MNI EXCLUSIVE: MNI POLICY: Time Needed For BOE To Make Bernanke Changes

Congressional leaders and the White House have confirmed that a funding agreement is in place to conclude FY2024 appropriations. However, there may be insufficient time to clear Congress before the deadline at midnight on Friday.

• President Biden said in a statement: "We have come to an agreement... The House and Senate are now working to finalize a package that can quickly be brought to the floor, and I will sign it immediately."
• There is no political will amongst leadership of either party to allow the government to shut down for a prolonged period but a temporary shut down (lapse in appropriations) may take place over the weekend due to two factors.
• 1. House Speaker Mike Johnson (R-LA) is bound by an informal rule to allow lawmakers 72-hours to consider legislation. This pushes the expected House vote to late Thursday at the earliest.
• 2. Fiscally conservative Republican Senators are likely to oppose unanimous consent, the procedure which allows the Senate to fast track legislation. This means the chamber must grind down opposition over the weekend.
• Note: Congress can work exceptionally quickly when lawmakers are aligned and it is not impossible that work can be completed by the deadline but the most likely scenario this week is either another stopgap or a short shutdown over the weekend.
• A short government shutdown is unlikely to impact any major data releases. New Home Sales and Durable Goods due early next week are both issued by the Department of Commerce which was funded on March 8.

Bank of America expect “the BoE to stay on hold this week with a 1-7-1 vote, no changes to guidance, and the minutes should reflect the continued need for more confidence, but smaller tail risks.”

• They go on to note that “front-end pricing appears fair to us, but we suspect the market could turn more bullish again, with market pricing in a higher probability of rate cuts in May and June.”
• “We, on the other hand, remain convinced the BoE would rather cut faster after August than start cutting in May and June.”
• “Medium term, our forecasts continue to imply persistent risk premia even as the BoE eventually starts cutting. A key input for real yields is the UK's large stock of net external liabilities, underpinning our sell UKTi/buy OATei view.”