capitol building

This Week:

The Senate passed a resolution to repeal an SEC rule that would require banks to include customers’ cryptocurrency assets on their balance sheets. The House passed a bill to reauthorize federal aviation programs and policies within the Federal Aviation Administration over the next five years. It also passed a bill targeting hidden and deceptive pricing in event tickets (see below), a bill that would force the Biden administration to continue supplying arms to Israel and a number of law enforcement-related measures (see below).

Next Week:

The Senate will approve various Biden administration nominees. The House plans to vote on two digital currency bills to split oversight duties between the SEC and CFTC and to prohibit the use of central bank digital currency for monetary policy.

The Lead

Spat Over Aid to Israel.

The Biden administration has been holding up certain military aid as leverage to try to influence Israel’s current military campaign in Gaza. As we projected last week, the House this week passed legislation that would compel President Biden to send previously approved military aid to Israel without further delay. As the House voted, the Biden administration announced that it would release other military aid to Israel totaling $1 billion. So, some military aid is being released, while other aid is still being withheld, at least for now. The partial aid release underscores the political challenge President Biden has in trying to both support Israel’s military while protecting Gaza civilians caught in the crossfire of war. It’s a difficult political situation where the President is trying to reconcile the strong and differing views of many voters on how to address the war challenges. We don’t see these challenges relaxing before November.

The Significance of the House Vote.

The House bill to prevent further delay of military aid delivery to Israel passed by a 224-187 margin. Sixteen Democrats joined 208 Republicans in advancing the bill. While the bill will very likely not pass in the Senate, it is potentially a significant vote from a political perspective that could resonate with certain voting blocs. Congressional districts with large Jewish and Muslim populations are paying attention and may use this vote as a potential marker for casting their votes this year. If the issue becomes a deciding factor in some House and Seate seats, it could be important in determining which party wins control of the House and Senate. Sentiment from the vote could also further influence President Biden’s evolving policy stance toward Israel. The President is hoping he can improve US options by striking deals with other Middle East partners to help house refugees or ease their exit out of the war zone (via negotiations with Egypt) and craft security alliances with Israel (via negotiations with Saudi Arabia), though those agreements have been elusive to date.

Other Issues in Play

US Tariffs on China.

After weeks of speculation, President Biden announced a wide range of new tariffs and tariff increases on Chinese exports of electrical vehicles, solar cells, shipping cranes, aluminum and steel. Some of these tariffs were initiated in the Trump administration. The tariffs were expected and will serve a number of the President’s policy objectives, such as protecting certain US industries from a glut of less expensive Chinese imports and fighting back against “unfair” trade. The result will be fewer of these Chinese products sold to US buyers. However, this action will trigger retaliation from China, which is likely to impose higher tariffs on select US goods (perhaps agricultural products) and diminish that trade opportunity. The takeaway here is that tariffs continue to be a major pillar of US trade policy with China and will likely be extended to other countries on a case-by-case basis in the future. The love for tariffs is now bipartisan and will be a feature of US trade policy for the foreseeable future regardless of who wins the upcoming election. Tariffs could become more controversial if they feed inflation in the US or become too much of an irritant with US relations with targeted countries, but for now we expect more tariff action in the future on China and even more allied countries who are perceived to be unfair traders.

Donor Advised Funds.

The Treasury Department proposed regulations at the end of last year that would impact Donor Advised Funds (DAFs). In particular, they would limit the ability of investment advisors to be compensated for managing the DAFs of their clients. This proposed regulation has drawn concerns from not only the investment industry, but also the philanthropic sector, which is worried that the proposal could have chilling effect on charities and local communities. The IRS has already signaled it will be pulling back on some aspects of the proposal. IRS officials also have indicated that the final rule would not apply retroactively as the proposal would. The IRS held a public hearing last week where dozens of interested parties opposed the regulation as drafted. It now will consider these critiques and other input as it works towards finalizing its rule (a process that will make months). If Trump were to win the presidential election, this proposal could be shelved.

FDIC Grilling.

The House and Senate held hearings this week following the release last week of a report by an independent special counsel that investigated and documented reports on misconduct and a toxic work environment at the FDIC. As expected, FDIC Chairman Martin Gruenberg faced criticism from both Republican and Democratic lawmakers. Republicans called for Chairman Gruenberg to resign, although most Democrats did not go that far. If Gruenberg were to resign, current Vice Chairman Travis Hill (a Republican appointee) would become acting chair and the agency would be split between two Democrats and two Republicans. This effectively would deadlock the agency on key pending bank regulatory proposals (including ones on bank capital requirements and bank merger policies) and imperil a key part of the broader Biden administration’s regulatory program. While Chairman Gruenberg took many hits this week and remains in a precarious position, he seems to be on to his job for now.

Ongoing Fiduciary Fight.

The Department of Labor (DOL) last month finalized its package of revisions to fiduciary rules. The changes are part of longstanding efforts by the DOL that span multiple administrations to apply fiduciary standards of care to retail retirement accounts. A previous 2016 fiduciary rule by the DOL was struck down by a federal court in 2018. Since that time, the SEC issued its Regulation Best Interest (Reg BI) standard, which established a unform standard of care for brokers to act in their clients’ best interests when making an investment recommendation. In 2020, the DOL followed with its own rule for retirement accounts. In the latest iteration, the DOL is expanding the scope of activities subject to fiduciary requirements, setting new requirements under the 2020 regulation, and making changes to other requirements (for example, one for the sale of annuities by insurance agents). The changes have elicited vocal concerns from industry and from Congress (particularly Republicans, but some Democrats as well). This week, lawmakers introduced resolutions to try to overturn the DOL rule. The resolutions could pass both the House and Senate, but they would be subject to a veto by President Biden. In addition, the rule changes are being contested once again in court.

Ticket Prices.

Going out to a ballgame or a concert this weekend? Did you notice the high price of tickets inclusive of applicable fees? A number of lawmakers are frustrated that there isn’t enough transparency in the process of purchasing tickets. They argue that consumers find a larger bill at checkout than anticipated because of various and vague fees and taxes. The House this week passed a bipartisan bill that would require the total price of an event ticket be displayed upfront (“all-in pricing”) and that would place further guardrails on the secondary ticket market. This legislation may not necessarily bring down prices for events, but it would bring greater transparency to ticket sales so buyers know what they are paying for. The strong bipartisan support in the House increases its chances to advance in the Senate and reach the president’s desk this year.

Police Week.

Congress often looks to take up legislation in accordance with nationally recognized dates to honor certain professions or people. This week is “National Police Week,” a national recognition to honor law enforcement officers who lost their lives in the line of duty. In 2023, 136 law enforcement officers at the federal, state, county, military, tribal and campus levels were killed in the line of duty. Another 378 police officers were shot while on duty last year, a 14% increase from the previous year. In recognition of Police Week, the House passed a number of modest law enforcement bills, while the Senate recognized honorable and fallen law enforcement officers. While there was some bipartisanship in passing the House bills, not all of the lawmakers were on the same page. House Republicans hope their bills will resonate with voters concerned about crime as they try to portray Democrats to be softer on crime. This will be an ongoing theme throughout the 2024 election season.

The Final Word

Ready, Set, Debate.

Earlier this week, the Biden and Trump presidential campaigns agreed to hold two televised debates — on June 27 and September 10. This was a bit of a surprise given both campaigns had expressed misgivings about debates earlier this year. The biggest surprise was how early the debates will be (especially the first one). The timing is designed to give the candidates time to recover if they have bad debates. Left unresolved for now is whether any third-party candidates will be included in the debates (we think RFK Jr. will have trouble qualifying for the June debate) and whether there will be a debate featuring the vice-presidential candidates (we expect a single debate here). It is questionable how much impact presidential debates have with voters, particularly with two candidates as well known as Biden and Trump. Nevertheless, there’s no denying that the debates will quickly become the focal point for both campaigns and could be entertaining. The first debate between Trump and Biden in 2020 was the third most viewed presidential debate of all time with over 73 million viewers on television, double what the typical State of the Union address attracts. While everything looks settled on paper now, it’s likely there will be continuing drama around the specifics of the debates. It remains to be seen if both debates will actually happen, let alone what the impact will be.