Groundhog Day for Build Back Better

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Feb 02, 2022 View in browser   By Kate Davidson, Aubree Eliza Weaver and Sam Sutton 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. Government funding. China competition. Russia sanctions. Electoral count reform. Federal Reserve nominations — and oh yeah, an open Supreme Court seat. Democrats determined to salvage something from the president's Build Back Better agenda must contend with a crowded congressional calendar that could distract from their latest efforts at compromise. Can they pull something off? Policy analysts give it about a 50-50 chance. "It's a little bit of a Groundhog Day story," said Andy Laperriere, policy analyst for Cornerstone Macro research firm. "What's changed is now there is more of a realistic assessment of what could get done." Investors and executives, after anticipating a huge new government spending package last year, have shifted their focus from fiscal policy to monetary policy, as the Fed steps up its efforts to defeat inflation. And Wall Street firms dialed back their expectations for 2022 economic growth after Build Back Better stalled late last year. But there are signs of life: President Joe Biden has acknowledged that it will be necessary to pare back the White House's agenda to advance parts of the plan that have enough support. And progressives have signaled they're ready to acquiesce to some of Sen. Joe Manchin's (D-W.Va.) demands to secure a legislative win. Then again, there are moments like yesterday, when Manchin was asked whether he was engaged in negotiations on Build Back Better: "No, no, no, no. It's dead." Asked to clarify, Manchin said, "If we're talking about the whole big package, that's gone." Would he mind a smaller version? "We'll see what people come up with. I don't know." OK then. What would a smaller measure potentially look like? Rep. Pramila Jayapal (D-Wash.) said Manchin has told her he supports these portions of the House-passed legislation: $550 billion on climate change, universal pre-K, eldercare, child care, lowering prescription drug costs and housing provisions. Jayapal, a prominent House progressive, called on Congress last week to move quickly to pass portions of the legislation, our colleagues reported. But it's still not entirely clear whether all progressives would go along with such a dramatically scaled back plan, said Alec Phillips, chief political economist for Goldman Sachs. "It means that you probably have to tell people that more than two-thirds of the things in the bill that they were looking for are not going to be in there," Phillips told MM. "And the question is, can you really do that when you need basically every vote in both chambers?" There's also the matter of the calendar. Congress is a deadline-driven institution, but there aren't many dates on the calendar that could pressure lawmakers to secure a deal, save for the upcoming government funding deadline (Feb. 18) and the president's State of the Union address (March 1). "My impression is people are sort of thinking about Easter as the time when, if they haven't gotten it done by that recess, then it's probably hard to see it happening," Laperriere said. On the other hand, Democrats still control both chambers and the White House, so the old adage of "nothing happens in an election year" may not play out the same way. Wall Street isn't holding its breath. At this point, whatever package eventually comes together probably won't have much impact on the economy this year, Phillips said. Traders on the website PredictIt put the odds of Build Back Better passing by April 1 at just 6 percent on Tuesday. "People are not foreclosing the possibility of any type of a bill happening, but at the same time it seems like there's very little focus on it at the moment and probably not much being priced in," Phillips said. IT'S WEDNESDAY — What to call the compromise legislation? Slate's Jordan Weissmann had this savage suggestion: The Reducing Inflation, Deficits, and C02 and Improving Childcare but Ultimately Leaving Ourselves Unsatisfied Act, aka The RIDICULOUS Act. Send us your rebranding ideas, along with tips and takes, at kdavidson@politico.com, aweaver@politico.com, and on Twitter @katedavidson and @aubreeeweaver.   DON'T MISS CONGRESS MINUTES: Need to follow the action on Capitol Hill blow-by-blow? Check out Minutes, POLITICO's new platform that delivers the latest exclusives, twists and much more in real time. Get it on your desktop or download the POLITICO mobile app for iOS or Android. CHECK OUT CONGRESS MINUTES HERE.     Driving the Day ADP employment report released at 8:15 a.m. … House Financial Services subcommittee hearing on challenges serving people experiencing homelessness at 10 a.m. … Senate Commerce votes on nominations of Jed Kolko to be Commerce undersecretary for economic affairs and Alvaro Bedoya to be a Federal Trade Commission member at 10 a.m. … Brookings Institution virtual discussion on fintech in Black-majority communities at 2 p.m. DISPATCH ON BIDEN'S FED NOMINEES — Our Victoria Guida asked Manchin on Tuesday what he thought of Biden's batch of nominees to the Federal Reserve, and the West Virginia Democrat said: "They all look extremely qualified." That's a boon for Biden's effort to get his slate of Fed candidates confirmed — some of them might need all 50 Dems to get through — but he can't celebrate yet: Manchin hasn't committed to voting for them. — Meanwhile, a few more endorsements for the nominees, including a statement from the National Bankers Association, and letters from 24 state and local municipal officials and community bankers from the Northeast and Mid-Atlantic. — An important note about hearing timing : The Senate Banking Committee yesterday moved up the start time for Thursday's confirmation hearing to 8:45 a.m. FED NOMINEE HAS STUDIED HOW POLICIES AFFECT ECONOMIC OPPORTUNITIES — WSJ's Amara Omeokwe: "Economist Lisa Cook has often focused her research on policies that promote broad economic opportunity, particularly for racial minorities and women, an approach she could soon bring to the central bank and its policy making." CLIMATE CHANGE A RISING FED CONCERN AS NOMINEES FACE HEARING — AP's Christopher Rugaber: "How far the Federal Reserve can go to compel banks to consider the consequences of climate change in their lending policies could take center stage at a Senate hearing Thursday on the nominations of Sarah Bloom Raskin and two economists to the Fed's influential Board of Governors. Crypto DIEM DEFERRED — More fallout from the collapse of Facebook's attempt to launch its own cryptocurrency. Diem Association CEO Stuart Levey said in an interview with our Sam Sutton on Tuesday that he hopes his team's work to comply with federal anti-money laundering and fraud regulations is replicated by future stablecoin projects. "If we're going to have a digital asset-based payment system — as opposed to just using it for, you know, crypto trading and decentralized finance — we've got to make sure that is not a haven for criminals, that it doesn't gut U.S. sanctions programs or the sanctions programs of our allies, and that it's actually safe for consumers to use," said Levey, who previously served as Treasury's undersecretary for Terrorism and Financial Intelligence under Presidents George W. Bush and Barack Obama. "Additionally, the basic protections of the reserves underlying the stable coins [have to be] clear. Those are, I think, the potential positives that will come out of this project and I hope to see those happen." — Senate Banking Chair Sherrod Brown, who criticized the project in a letter to Meta CEO Mark Zuckerberg, celebrated Diem's collapse as "good news for consumers," the Ohio Democrat said in a statement. "I still have major concerns with big tech companies moving into the financial space — especially to compete with the U.S. dollar — and the risk that brings to consumers and our entire economy." — Block CEO and Bitcoin proponent Jack Dorsey also weighed in, per Bloomberg: "They tried to create a currency that was owned by Facebook — probably for the right reasons, probably for noble reasons — but there were also some reasons that would indicate trying to get more and more people onto the Facebook ecosystem," the former Twitter CEO said on Tuesday at the MicroStrategy World conference. "They did that instead of using an open protocol and standard like Bitcoin." CIRCLE ON THE OFFENSIVE — Stablecoin issuer Circle is mounting a PR offensive saying that a federally issued virtual currency would "carry the specter of privacy erosion, making cyber threats and technology upgrades a taxpayer burden," according to ad copy that's set to run in a half-dozen financial publications. The Goldman Sachs-backed payments company is launching the campaign in advance of a House Financial Services Committee hearing on stablecoins scheduled for Feb. 8 and the Winter Olympics in Beijing — which is slated to be a showcase for China's digital yuan. Circle's dollar-pegged stablecoin USD Coin has a market cap of roughly $50 billion. Economy JOB OPENINGS, QUITS REMAINED ELEVATED AT END OF 2021 — WSJ's Bryan Mena: "The U.S. labor market remained tight at the end of last year with job openings and worker turnover hovering near the highest levels on record, though there are signs demand cooled as the Omicron variant disrupted the economy in January. The Labor Department on Tuesday said there were 10.9 million job openings in December, up slightly from 10.8 million the previous month. Meanwhile, the number of times workers quit fell to 4.3 million in December, from a record 4.5 million." But despite labor shortages, workers are seeing few gains in economic security, NYT's Noam Scheiber writes. NATIONAL DEBT TOPS $30T — NYT's Alan Rappeport: "America's gross national debt topped $30 trillion for the first time on Tuesday, an ominous fiscal milestone that underscores the fragile nature of the country's long-term economic health as it grapples with soaring prices and the prospect of higher interest rates." MM sidebar: Important to remember that most economists, even those concerned about rising debt levels, consider "debt held by the public" to be the more economically meaningful measure. That number now exceeds $23 trillion, up from around $17 trillion at the start of the pandemic. Debt as a share of GDP, however, declined to around 96 percent at the end of 2021, thanks to surging economic growth last year.   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.     Jobs Report James Ballentine, the head lobbyist for the American Bankers Association, is retiring on April 15 after two decades representing lenders in Washington, ABA President Rob Nichols said in an internal memo Tuesday. Ballentine joined the group in 2000, after serving at the Small Business Administration and as a senior congressional staffer. Glenn Rudebusch is joining the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution as a non-resident senior fellow focusing on the economics of climate change. Rudebusch recently finished a stint as executive vice president and senior advisor at the San Francisco Fed, where he has worked since 1994. FED WATCH RISKIEST CORPORATE BONDS SHOW FED HAS ROOM FOR HIKES — Bloomberg's Edward Harrison: "January saw a lot of equity-market volatility. But February may allow markets to calm. If you look at yields for the lower-rated high-yield bonds, there is little reason for concern. Credit may take on greater importance as the Federal Reserve assesses financial conditions, and that makes the next three Fed rate hikes a lock." FED'S BULLARD SAYS UNEMPLOYMENT RATE COULD DROP BELOW 3 PERCENT THIS YEAR — Reuters' Howard Schneider and Jonnelle Marte: "St. Louis Federal Reserve Bank President James Bullard said he sees the unemployment rate falling below 3 percent this year, a jobless rate the U.S. economy last saw in the early 1950s."   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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