When everyone else in Washington was taking a break over Thanksgiving weekend, regulators from the five federal agencies that have been fighting over one of the most controversial measures in banking reform were hunkered down trying to get a deal. And they appear to have got one.
Next Tuesday, the agencies are expected to unveil their interpretation of the so-called Volcker Rule, which is supposed to bar banks from using insured deposits to trade for their own profit. Among the tougher-than-expected elements of the new regulation are provisions requiring accountability at the management level of any bank that breaks the rule, according to a Treasury official familiar with the negotiations.
The Volcker Rule announcement Tuesday will cap a week of good news and improving economic expectations for the Obama administration on everything from jobs to growth, the budget and financial market reform. In each area there are caveats to the good news, but taken together the improvements are likely to affect both the mood of the markets and the political environment heading into the mid-term elections next fall.
Last Thursday, the U.S. Bureau of Economic Analysis released a revised estimate of 3.6% annual growth in the economy during the third quarter, a big jump from the 2.8% initially reported. Analysts rightly cautioned that much of the revision was attributable to businesses stockpiling inventory, and that the number was likely to be smaller in the fourth quarter. But it was the best number in a year and suggested increased confidence in the economy.
That sentiment was bolstered by word Thursday that Democrats and Republicans might reach a narrow deal to avoid another fight over the budget and the debt limit when the current stop-gap deals run out in January and February. House and Senate budget chiefs are reportedly within striking distance of a deal to raise some spending caps and regularize the appropriations process for the near future. Such a deal would not end the budget fights, but it would reassure markets that Washington wouldn’t derail the economy every few months as they have for the last four years.
Best of all from the administration’s perspective, a better-than-expected employment number for November came on Friday, with the Bureau of Labor Statistics reporting 203,000 new jobs and a drop to 7% in the unemployment rate. Many millions of people still aren’t looking for work and the number of people in the labor market is at a historic low. But the financial markets responded positively to the news, suggesting for the first time in many months that they have confidence the economy can stand on its own if the Federal Reserve begins to reduce its monetary supports.
There are plenty of potential hurdles ahead for the administration and the economy. But you can sense the optimism this raft of numbers is producing in the administration. Beset for months with the bad news of the health reform roll-out and Obama’s lousy poll numbers, Democrats in the White House and on the Hill now have reason to hope that the ten months leading up to the 2014 elections will be a period of improving economic conditions, allowing them to claim progress, at last, for their policies.