Welcome to Thoughts on the Market. I'm Michael Zezes, head of Public Policy Research and Municipal Strategy for Morgan Stanley.

Along with my colleagues bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy

and financial markets.

It's Wednesday, November 25th, 11 a.m. in New York.

Last week we saw something rare, a public disagreement between the Treasury and the Fed.

At issue was the Treasury's request that the Fed return unused money in various lending facilities

that were set up earlier this year to help the economy manage through the pandemic.

The Fed initially stated it preferred not to return the money

and keep the facility open, but then eventually agreed to Treasury's request.

The episode left investors scratching their heads. Since the global financial crisis, we're used to seeing Treasury and the Fed in sync.

So how meaningful was this disagreement?

It's unclear that it's a meaningful risk to markets in the short term, but it does say something

about the enduring challenges to bipartisanship on the issues that may matter to markets even as a new administration takes over.

That's because the Treasury Fed disagreement reflects a broader disagreement among Republicans and Democrats about the ongoing needs of the economy.

Key Senate Republicans applauded the Treasury's decision on the basis that the facilities had served their purpose

and the money could now be used for more targeted COVID relief.

Democrats appear to be on a different page, arguing that the money should stay with the Fed as a

backstop and new money should be appropriated for COVID relief.

This is a microcosm of the broader disagreement on the size and scope of a COVID stimulus package,

where the parties remain about one and a half trillion dollars apart on the size of a bill.

We think they can eventually overcome this gap on the issue of COVID relief, but the broader point is this.

If government control remains divided, no legislation is going to come easy.

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