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Jan 26, 2022 View in browser   By Kate Davidson Editor's Note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day's biggest stories. Act on the news with POLITICO Pro. Quick Fix Federal Reserve Chair Jerome Powell will take questions from the press this afternoon following the Fed's policy meeting, at which officials are expected to signal a rate increase at their next meeting in March. But big questions remain about the pace of policy tightening, including how much and how often officials may raise rates this year, how soon they intend to start shrinking their nearly $9 trillion portfolio of assets and what that process will look like. We asked readers, and some other smart Fed-watchers, what they would ask Powell today — Ellen Meade, former senior economist at the Federal Reserve: "The FOMC has relied on the same process for tapering [asset purchases] as in 2014, although the timing has been more compressed this time around. Having an existing process is helpful in facilitating communications. "But to what extent has that reliable process slowed you down this time? You have tapered rather than stopped outright and you need to finish the taper before raising the funds rate. Meanwhile, inflation is running at 7 percent and many forecasters expect it to be at least that high over the next couple of months. "Is waiting until March to lift off risking the Fed's credibility? How has the process hampered your action?" Bill English, Yale finance professor and former director of the Fed's monetary affairs division: "Last time you wanted to wait until you were well away from the zero bound before you began that" process of shrinking the balance sheet. "There was a desire to move gradually. Given that the balance sheet is bigger now and you seem to be on a rapid path to raising rates, how does that affect those decisions and where does that bring you?" Megan Greene, senior fellow at Harvard Kennedy School and chief economist at Kroll: "Where does the Fed think all the workers have gone this time around, and based on that, can they really be pulled in from the sidelines? … The answer to the question is pretty key in figuring out what's happening with the labor market." Michael Strain, director of economic policy studies, American Enterprise Institute: "Is the Fed worried about the impact of quantitative tightening on the budget deficit? The Fed has become a major player in the Treasury market, and if the Fed is reducing its balance sheet then Treasury will need to find new buyers for its debt. Is the Fed worried about the level of investor demand for Treasuries, and will that factor into its decisions?" Chris Whalen, chair at Whalen Global Advisors:  Why do Fed officials think that they can shrink the portfolio without triggering another liquidity crisis? Lou Crandall, chief economist at Wrightson ICAP: "What role does the shape of the yield curve play in the Fed's policy deliberations? Does the Fed view the slope of the yield curve mainly as a reflection of economic conditions, or as a variable that can be actively manipulated for policy purposes?" Jeff Hauser, executive director of the Revolving Door Project: "Does the Fed believe that Congress has a reasonable oversight role to play in light of recent ethics failures? If yes, will the Fed commit to complying with Hill requests for information concerning the recently resigned senior officials and the broader conflict of interest policies that were in, or not in, place during the pandemic?" IT'S WEDNESDAY — Happy Fed Day to all who celebrate. Tell us: How do you press conference? We do two Diet Cokes, CNBC muted on the TV, Fed feed on the laptop, cell phone recording audio, on the couch. Also, send us your Fed takeaways and any remaining Powell questions at kdavidson@politico.com, aweaver@politico.com or on Twitter @katedavidson and @aubreeeweaver.   JOIN FRIDAY TO HEAR FROM GOVERNORS ACROSS AMERICA : As we head into the third year of the pandemic, state governors are taking varying approaches to public health measures including vaccine and mask mandates. "The Fifty: America's Governors" is a series of live conversations featuring various governors on the unique challenges they face as they take the lead and command the national spotlight in historic ways. Learn what is working and what is not from the governors on the front lines, REGISTER HERE.     Driving the Day SEC holds a meeting by teleconference to consider amendments to reporting requirements at 10 a.m. …Acting FHFA Director Sandra Thompson speaks at a virtual discussion hosted by Women in Housing and Finance at 12 p.m. … Fed releases policy statement at 2 p.m. and Powell holds press conference at 2:30 p.m. FED NOMINATION HEARINGS SET — The Senate Banking Committee has scheduled a hearing for Feb. 3 to consider the nominations of Sarah Bloom Raskin, Lisa Cook and Philip Jefferson to the Fed board. What about Powell? No word yet on when the committee plans to vote on Powell and Fed Governor Lael Brainard's nominations, but a quick reminder from your friends at MM: Although Powell's term as chair is set to expire on Feb. 4 (which also happens to be his birthday) there is precedent for the Fed chief to stay on as acting chair until the Senate takes a final vote on confirmation, and the central bank's policy-setting committee makes its own decision about whom to select as chair. This happened at least once during the Greenspan era, and it nearly happened during the Bernanke-to-Yellen transition. Rest assured, the Fed won't be leaderless in the weeks leading up to its critical March meeting. Meanwhile, Pennsylvania Senator Pat Toomey, the top Republican on the committee, "questioned the geographic and professional backgrounds of President Joe Biden's Federal Reserve picks amid a brewing conflict over diversity at the central bank and its role in dealing with climate change," Bloomberg's Steven Dennis reported. U.S. WARNS OF CRIPPLING EXPORT CONTROLS IF RUSSIA INVADES UKRAINE — Our Doug Palmer: "The United States and its European allies are prepared to impose extensive restrictions on exports of sophisticated technologies to Russia if Vladimir Putin decides to further invade Ukraine, senior U.S. administration officials said on Tuesday. "The allies are also in talks to minimize the potential for Russia to punish Europe for sanctions by cutting off natural gas shipments, and are closely aligned on the type of financial sanctions they are prepared to deploy, they said. "'The export control options we're considering alongside our allies and partners would hit Putin's strategic ambitions to industrialize his economy quite hard," a senior administration official told reporters on a briefing call. — French President Emmanuel Macron said he will speak by phone with Putin on Friday, our Hans Von Der Burchard reports. RAIMONDO WARNS OF PROLONGED SEMICONDUCTOR SHORTAGES — Also from Doug and Steven Overly: "The U.S. faces at least six more months of semiconductor shortages, and inventories are at such low levels that any unexpected event could lead to new supply disruptions, U.S. Commerce Secretary Gina Raimondo warned on Tuesday." "We aren't even close to being out of the woods as it relates to the supply problems with semiconductors," Raimondo told reporters during a virtual press briefing Tuesday. DOWNGRADES IN U.S., CHINA GROWTH PULL DOWN IMF GLOBAL FORECAST — Our Victoria Guida: "The IMF expects world gross domestic product in 2022 to grow 4.4 percent , a drop from an estimated 5.9 percent in 2021 and half a percentage point lower than the institution's prediction in October. The downgrade partially reflects the fact that the IMF no longer assumes the U.S. Congress will pass President Joe Biden's large social spending package and that the Federal Reserve is signaling that it will raise interest rates as soon as March." STOCK MARKET TURBULENCE CONTINUES — WSJ's Gunjan Banerji and Will Horner: "U.S. stock indexes tumbled, partly recovered and then retreated again in a second straight day of tumultuous trading, highlighting investor anxiety over the likely path of Federal Reserve interest-rate increases ahead of the central bank's regular meeting. "Tuesday's trading continues a topsy-turvy start to 2022 for stocks, which has dragged the S&P 500 down 8.6%, on track for the worst month since March 2020. All three major indexes fell Tuesday, though they closed well off session lows." HOW TO SAVE MINORITY-OWNED BANKS FROM EXTINCTION — Former comptroller of the Currency Gene Ludwig writes in POLITICO: "Before we face another recession, Congress and the White House should erect a safety net explicitly designed to buoy lenders caught in the grips of crises that are not of their making. Recent congressional funding boosts in these institutions are a good start. But to end the vicious cycle, Washington must be much more aggressive given the inevitable dips in the economy." THE RISE OF THE CRYPTO MAYORS— NYT's David Yaffe-Bellany: "The ballooning popularity of Bitcoin and other digital currencies has given rise to a strange new political breed : the crypto mayor. Eric Adams, New York's new mayor, accepted his first paycheck in Bitcoin and another cryptocurrency, Ether. Francis Suarez, Miami's mayor, headlines crypto conferences. Now even mayors of smaller towns are trying to incorporate crypto into municipal government, courting start-ups and experimenting with buzzy new technologies like nonfungible tokens, or NFTs, to raise money for public projects." HOUSE PANEL PLANS STABLECOIN HEARING NEXT MONTH  — The House Financial Services Committee has scheduled a full hearing for Feb. 8 to discuss a Treasury Department-led report on stablecoins, which recommended that Congress move forward with legislation to require issuers to seek a bank charter. Rep. Josh Gottheimer (D-N.J.), who sits on the committee, is planning legislation that would require stablecoins to either become a bank or partner with a banking institution, as well as impose reserve requirements. Jobs Report Mark Pocock will be the next deputy comptroller for supervisory systems and analytics starting next month, the Office of the Comptroller of the Currency said Tuesday. Pocock currently serves as a lead expert in systemic risk identification support. Peter Freeman was promoted to partner in FS Vector's government relations practice. Freeman, who joined the firm in January 2020, previously served as deputy chief of staff to former Reps. Ed Royce (R-Calif.) and Deborah Pryce (R-Ohio). Sherice Torres is joining Circle as chief marketing officer. Torres worked most recently at Meta — a.k.a. Facebook — where she served as chief marketing officer of Novi, the company's new cryptocurrency wallet.   STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president's ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.     FLY AROUND Melania Trump, a hat auction and the cryptocurrency crash. —WaPo's Jada Yuan Fidelity Investments Chief Executive Abigail Johnson, granddaughter of the financial behemoth's founder, checks the pulse of the investing world from an unlikely place these days: Reddit's stock-picking forums. —WSJ's Justin Baer Mortgage giant Fannie Mae is urging FEMA to set federal standards for how home sellers disclose flood risks to potential buyers. —Our Zack Colman Warren Buffett's Berkshire Hathaway plans this year to let shareholders attend the company's annual meeting for the first time in three years, amid signs the Omicron wave may have peaked in the United States. —Reuters' Jonathan Stempel   Follow us on Twitter Mark McQuillian @mcqdc Kate Davidson @KateDAvidson Aubree Eliza Weaver @aubreeeweaver Ben White @morningmoneyben Victoria Guida @vtg2 Katy O'Donnell @katyodonnell_ Zachary Warmbrodt @Zachary   Follow us

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