Disunited Group of 20

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Apr 21, 2022 View in browser   By Kate Davidson and Aubree Eliza Weaver 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. The most important steering group for the global economy is starting to go off the rails. Wednesday's walkout by U.S., European and Canadian officials in protest over Russia's participation in a Group of 20 meeting — while many others, including China and India, remained — laid bare the deep fissures among its members over the war in Ukraine. Tension among the Group of 20 major economies isn't new. And the decision by Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and a number of their counterparts wasn't a surprise — Yellen had made clear the U.S. would skip some meetings if Russian officials were allowed to attend. Still, the move underscored how difficult it will be for the world's biggest economies to come together to confront major global challenges, including elevated inflation, rising interest rates, slower growth and food insecurity — and of course, the consequences of the war. "The forum has been struggling to find consensus for the past decade or so after its heyday in the 2008/2009 global financial crisis, when it really did serve as the steering group and brought the world together to restore growth and avoid protectionism and stabilize the financial system," said Matthew Goodman, senior vice president for economics at the Center for Strategic and International Studies, who served as a deputy sherpa to the G-20 during the Obama administration. "Those days are long gone," Goodman said. "Really since 2010, it's struggled to find its way." That couldn't come at a worse time for the global economy, he added. The International Monetary Fund on Tuesday projected global growth of 3.6 percent in 2022 and 2023 — down 0.8 and 0.2 percentage point, respectively, from its January forecast. And it warned that the war in Ukraine will "severely" set back the global recovery from Covid-19. Goodman said the G-20 is needed more than ever to help coordinate the response, not only in developed nations such as the U.S., U.K., Germany, Canada and Japan, but in large emerging market economies, such as China, India and Brazil. "The fact that the G-20 is not going to be able to do that is a real problem for the world," he said. "And there's really no alternative. The UN is too big and too amorphous and doesn't really focus on global economic issues." The World Bank and International Monetary Fund, meanwhile, are much bigger organizations and tend to be slower moving. The big question now is whether the G-20 leaders will be able to come together in the fall. President Joe Biden has called for Russia to be removed from the group. Indonesia, which chairs the G-20 this year and will host the leaders gathering in Bali, decided to keep Russia on the guest list for this week's finance ministers and central bank governors meeting, despite objections from some members. "There is a strong condemnation regarding the war in Ukraine by Russia, but all members essentially underlined the need for all of us to continue maintaining G-20 cooperation and the importance of multilateralism," Indonesian Finance Minister Sri Mulyani Indrawati said at a press conference following the meeting. "I'm confident that this will not erode the cooperation as well as the role of the G-20 forum," she added. White House Press Secretary Jen Psaki, asked about Yellen's walkout, said the president and the Treasury chief have said that "we can't have business as usual" at the G-20 and other international forums. She didn't say whether Biden may respond similarly if President Vladimir Putin shows up in Bali this fall. "I can't make a prediction of what actions he may or may not take," Psaki said, "but certainly we support her steps and it's an indication of the fact that President Putin and Russia has become a pariah on the global stage." IT'S THURSDAY — Get the popcorn ready: Fed Chair Jay Powell will make his last remarks this afternoon before the central bank's blackout period begins ahead of its May 3-4 policy meeting. Will we get another unusually blunt assessment of the Fed's likely path, or something a bit more typically cryptic? Let us know what you think: kdavidson@politico.com or @katedavidson, or aweaver@politico.com or @aubreeeweaver.   DON'T MISS ANYTHING FROM THE 2022 MILKEN INSTITUTE GLOBAL CONFERENCE: POLITICO is excited to partner with the Milken Institute to produce a special edition "Global Insider" newsletter featuring exclusive coverage and insights from the 25th annual Global Conference. This year's event, May 1-4, brings together more than 3,000 of the world's most influential leaders, including 700+ speakers representing more than 80 countries. "Celebrating the Power of Connection" is this year's theme, setting the stage to connect influencers with the resources to change the world with leading experts and thinkers whose insight and creativity can implement that change. Whether you're attending in person or following along from somewhere else in the world, keep up with this year's conference with POLITICO's special edition "Global Insider" so you don't miss a beat. Subscribe today.     Driving the Day Powell delivers welcoming remarks at a briefing on inflation and recession risks hosted by the Volcker Alliance and Penn Institute for Urban Research at 11 a.m. … Yellen holds a press conference at 11 a.m. … Yahoo! Live interview with San Francisco Fed President Mary Daly at 11:30 a.m. … Powell speaks on a panel on the global economy with ECB President Christine Lagarde at 1 p.m. U.S. UNVEILS NEW SANCTIONS AS RUSSIA CONTINUES DONBAS ASSAULT — Our Quint Forgey: "The Biden administration on Wednesday leveled new sanctions against a Russian commercial bank, a Russian oligarch and Russia's virtual-currency mining industry. The actions, announced by the Treasury Department, come on the second day of Russia's new offensive in the Donbas region of southeastern Ukraine, where Russian forces have launched their anticipated assault after withdrawing from the northern part of the country. "Earlier Wednesday, Undersecretary of State for Political Affairs Victoria Nuland previewed a new round of U.S. sanctions, telling MSNBC in an interview that the United States must 'continue to up the pressure' on Russian President Vladimir Putin and 'the richest Russians, so that they will pressure Putin.'" HIRE NOW, FIRE LATER? SCHOOLS FLUSH WITH CASH FACE FUNDING CLIFF — POLITICO'S Juan Perez Jr. and Lara Korte: "States are awash in money — and facing pressure from the Biden administration and teachers unions to spend it on schools. But here's the catch: lofty education promises made today may be seeding layoffs tomorrow. … "School districts and administrators can tap the use-it-or-lose-it Covid relief money approved by Congress to address emergencies and attract in-demand workers like bus drivers and substitute teachers. But schools could face a 'funding cliff' when federal monies run dry in September 2024. That's made many of those same state and local education officials nervous about sustaining any ambitious pay boosts and hiring sprees once their budgets are no longer cushioned with federal cash."   INTRODUCING DIGITAL FUTURE DAILY - OUR TECHNOLOGY NEWSLETTER, RE-IMAGINED:  Technology is always evolving, and our new tech-obsessed newsletter is too! Digital Future Daily unlocks the most important stories determining the future of technology, from Washington to Silicon Valley and innovation power centers around the world. Readers get an in-depth look at how the next wave of tech will reshape civic and political life, including activism, fundraising, lobbying and legislating. Go inside the minds of the biggest tech players, policymakers and regulators to learn how their decisions affect our lives. Don't miss out, subscribe today.     Crypto FULL COURT PRESS — Our Sam Sutton writes: Crypto heavyweights are kicking up dust over a proposed Securities and Exchange Commission rule that could force decentralized trading platforms and software providers to register with the agency. Under the proposal, trading services that connect buyers and sellers of securities — known as communication protocol systems – would be subject to the same record keeping and capital requirements as other exchanges and broker-dealers, including those registered as an alternative trading system. Public comment on the proposal concluded earlier this week and, while there's no mention of crypto or decentralized finance in its 600-plus pages, top players in the digital asset space raised the specter of legal challenges if the agency took a broad view on what counts as a "communication protocol system." "The quiet expansion of these registration requirements to DeFi protocols, without explicit justification or grounding in clear statutory text … raises concerns about the Commission overstepping its authority," wrote top attorneys for the web3 venture powerhouse Andreessen Horowitz in an April 18 comment letter. That argument hinges on the venture capital firm's interpretation of the Administrative Procedure Act, which is designed to keep regulators from making new rules without providing proper notice to affected industries. Andreessen Horowitz wasn't the only party to make that case. Similar concerns were included in comment letters submitted by Coinbase, the world's second-largest crypto exchange, as well as Consensys, a software company that operates on the Ethereum blockchain, as well as industry groups like theAssociation for Digital Asset Markets,Blockchain Association,DeFi Education Fund and the Crypto Council for Innovation. Those groups did not comment on whether they'd challenge the rule in court if it's eventually used to bring DeFi platforms and service providers under SEC jurisdiction. However, given the legal challenges other crypto firms have mounted against the agency, it's clear they're setting a marker. CRYPTOCURRENCY MINER IS LATEST RUSSIAN SANCTIONS TARGET — AP's Fatima Hussein: "The sanctions include the first set of penalties against cryptocurrency mining firms in relation to the war. … Digital currency firm Bitriver AG and 10 of its subsidiaries were included in Wednesday's package of sanctions from Treasury's Office of Foreign Assets Control." Fed File FED'S DALY: CASE FOR HALF-PERCENTAGE-POINT HIKE IN MAY IS 'COMPLETE' — Reuters: "San Francisco Federal Reserve President Mary Daly on Wednesday said she believes the case for a half-percentage-point interest rate hike next month is 'complete' and 'solid,' with the U.S. central bank's rate hike path this year broadly seen as appropriate in the face of high inflation." FED SAYS HIGH INFLATION, GEOPOLITICS ARE CLOUDING OUTLOOK — Bloomberg's Jonnelle Marte: "The U.S. economy grew at a moderate pace through mid-April , but rising prices and geopolitical developments created uncertainty and clouded the outlook for future growth, the Federal Reserve said. "'Inflationary pressures remained strong since the last report, with firms continuing to pass swiftly rising input costs through to customers,' the U.S. central bank said in its Beige Book survey released Wednesday. 'Outlooks for future growth were clouded by the uncertainty created by recent geopolitical developments and rising prices.' The report was based on anecdotes collected by the Fed's 12 regional banks through April 11 and compiled by the Federal Reserve Bank of Minneapolis." Jobs Report Kirsten Sutton has been named executive vice president of congressional relations and legislative affairs at the American Bankers Association. Sutton will replace James Ballentine, who is retiring as ABA's top lobbyist after two decades with the association. Sutton joined ABA in 2020 as executive director of its Card Policy Council, and previously served as chief of staff to former CFPB Director Kathy Kraninger and former acting CFPB Director Mick Mulvaney during the Trump administration. She also served as staff director on the House Financial Services Committee under then-Chair Jeb Hensarling. Fly Around The dollar is reaching fresh nearly two-year highs, lifted by looming interest-rate increases from the Federal Reserve, strong U.S. growth and geopolitical jitters overseas. m— WSJ's Julia-Ambra Verlaine: " The heads of the International Monetary Fund and the World Bank warned Wednesday that rising interest rates are squeezing the world's poorest countries as they struggle with the coronavirus and soaring food prices. — AP's Paul Wiseman The U.S. consumer is holding up well as inflation rises and interest rates climb, Bank of America Corp. Chief Executive Officer Brian Moynihan said. "There is a lot of dry powder on the consumer side," Moynihan said in a Bloomberg TV interview with David Westin Wednesday. — Bloomberg's Katherine Doherty   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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