Washington – Congress still on recess , Washington continues to overhang sentiment and decision making. The two big legislative efforts of the past year have been passed for a while now (health care and financial regulatory reform), but there is still uncertainty around how specifically the laws will be implemented (they are in the hands of the various regulatory bodies now). The issue of taxes is outstanding, w/the expiration of the Bush rates looming on the horizon. There were reports this week that the White House’s new fiscal commission could recommend major changes to Social Security, inc. raised retirement ages and higher taxes. Even the outlook for Fannie and Freddie is unclear – this week’s mortgage conference held by the Treasury didn’t clear much up, but its certain that major changes are coming (B Frank has promised to take up the issue when the House comes back into session in Sept). Bank capital/accounting could see big changes in the coming months – the FASB mark-to-market bank rule comment period ends Sept 30 and Basel is due to deliver its final capital rules to the G20 meeting in Nov. Finally, the latest FOMC decision (from 8/10, when it was decided to reinvest maturing MBS into TSYs and keep the balance sheet unchanged) has made the outlook less transparent in the eyes of many, w/investors wondering what kind of non-public data the Fed has seen re the outlook to prompt such a change in direction (the ostensible break-down in consensus among Fed officials isn’t helping either – as Bullard ramps up his rhetoric around deflation fears, Hoenig continues to worry about rates being too low)
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