| | | | |  | | By Kate Davidson 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. There are a handful of reasons why Americans should shrug off this morning's ugly GDP number. The Biden White House doesn't have that luxury. Economists expect that first-quarter economic output slowed to near zero — or may have even contracted — on an annualized basis in the first three months of the year. The Commerce Department will release the data at 8:30 a.m. There are several caveats (we'll get to them below), but the numbers present a serious problem for Democrats who have been trying to convince voters that, apart from high inflation, the economy is in pretty good shape. In the latest Gallup poll released Wednesday, four in five adults rated current economic conditions as only fair (38 percent) or poor (42 percent). And more than three-quarters of Americans say the economy is getting worse. The resulting Economic Confidence Index is still well above the lows seen during the 2008-09 recession but has fallen since last July and is now worse than it was in April 2020, at the start of the pandemic. Voters from both parties will inevitably hold the president's party accountable for whether things feel on the right or wrong track, said Sarah Binder, a political science professor at George Washington University. "Slow growth — potentially still coupled with high inflation — inevitably makes it harder for the president's party to win elections," she said. "With slim majorities and Biden's popularity sagging, there's a strong risk that Democrats could lose control of both chambers."
| | | | 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. | | | | | What's going on? It's worth remembering that the new data on gross domestic product reflects economic activity from several months ago — January, February and March — and thus, some argue, we shouldn't give it too much weight. The GDP data also isn't necessarily a true reflection of the strength of the economy, said Stephen Stanley, chief economist at Amherst Pierpont, who expects that the economy shrank by 0.3 percent. Demand from consumers and businesses was likely robust — so much so that domestic production capacity has had trouble keeping up. That means businesses have had to import loads of merchandise from overseas, which has the effect of dragging down the GDP number. Some of that surge in imports may have ended up in inventories. But because inventories grew at a slower rate than they did in the fourth quarter — when businesses really began restocking shelves — that will also have the effect of lowering first-quarter GDP. Wells Fargo economists Jay Bryson and Shannon Seery noted that one quarter of negative growth does not a recession make, but added, "the probability of a recession next year is not insignificant." The White House is clearly ready to push back on any mention of the R word. A senior administration official tells MM none of this is really a surprise — independent forecasters had consistently predicted a slowdown at the start of this year, even before the war in Ukraine. Looking under the hood, this isn't in any way a signal of economic weakness, the official said, adding that the past two quarters still show very strong consumer and business demand, a trend forecasters see continuing this year. And the labor market is still fueling strong job gains, rapid wage growth and falling layoffs. So what's the problem? Broadly speaking, this is what one might expect or even hope to see when policymakers are trying to cool an overheating economy, said Tony Fratto, a former White House spokesperson for President George W. Bush and now a partner at Hamilton Place Strategies. "The prescription when you have full employment and inflation is to take the froth out of the economy for a little bit," Fratto said. "But the politics of negative growth, even for a quarter — at this time, in a midterm election year — are really, really risky for the White House." Democrats need to be ready to contend with Republicans ready to hammer them over the growth slowdown, which, coupled with high inflation and rising interest rates, may start to feel more like malaise, Fratto added. "They're not going to be talking about inventories," he said of the GOP. "They're purely going to be talking about how the Democrats' big spending caused inflation and a slowdown in the economy, and now it's only going to get worse." IT'S THURSDAY — We've got one more big data report tomorrow, then onto Fed week. Remember to pace yourselves and hydrate, friends! Meantime, please send us your tips and story ideas: kdavidson@politico.com, or @katedavidson, or aweaver@politico.com, @aubreeeweaver.
| | A message from Blackstone: Blackstone's investment approach is focused on the future. We identify companies that are shaping a stronger economy and help them accelerate their growth. We can deliver for our investors by strengthening the communities in which we live and work. Learn more. | | | | | | Commerce Department releases first-quarter GDP data at 8:30 a.m. … Treasury Secretary Janet Yellen speaks at a Brookings Institution forum on lessons learned from the economic policy response to Covid-19 at 9:35 a.m. … House Financial Services oversight hearing on the Financial Crimes Enforcement Network at 10 a.m. … House Financial Services hearing on mobile banking at 2 p.m. MEATPACKING CEOs DENY ANTI-COMPETITIVE ACCUSATIONS DURING GRILLING ON CAPITOL HILL — Our Meredith Lee: "The top executives of four meatpacking companies that dominate the U.S. beef sector on Wednesday rejected accusations from President Joe Biden and some lawmakers that the conglomerates are unfairly jacking up consumer prices while underpaying struggling farmers." HAMSTRUNG BY THE VENN DIAGRAM OF MANCHIN AND SINEMA ASKS — Our Adam Cancryn and Laura Barrón-López: "The White House began this week with a modest goal for resuscitating its domestic agenda: Get Joe Manchin to the negotiating table. So far, the seats are empty. "With the clock ticking on their hopes of clinching a major climate and deficit reduction deal before Memorial Day, Democratic leaders are again struggling to make progress — stymied by a lack of clear direction or an understanding of what both Manchin and Sen. Kyrsten Sinema (D-Ariz.), their two biggest obstacles, are prepared to support." "The White House is hamstrung by the Venn diagram of Manchin and Sinema asks," said a person familiar with Manchin and White House dynamics. JUDGE REJECTS ELON MUSK'S BID TO END SEC TWEET SETTLEMENT — Our Katy O'Donnell: "A federal judge on Wednesday denied Tesla CEO Elon Musk's request to terminate an agreement he entered with the SEC in 2018 requiring him to run certain Twitter posts by securities lawyers for pre-approval. The judge also denied Musk's motion to quash a new subpoena by the SEC. The decision came as Musk was in the process of acquiring Twitter for $44 billion." MAXINE WATERS TESTS POSITIVE FOR COVID-19 — Waters said in a statement she is isolating and asymptomatic, Katy reports. "I am following all protocols as recommended by the Office of the Attending Physician and [Centers for Disease Control and Prevention] guidance," Waters said. "I am grateful to be fully vaccinated and to have received two booster shots. Thankfully, I am feeling fine and recommend everyone to get vaccinated if you have not done so already." CFPB MULLS NEW RULES ON CREDIT CARD LATE FEES: From Katy again: CFPB Director Rohit Chopra said Wednesday he's asked agency staff "to look at whether we should reopen the CARD Act rules that were promulgated by the Federal Reserve Board over 10 years ago… to determine whether there needs to be any changes." Chopra was responding to a question from Rep. Carolyn Maloney (D-N.Y.) about late fees during his House Financial Services Committee oversight hearing. "Certainly late fees is an area that I expect to be one of the questions that we solicit input on," he said. MCHENRY WANTS DIGITAL ASSET REGULATION OUTSIDE SEC, CFTC — Rep. Patrick McHenry — poised to chair the House Financial Services Committee next year — said Wednesday that Congress should set up a new system of digital asset regulation outside the Securities and Exchange Commission and the Commodity Futures Trading Commission, which he said were ill-equipped for the task, our Zachary Warmbrodt reported. At an event hosted by Punchbowl News, the North Carolina Republican said lawmakers should define digital assets in federal law and then give them a regulator. He said they're neither securities nor commodities, which puts him at odds with SEC and CFTC officials who argue otherwise.
| | | | A message from Blackstone:   | | | | | | FIRST IN MORNING MONEY — House Agriculture Committee ranking member G.T. Thompson (R-Pa.) is linking up with a member of the Congressional Progressive Caucus on a bill that would give the CFTC direct oversight over a huge swath of the crypto spot market. Rep. Ro Khanna (D-Calif.), who's been floated by allies of Sen. Bernie Sanders (I-Vt.) as a possible presidential candidate in 2024, signed on to sponsor pending legislation that would clear a path for the CFTC to take jurisdiction over large parts of the crypto marketplace; treating digital exchanges similarly to designated contract markets and swap execution facilities. The bill is expected to get introduced later today with Rep. Darren Soto (D-Fla.), who like Khanna is a member of the Congressional Blockchain Caucus, attached as a co-sponsor. Thompson and Khanna's legislation marks the latest entrant in a series of crypto bills that have been floated as lawmakers and federal agencies hustle to create guardrails around the fast-growing industry. The bill, which is originating in a House Agriculture Committee that has oversight of the CFTC, adds more fuel to an industry-wide push to give the financial derivatives regulator more sway over an industry that's been highly critical of the approach taken by SEC Chair Gary Gensler — who's repeatedly contended that most digital assets could be characterized as securities. ADD ASTRA — Former Homeland Security Secretary Kirstjen Nielsen is the latest former Trump administration official to sign on with a crypto firm. Nielsen on Wednesday announced that she was joining Astra Protocol as a strategic adviser — following the footsteps of onetime Trump adviser Mick Mulvaney . Astra Protocol develops know-your-customer and anti-money laundering tools for decentralized smart contracts, bringing peer-to-peer blockchain transactions into compliance with rules that apply to banks and other financial institutions. In an interview, Nielsen said she'd advise the Zurich-based firm on emerging technologies, capital raising and regulation. "We see different countries — even different states within the United States — taking different approaches, and as everyone tries to figure it out there will be ways that might work better than others," she said adding that she also expects to advise the DeFi protocol "on not only how to comply, but how to help shape the conversation and raise awareness about the effects of different regulatory frameworks." MEDIATING THE DISINTERMEDIATED — CFTC Chair Rostin Behnam is planning to hold a roundtable at the end of next month covering the role of financial intermediaries in the derivatives space. The hook? FTX's proposal to clear retail crypto trades on margin without going through a broker. Traditional derivatives players like the Chicago Mercantile Exchange and the Intercontinental Exchange — as well as other crypto exchanges like Coinbase and Binance — are watching the possible rule change closely. In an appearance at the City Week conference in London on Wednesday, Behnam said his staff had worked with FTX for months on its proposal, which he characterized as "bringing in a market structure model which is functionally foundational to digital assets — non-intermediation — and presenting it into a market structure model that only knows intermediation," Behnam said. "That [opens] a series of questions that I think are going to be very interesting to ask and answer as a next step in this story of: what role do digital assets have in traditional finance, and how will the two merge?"
| | | | JOIN US ON 4/29 FOR A WOMEN RULE DISCUSSION ON WOMEN IN TECH : Women, particularly women of color and women from disadvantaged socioeconomic backgrounds, have historically been locked out of the tech world. But this new tech revolution could be an opportunity for women to get in on the ground floor of a new chapter. Join POLITICO for an in-depth panel discussion on the future of women in tech and how to make sure women are both participating in this fast-moving era and have access to all it offers. REGISTER FOR THE CHANCE TO JOIN US IN-PERSON. | | | | | | | | If you're a Federal Reserve policy maker, the stock selloff of the last few weeks comes with a silver lining. — Bloomberg's Katherine Greifeld European leaders denounced Russia's attempt to "blackmail" Ukraine's allies over gas supplies, as Western sanctions batter the Russian economy already struggling with its worst crisis since the 1991 fall of the Soviet Union. — Reuters' Marek Strzelecki, Tsvetelia Tsolova and Pavel Polityuk Inflation is the result of demand growing faster than supply. Central banks can deal with the demand part. The problem is that the world they confront in coming years might be one of recurrent supply shocks. — WSJ's Greg Ip
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