Frank Kelly’s Geopolitical Week Ahead | February 16, 2025

It will be a big week geopolitically – potentially historic in several ways. 

Big moves toward Ukrainian peace talks

First, there is rapid movement toward establishing a framework to begin peace negotiations with Russia over its war on Ukraine.  President Trump is dispatching U.S. Secretary of State Marco Rubio, National Security Advisor Mike Walz, and Special Envoy to the Middle East Steve Witkoff to Saudi Arabia Monday to meet with Russian counterparts. The meeting aims to begin setting up the parameters for a possible meeting between President Trump and Russian President Vladimir Putin in Saudi Arabia in the coming weeks to start negotiating toward a Ukrainian peace deal.

As Rubio/Walz/Witkoff meet in Riyadh with the Russians, Trump’s Special Envoy to Russia and Ukraine, retired U.S. Army General Keith Kellogg, will meet with EU President Ursula von der Leyen and then NATO Secretary-General Mark Rutte on the peace effort.

As all this is taking place, French President Emmanual Macron will be convening an “emergency” meeting of EU leaders (leaders of Germany, Britain, Italy, Poland, Sapin, the Netherlands, and Denmark as well as the NATO Secretary-General and the Presidents of the European Council and European Commission) to discuss what President Trump is doing and what they should be doing. UK Prime Minister Keir Starmer said this “is a once-in-a-generation moment for our national security.” All this being said, the two massive questions on the table are:  What does Ukrainian President Volodymyr Zelensky think about what Trump is saying and doing?  And what exactly is President Trump’s vision for a peace deal, and does it include Ukraine giving up the land Russia has seized? All in all, it appears Zelensky and Ukrainian concerns are being somewhat left to the side.  Also, coordination between the U.S. and NATO partners lags behind Trump’s lightning-speed efforts.

EU seeks to head off a trade war with the U.S.

Meanwhile, in Washington, EU Trade Commissioner Maros Sefcovic is flying over to meet with Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer to urgently discuss how to avoid a looming US-EU trade war, which will be launched by President Trump’s promised reciprocal tariffs. Sefcovic is not scheduled at this point to meet with President Trump directly, but rumors abound that this might actually happen. Markets need to watch this trip closely.

Germany holds what could be historic elections

Also happening in Europe this week, German voters head to the polls on Sunday to elect a new government. Christian Democrat Party Leader Fredrik Merz is on track to see his party win in the polls along with their Bavarian partners, the Christian Social Union (currently at 29.2%).  The question is: Which other parties will they form a coalition with to avoid at all costs working with the ultra-far-right AfD Party, which is now currently in second place in the polls (21.3%)?  Most Germans – indeed, most of Europe – is shocked and dismayed to see the AfD – which has repeatedly shown to have a significant number of members who are Nazi sympathizers gain such an uptick in popularity. And that makes this election potentially historic as the  Merz will likely have to go in with the Green Party and the left-of-center Social Democrats (SPD) led by current Chancellor Olaf Scholz. 

Israeli-Hezbollah cease-fire is set to expire

Turning to the Middle East, Monday marks the grim milestone of the 500th day since the October 2023 Hamas attack on Israel, which killed more than 2,500 civilians and resulted in the taking of 251 hostages. While the Gaza cease-fire remains incredibly fragile, with sporadic attacks taking place, hope remains that the rest of the hostages will be released in the coming weeks. Meanwhile, on Wednesday, the cease-fire between Israel and Hezbollah is technically set to expire. However, most observers expect it to be extended. Israel is asking for a ten-day extension (until February 28) before they pull back the last of their troops from Southern Lebanon. Hezbollah is not likely to want to return to full-scale fighting, having been severely mauled by Israeli forces and having a large portion of its military leadership killed.

Global economic radar screen

Looking at the global economic radar screen for the coming week:

• Markets are keenly awaiting the release of the FMOC’s minutes on Wednesday to get a clearer sense of just how worried the Federal Reserve is about a resurgence of inflation and if there is any chance for further rate cuts this year.

• In Asia, Japan releases Q4 gross domestic product (GDP) estimates, January consumer price index (CPI) figures, and trade and machinery order data. Australia’s Reserve Bank meets on interest rates on Tuesday.

• In Europe, the UK releases labor figures on Tuesday, inflation data on Wednesday, and consumer confidence on Friday. Germany releases the ZEW Survey on Tuesday, and we will see the Eurozone consumer confidence report on Thursday.

U.S. Financial Regulatory Week Ahead

Washington is enjoying a holiday-shortened week, with President’s Day on Monday. The House of Representatives is out of session this week in honor of the day, but the Senate remains in session and is working hard to move forward with the budget reconciliation bill. 

A monetary policy task force is formed in the House

We would note that one significant event took place last week which seemed to garner little attention. The House Financial Services Committee (HFSC) created a “Monetary Policy Task Force” led by Congressman Frank Lucas (R-OK) that will focus on at three issues: The Federal Reserve’s dual mandate, the Fed’s involvement in the U.S. Treasury market, and the central bank’s role in regulation and supervision. Lucas – who is known for his smarts about all things markets and economics is being joined by several other Republicans including Representative Bill Huizenga (R-MI). We can’t remember the last time the HFSC formed a task force but considering the significance of the focus of this one, it will be quite interesting to see where it goes.

The OCC, CFTC, and CFPB all Get nominees

Last week, we saw action in nominating several important regulatory agencies.  President Trump named Jonathan McKernan to lead the Consumer Financial Protection Bureau (CFPB), Jonathan Gould to be the new Comptroller of the Currency (only two days after Treasury Secretary Scott Bessent named Rodney Hood as the Acting Head of the OCC), and Brian Quintenz as the Chair of the Commodities Future Trading Commission (CFTC). We are tracking when their respective Senate Banking Committee confirmation hearings will be scheduled (as well as Paul Atkins for SEC Chair). 

No more Fed Vice Chair for Supervision?

What was particularly interesting about the nominations is those that were not named: No new Federal Reserve Board Vice Chair for Supervision or new Federal Deposit Insurance Corporation (FDIC) Chair. In addition to this, Federal Reserve Board Chair Jay Powell’s testimony before the House Financial Services Committee, where he questioned whether the Fed needed a dedicated regulatory-focused board member and whether the entire board itself should be responsible. Knowing Jay Powell, he does not just muse out loud – he’s a cautious man, and he would not say this without there being something going on behind the scenes. Regulatory players around town we spoke to wondered out loud if the White House has discussed not nominating a replacement for outgoing Vice Chair for Supervision Michael Barr – talk about deregulation! 

The coming CFPB restructuring battle

Speaking of deregulatory efforts, the Trump Administration continues to grind down the CFPB.  It is clear to us that they want to either shut down the agency, fold it into either the FDIC or Fed, or break it apart and send the parts to both agencies.  We have also heard more chatter about merging the OCC with the FDIC (which we think is a long shot).

However, seeing that the Republican-run U.S. Congress is likely to pass two reconciliation bills this year, we have been wondering if the Trump White House is going to include significant financial regulatory restructuring in one or both bills.  You cannot filibuster a Reconciliation bill – making it easier for Republicans to restructure the agencies.  When you think of it, many other government departments and agencies could be consolidated or shut down via reconciliation. Looking at the Heritage Foundation’s Project 2025,  it calls for the shutting down of the Department of Education, the Department of Housing and Urban Development, and the Department of Homeland Security etc., etc.  No one is talking about this potential radical restructuring of the federal governmental architecture – but you have to wonder what surprises President Trump has in store via the work of Elon Musk’s DOGE and the analysis of his very ambitious Director of the Office of Management and Budget Russell Voight.