FED: Uncertainty To Be Manifested In March's FOMC Meeting Communications (1/2)

Senate Majority Leader John Thune (R-SD) could bring the Senate Republican budget resolution to the floor this week, gaining the upper hand on strategy while the House of Representatives is on recess for the week. If adopted, the resolution would put the Senate firmly on its preferred two-bill reconciliation strategy.

• The Senate resolution provides roughly USD$300 billion in new border and defence spending, including funding to complete the US-Mexico border wall, but defers President Donald Trump's tax agenda until later in the year - a move that could risk delaying legislation to extend Trump's 2017 tax cuts until beyond the December 2025 sunset date for some provisions.
• Should Thune choose to begin procedural voting - likely starting Tuesday -, it would entail up to 50 hours of debate and a so-called 'vote-a-rama' on amendments that could drag on for hours over dozens of votes.
• House Speaker Mike Johnson (R-LA) and House Ways and Means Committee Chair Jason (R-MO) have petitioned Trump to oppose the Senate plan, however, Politico notes: "Vice President JD Vance, White House policy chief Stephen Miller and budget chief Russ Vought [are] among those favoring the Senate’s preferred two-bill approach."
• Thune said in an interview on Friday: “The House and the Senate operate differently, clearly, and we have procedural issues we have to deal with in the Senate. But … these efforts are going to, at some point — they’re going to merge.”

• Foreign investment in Canadian securities in Dec. increased by CAD14.4B led by debt securities. Foreigners bought CAD13.9B of Federal government bonds, the highest since April 2020, to held offset the first drawdown in Canadian corporation bonds since Oct 2023.
• Canadian investment in foreign securities slowed to CAD3.8B from CAD17.6B in Nov. mainly due to debt securities.
• After two straight months of significant investments totalling CAD24.9B, Canadian investors sold CAD4.1B in US government bonds, the largest divestment since May 2023.
• In 2024, foreign investors bought 192.9B of Canadian securities led by record demand for federal government (+CAD100.3B) and corporate (+CAD78.9) bonds. Foreigners continued to sell equities for a second year in a row, CAD7.6B in 2024 mainly due to share retirements from acquisition activities after CAD48.3B in 2023. 

Philly Fed’s Harker (non-voter, retiring in June) sounded modestly less dovish speaking a month on since his last comments, seeing reason to hold rates steady but without last month’s caveat that it won’t be "for long". That said, he viewed the January CPI strength with skepticism and still sees inflation on a downward path. 

• "While I won’t commit to a specific timetable, I remain optimistic that inflation will continue a downward path and the policy rate will be able to decline over the long run."
• "All in all, the current data paints a picture of an American economy that continues to function from a position of strength," he said. Inflation is still elevated but moving in the right direction while labor is largely in balance, he said. "And these are reasons enough for holding the policy rate steady."
• Skepticism around CPI seasonality: “In the last decade, CPI inflation in January has surprised on the upside 9 out of 10 times. My conjecture is that seasonal adjustments are struggling to keep up with a fast-changing economy, and we need to parse the underlying trends from the month-to-month noise.”
• Full remarks here.