| | | | |  | | By Kate Davidson | Presented by Ripple | 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. GOOD MORNING FROM THE WEST COAST — Your MM host is in L.A. this week at the Milken Institute Global Conference, where we'll be moderating a panel this afternoon on how the private sector can help level up the government's $1 trillion infrastructure law. Deputy Treasury Secretary Wally Adeyemo is also speaking at the conference today about strengthening economic opportunity in America. And U.S. Trade Representative Katherine Tai is having a one-on-one conversation with Marketplace's Kai Ryssdal. You can check out the rest of the agenda here. 50 IS THE NEW 25 — The big news this week will come Wednesday, when Federal Reserve officials are expected to lift short-term interest rates again to combat blistering price increases. Markets widely expect — and Fed officials including Chair Jay Powell have signaled — that the central bank's latest move will be a super-sized rate hike of half a percentage point, versus the typical quarter-percentage-point increase. How many of these extra-large rate increases are we in store for? That's one of the biggest questions that markets and Fed watchers have for Powell, who will face reporters for the first time in person since the onset of the pandemic at his post-meeting press conference.
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Fed Chair Jerome Powell speaks at a conference in Washington following the Fed's March policy meeting. | Samuel Corum/Getty Images | Powell last month suggested that more substantial rate increases could be warranted to help bring down inflation. Federal funds futures markets are already pricing in expectations of another big rate hike — possibly as much as three-quarters of a percentage point, or 75 basis points — at the Fed's next meeting in June, and another large one at its meeting in July. Those expectations have helped fuel volatility in financial markets in recent weeks, as investors brace for the possibility that Fed officials may slam the brakes on the economy so hard that they trigger a recession. But the longer it takes to tame inflation, the higher officials may have to raise rates to get it under control. So is 50 the new 25? That is, should we expect half-percentage-point increases until further notice? And if so, how will Fed officials decide — and importantly, how will they communicate — when it's time to back off and return to the typical smaller rate increases we've seen in recent tightening cycles? On the other side, how will they determine if they need to go for an even bigger rate hike at some future meeting? It's on Powell to navigate those tricky questions this week. "Market participants are already debating whether the June move will be 50 or 75 BPs (I am in the 50 BPs camp), so Chairman Powell has a critical task to shape the field for the next few months at his press conference," said Larry Meyer, a former Fed governor and head of LH Meyer Monetary Policy Analytics, in a note to clients. "We still do not expect the hike in May (or in June, or at any meeting, for that matter) to be 75 basis points, and we still don't see a need for more than two 50s," Meyer added. Neutral or bust? — it depends critically on where the Fed is ultimately guiding interest rates and how quickly it feels the need to get there. At the heart of the debate: whether the central bank needs to return interest rates to a neutral level, neither stimulating nor restricting the economy, or whether it needs to move rates higher still to tamp down price pressures. Meyer assumes the Fed is aiming to bring the funds rate to 2.5 percent by the end of the year, and ultimately up to 3 percent. Deutsche Bank economists are banking on three 50-basis-point increases — in May, June and July — and expect the federal funds rate to end up at 3.6 percent around the middle of next year, tipping the economy into a mild recession over the next two years. "We expect Powell to affirm current market pricing for 50bp moves at the June and July meetings – or at the very least, not push back on market pricing," economists Matthew Luzzetti, Brett Ryan, Justin Weidner and analyst Amy Yang wrote in a note to clients.
| | A message from Ripple: Ripple is helping build the future of global finance. We're doing for value what the internet did for information: enabling its instant and seamless flow around the world. Using the power of blockchain and cryptocurrency, we enable financial institutions and other businesses to unlock economic opportunity, gain business advantage and drive U.S. innovation—all while supporting their compliance efforts. Learn more about a U.S.-based crypto innovator: realvaluerightnow.ripple.com | | | Turn it up to 11 — Bill Nelson, chief economist at the Bank Policy Institute and a former senior Fed economist, sees even more aggressive moves. In an analyst note he said "there appears to be broad agreement across the Committee about what to do, at least for the next few meetings: Tighten the target range for the fed funds rate 50 basis points a meeting at least until they get to 2½ percent." "While there is probably significant disagreement across participants about what is likely to happen after that point, there is no reason why the FOMC statement or Chair Powell in his press conference will need to take a position on anything other than the immediate future," he said. On message — Nelson predicts officials will tweak the fourth paragraph of their post-meeting statement, removing the language that suggests they'll be prepared to adjust the stance of policy if they see risks to their goals, and replacing it with something like: "The Committee expects to move the stance of monetary policy expeditiously to a more neutral level, and would move to more restrictive levels if that is what is required to attain the Committee's inflation and employment objectives." One more thing to keep an eye on — The Fed's policy committee will receive a briefing at the meeting on a draft of the Fed board's financial stability report, Nelson said. That could provide an opportunity for Powell to weigh in on how the Fed views market functioning given recent volatility. Remember that last time they got a briefing in January, Fed staff judged financial stability risks to be "notable," while Powell said they were manageable. IT'S MONDAY — Stick with us this week for updates from Milken, where we'll be sharing insights from the stage and sidelines, with a little help from our colleague Ryan Heath, who is covering the conference with a special edition Global Insider newsletter. You can sign up here. Meanwhile, please don't forget to send us your tips, story ideas and other feedback: kdavidson@politico.com, @katedavidson.
| | | | 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. | | | | | | | | TODAY — March construction spending released at 8:30 a.m. … CFPB Director Rohit Chopra speaks at the Independent Community Bankers of America summit at 2:45 p.m. THIS WEEK — March JOLTS data released Tuesday … Sen. Mike Rounds speaks at ICBA summit Tuesday … Assistant Treasury Secretary for Financial Institutions Graham Steele speaks at the ICBA summit Wednesday … Trade data released Wednesday … Treasury Secretary Janet Yellen speaks at a Wall Street Journal event Wednesday … Fed statement and Powell press conference Wednesday … Senate Banking hearing on overdraft fees Wednesday … First-quarter productivity data released Thursday … Senate Banking hearing on student loan servicers Thursday … April jobs report released Friday … Fed governor Chris Waller speaks at the Hoover Institution Friday FSB: MORE CLIMATE SCRUTINY NEEDED — Our Hannah Brenton in Brussels: "Watchdogs around the world must step up their scrutiny of the risks climate change could pose to the financial system, the Financial Stability Board warned Friday. That effort includes collecting data, running stress tests and potentially adapting existing buffers and tools designed to protect the system as a whole, according to the global standard-setting body." INFLATION RISES TO FOUR-DECADE HIGH — WSJ's Gwynn Guilford: "Consumer prices rose 6.6% in March from a year before, up from February's revised 6.3% increase, as measured by the Commerce Department's personal-consumption expenditures price index, which it reported Friday. The March rise was the fastest since January 1982. "The so-called core PCE index—which excludes volatile food and energy prices—increased 5.2% in March from a year earlier, down from a revised 5.3% in the year through February." WORLD ECONOMIC OUTLOOK TURNS GRIM — Bloomberg Opinion's Lara Williams takes us on a spin through a few charts. "Just when we thought we were out of the worst of the pandemic's main economic challenges, stuff got weirder. Now, thanks to a combination of Vladimir Putin's war in Ukraine, rising inflation and more Covid-19 cases, countries have their own unique cocktails of challenges and weak spots to contend with."
| | | UNCERTAINTY DRIVES MARKETS LOW, LOW, LOW LOW — WaPo's Abha Bhattarai and Tony Romm: "Uncertainty about the trajectory of the economy played a role in market turmoil on Friday , as the tech-heavy Nasdaq closed down 4.2 percent for the day and the Dow Jones industrial average lost 939.18 points, or 2.8 percent. The S&P 500 tanked 3.6 percent on Friday, erasing 9.1 percent of value in April, its worst month since March 2020. And it's down 13.8 percent in 2022, the worst start to the year since World War II." Meanwhile, WSJ's Matt Grossman reports, the yield on the 10-year U.S. Treasury note logged its biggest monthly increase in more than a decade in April, lifted by mounting expectations for higher interest rates that have deepened the pain for debt investors. BUFFETT: MARKETS HAVE BECOME A 'GAMBLING PARLOR' — WSJ's Akane Otani: As recently as February, Warren Buffett lamented he wasn't finding much out there that was worth buying. That is no longer the case . After a yearslong deal drought, Mr. Buffett's Berkshire Hathaway Inc. is opening up the spending spigot again. …" "'It's a gambling parlor,' Mr. Buffett said Saturday of the markets over the past few years. … While he finds speculative bets 'obscene,' the pickup in volatility across the markets has had one good effect, he said: It has allowed Berkshire to find undervalued businesses to invest in again following a period of relative quiet."
| | | | A message from Ripple:   | | | | | | WHAT'S IN STORE FOR WASHINGTON AND CRYPTO — Pro subscribers convened Friday for a briefing with our Ben Schreckinger, Sam Sutton and Zach Warmbrodt on the regulatory and legislative implications of the growing cryptocurrency market. The short version: From global dollar dominance to securities enforcement to intraparty politics, crypto has the potential to shake up Washington just as it has the financial markets. Pros can read some key takeaways here. WALL STREET RELUCTANTLY EMBRACES CRYPTO — WSJ's Justin Baer: "Wall Street has a message for its many clients that have been eager to invest in cryptocurrencies: OK, OK, we hear you. The largest U.S. banks, securities firms and custodians, many of whom once greeted the emergence of digital assets with skepticism, are now showcasing their forays into the market."
| | | EU STEPS UP ACTION ON RUSSIAN OIL SANCTIONS — FT's Guy Chazan, Henry Foy, and Marton Dunai: "Germany has called for a phased-in ban on Russian oil imports into the EU, stepping up pressure on Brussels to find a deal between divided member states ahead of a crunch week for the bloc's policy on Russian energy. Jörg Kukies, one of chancellor Olaf Scholz's closest advisers, said Berlin was in favour of an oil embargo, but needed a 'few months' to prepare for an end to Russian crude shipments. Germany had previously said it would need until the end of the year." RUSSIA MAKES LAST-GASP BID TO AVOID DEFAULT — Reuters: "Russia made what appeared to be a late u-turn to avoid a default on Friday, as it made a number of already-overdue international debt payments in dollars despite previously vowing they would only be paid in roubles."
| | | Prosecutors, federal police and other officials searched Deutsche Bank's headquarters in Frankfurt on Friday in a move that Germany's largest lender said was linked to suspicions of money laundering it had reported to the authorities. — Reuters' Tom Sims and Frank Siebelt Biden administration officials are debating how — and even whether — to lower some of former President Trump's tariffs against China to help ease inflation. —Axios' Hans Nichols Rampant inflation is helping reduce the weight of the world's public debt relative to its economic output , a boon for governments that economists warn could easily backfire if inflation stays unchecked. —WSJ's Tom Fairless
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