exercise will be contentious and highly political.  Particularly with the increases in government spending in recent years, many Republicans are interested in bringing a debate over deficit reduction into the debt ceiling process.  Markets will fret over the brinksmanship in Congress, and this will be a highlight (or lowlight) next year.           

Other Issues

Retirement Policy Reforms. 

Bipartisan legislation impacting retirement savings hangs in the balance as Congress aims to finish its work for the year.  This bill, commonly known as SECURE 2.0, contains a wide range of retirement savings enhancements, including an increase in catch-up contributions, an increase in the required minimum distribution (RMD) age to 75 and an allowance for employers to match employees’ student loan payments with a retirement contribution.  To become law this year, the SECURE Act will need to hitch a ride on the aforementioned comprehensive government funding bill currently being written.  There is bipartisan support for adding the measure to the funding bill, and we should know whether efforts to do so have been successful by early next week. 

Proposed Equity Market Overhaul.  

Following a lengthy review of equity market rules after the market volatility in Gamestop and other “meme” stocks early last year, the SEC this week approved several major rule proposals.  Totaling over 1,600 pages, the proposals reflect ideas presented by Chair Gary Gensler in a speech earlier this year.  They include new disclosure requirements for the routing of orders, smaller tick sizes for the quoting and execution of equity orders, a new standard for best execution of orders (not just for equity markets, but other markets as well), and a new requirement to have order by order competition of retail orders through auctions.  Though retail investors have benefitted from low transaction costs and strong liquidity, Chair Gensler has expressed concern about market concentration and the small number of wholesalers filling retail orders.  Those concerns animate the proposed rulemakings.  The two Republican Commissioners questioned the need for some of the rule proposals and voted against the latter two.  They expressed concern about the cumulative and unpredictable impact of these complex and prescriptive proposals.  The SEC’s actions also will be subject to scrutiny on Capitol Hill at a time when Chair Gensler faces criticism in the wake of the FTX collapse for the Commission’s perceived lack of action in regulating the largely unregulated crypto market. 

More Crypto Coverage. 

Two congressional committees held another round of hearings this week on the FTX collapse.  One was intended to feature former FTX CEO Sam Bankman-Fried, but his appearance was preempted by a federal criminal indictment (along with separate civil charges from the SEC and CTFC).  The hearings delved into the details of governance and other problems at FTX that led to its collapse and the misappropriation of customer funds, while also considering what legislative and regulatory reforms are necessary in response. Some lawmakers, particularly Republicans, tried to distinguish between the bad actions at FTX and the promise of digital assets.  While Congress will hold additional hearings next year and lawmakers will come forward with a variety of legislative proposals, there will be many challenges to coming together on any sort of comprehensive and workable bipartisan legislative response anytime soon.


Not surprisingly, US-China relations will be a focal point in the next Congress.  House Speaker-hopeful Kevin McCarthy (R-CA) has announced the formation of a select committee on China that will be chaired by Congressman Mike Gallagher (R-WI).  This follows the creation of a Republican Task Force on China in early 2020.  There is significant bipartisan agreement on US policy toward China, and this new select committee will likely examine in great detail some hot button issues, including supply chains and US reliance on China for certain minerals and products, technology competition, US investment (through asset managers) into Chinese government-owned companies, the origins of Covid, and various national security challenges.  This committee can significantly impact US-China policy developments if it can work in a bipartisan manner.  Otherwise, it will turn into a critique of Biden administration policies on China.  Regardless, we believe there will be significantly more oversight of US-China relations over the next two years.         

Sinema Effect. 

Senator Kyrsten Sinema’s decision to leave the Democratic Party and become an Independent won’t really alter the work of the Senate next year.  As an Independent, she still will associate with Democrats for the purposes of committee assignments and party caucus meetings (although she typically didn’t attend those even when she was a Democrat).  The move will give her some political freedom in her home state of Arizona.  She is up for re-election in 2024 and would have faced a tough opponent in the Democratic primary election.  By declaring herself an Independent, she will sidestep the primary challenge and potentially run against both a Republican and a Democrat in a general election.  Her move will test whether there is a market for her brand of independent politics in Arizona.  While polling in the state suggests many voters view her negatively, the Democratic party ultimately may come to the conclusion that she remains the best shot at keeping the seat.  Her departure from the Democratic Party gives Republicans more members than Democrats in the Senate (49-48), but the preference of the three Independent members to align with Democrats gives them a 51-49 the majority.             

Federal Judges. 

As we frequently mention in these reports, the Senate this week passed a number of judicial nominations made by President Biden.  Over the last two years, these votes for Biden judges have allowed the President to build a robust record of seating judges on the federal bench.  His 97th judge was confirmed this week, and the Senate is currently on track to finish the year approving more judicial nominations for him than it did during the first two years of President Trump (85) and President Obama’s (62).  President Biden has also appointed the most diverse group of judges, with women making up almost a third of the appointees and racial and ethnic minorities representing over half.  With Democrats retaining control of the Senate, the steady confirmation pace of judges will continue for two more years and allow President Biden to further expand on his record and legacy on the courts.

The Final Word

A New First in the Nation? 

Earlier this month, the Democratic National Committee (DNC) Rules and Bylaws Committee voted to remove Iowa as the lead state in the presidential nominating calendar and replace it with South Carolina.  Those were not the only changes made.  The proposed start of the calendar now features South Carolina, Nevada and New Hampshire as the first three primary elections, followed by Michigan and Georgia.  Democrats hope that changing the order of the early states will encourage greater diversity in the candidates who compete in these very different states and place an emphasis on selecting candidates who are able to win in the modern battleground states.  These changes have not officially been approved by the entire DNC, which will meet in February to vote on the changes.  Given that, further revisions could be made.  Iowa and New Hampshire are understandably unhappy about losing their roles and status.  Even some of the states (like Georgia and South Carolina) that were selected for earlier primary elections, had lukewarm reactions to the news.  Since Republicans do not plan on changing their nomination calendar, those states would be required to run presidential primaries on different days, which is costly and confusing to voters.  It remains to be seen what the final primary calendar of Democrats will look like, but it seems clear that Iowa will end up losing its first in the nation status beginning in 2024.