No end in sight for Fed-delivered beatings

Presented by Altria: Tomorrow's conversation, tonight. Know where the news is going next.

Sep 30, 2022 View in browser   By Ben White Presented by Merchandise for sale is displayed at a store closing. | Spencer Platt/Getty Images NO PAIN, NO GAIN — Fed Chair Jerome Powell would love to stop pumping the brakes on the economy with multiple, hefty interest rate hikes. He knows the aggressive boosting will almost certainly cause recession — potentially a bad one — and a significant spike in unemployment. And people will hate him for it, especially Democrats looking to retain power.  He would rejoice if rampant inflation came down on its own without the steel-toed boot of the world's largest central bank stomping on its neck. "I wish there was a painless way," Powell lamented earlier this month. "There isn't." The Fed chief got no good news today with the latest reading on the core Personal Consumption Expenditures price index (our friend, PCE, which we've explained in this space before) rising faster than expected despite multiple rate hikes that now total 3 percent on the year, though the last one came in September so would not have impacted today's number. Core PCE, which excludes volatile food and energy prices, is the Fed's preferred metric for showing what prices are really doing across the economy. And at least through August what they were doing was rising. A lot. Across most of the economy. The figure jumped 0.6 for the month in August after being flat in July. And it rose to 4.9 percent over the same time last year, higher than the Wall Street consensus of 4.7 percent, which was the level for July. All of this means that while Fed hikes have driven up mortgage rates and slowed the housing sector they have yet to cool overall consumer demand or spending in a way that would bring inflation back to the central bank's target of around 2 percent per year. In other words: The Fed-delivered beatings will continue until morale improves. The central bank is expected to keep hiking through this year and next. And it won't stop until core inflation relents. So far, Powell and his colleagues have escaped heavy criticism, either from a White House worried about the midterms and 2024 or Democrats more broadly beyond comments from Sen. Elizabeth Warren (D-Mass.) who said she was "very worried" that all the hikes will cause a painful recession. This could change very soon. Some on the left who have backed up the Fed's rate hikes — including influential New York Times columnist Paul Krugman — are beginning to worry that the Fed could be going too far. After all, inflation expectations (what people think prices will do in the future) are pretty well in check, unlike the last bout of hyper-inflation in the late 1970s and early 1980s. And alternate, private sector readings on prices show many of them coming down. Fed policy operates with a famous lag, meaning they could be tipping us toward recession now but we won't know it for months when the increased cost of credit stalls business and consumer spending and the hot jobs market finally stalls out. And then there is the problem of synchronized global tightening . Other central banks are following the Fed's lead in tightening policy from the European Central Bank to the UK, Switzerland, the Philippines and beyond. Markets have flipped into turmoil with the Dow Jones now in bear market territory (a 20 percent drop from its recent high). Things got especially ugly in the UK after the new conservative government led by Prime Minister Liz Truss introduced giant tax cuts to juice the economy even as the country's central bank tries to cool off inflation with rate hikes. The directly opposed policies crushed the British pound and UK bonds (which they call "gilts.") The fear now is that all the global tightening might bring down prices while also sparking a global recession. It could also decimate emerging market countries whose debt is getting much more expensive. The Fed is obviously watching all this very closely. But for the moment, Powell and his colleagues have no plans to ease up on rate hikes until they see real, sustained movement down in the above-discussed core PCE, even if it means a painful recession that costs Democrats in the next couple elections. Because their biggest fear is sustained and potentially out-of-control inflation. But if the numbers do in fact drop and those who insist inflation has peaked prove correct, expect a very relieved Powell to quickly lift his foot off the brake pedal. Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com. Or contact tonight's author at bwhite@politico.com or on Twitter at @morningmoneyben. A message from Altria: Moving beyond smoking. Altria's companies are leading the way in moving adult smokers away from cigarettes – by taking action to transition millions toward less harmful choices. We are investing in a diverse mix of businesses to broaden options beyond traditional, combustible cigarettes. See how we're moving.   Poll Watcher Welcome to poll watcher, a new section from POLITICO Nightly that — with midterms fast approaching — will keep you locked in on polls that cut through the noise. 51 percent The percentage of American voters who believe that Donald Trump should not "be allowed to serve as president again in the future, [given] what we know about the ongoing investigations into [him]." 35 percent of voters believe he should be able to serve again, with 14 percent saying they are not sure, according to a new Yahoo News/YouGov poll. What'd I Miss? — Ian's death toll rises as massive rescue efforts continue in Florida: Top Florida officials said today that the death toll wrought by Hurricane Ian has reached 21 people as search and rescue teams continue to comb through the wreckage hunting for survivors. The state, aided by federal and local responders, has performed more than 700 rescues thus far and made contact with 3,000 people who sheltered in place throughout the massive storm. Search and rescue teams are continuing to look for more people who may have been trapped by severe flooding. Some 1.9 million people are still without power — mostly in southwest Florida, which was hit the hardest. — House passes government funding, averting shutdown threat: The House passed a s hort-term government funding patch today, sending the measure to President Joe Biden hours before a shutdown would've kicked in at midnight. The lower chamber cleared the measure in a 230-201 vote, with only 10 Republicans supporting it. The stopgap funds the government through the midterm elections until Dec. 16, in addition to providing billions in additional Ukraine aid and disaster relief.   SUBSCRIBE TO POWER SWITCH: The energy landscape is profoundly transforming. Power Switch is a daily newsletter that unlocks the most important stories driving the energy sector and the political forces shaping critical decisions about your energy future, from production to storage, distribution to consumption. Don't miss out on Power Switch, your guide to the politics of energy transformation in America and around the world. SUBSCRIBE TODAY.     AROUND THE WORLD JOIN THE CLUB — Speaker Nancy Pelosi today stopped short of backing Ukraine's request for an "accelerated accession" to join NATO , hours after President Volodymyr Zelenskyy announced the bid in response to Moscow declaring it had annexed four regions of Ukraine, writes Andrew Desiderio, Camille Gijs and Nancy Vu. Her remarks came shortly before the House passed a temporary government funding bill that provides $12 billion in Ukraine aid as the war enters the critical winter months. While Pelosi was speaking, lawmakers were hosting a group of Ukrainian parliamentarians outside the Capitol building, where a different message was delivered. Ukraine's NATO membership has long been a thorny subject in Washington due to Article 5 of the charter, which requires the U.S. to militarily defend any member-nation that comes under attack. As the likelihood of a fuller-scale Russian invasion rose in the past decade, Ukraine sought those security guarantees even as many in the U.S. became anxious over the prospect of fighting a war with Russia. Still, some U.S. politicians are willing to accept Ukraine joining NATO. "Ukraine's fight is the reason we formed NATO in the first place," said Rep. Mike Quigley (D-Ill.), who recently traveled to Kyiv and met with Zelenskyy. "After the Second World War, we recognized that an authoritarian regime cannot be allowed to wipe out a democratic country. I think we need to support this."   A message from Altria:   Nightly Number 1,000 The number of beds in the tent facility New York mayor Eric Adams announced last week as a temporary housing solution for the influx of 15,500 migrants sent by Republican Texas Gov. Greg Abbott. The contractor — Texas-based SLSCO — tapped by the mayor to erect the tent shelter in the Bronx received hundreds of millions of dollars to build former president Trump's border wall, City Council Member Shahana Hanif of Brooklyn told POLITICO today. Radar Sweep RUNNING FOR COVER — Since Putin announced the partial mobilization less than two weeks ago, an estimated 260,000 people — many young men — have fled Russia . Others have stayed but paid for falsified diagnoses of injuries or illnesses that prevent them from serving, like HIV. Masha Borak reports for Rest of World on all the ways young Russians are draft-dodging.   LISTEN TO POLITICO'S ENERGY PODCAST: Check out our daily five-minute brief on the latest energy and environmental politics and policy news. Don't miss out on the must-know stories, candid insights, and analysis from POLITICO's energy team. Listen today.     Parting Words "Confidence Man: The Making of Donald Trump and the Breaking of America," which comes out Tuesday, is an origin story plus an inside-the-room blow-by-blow — a book arguably only Maggie Haberman could have written. Photos by Jesse Dittmar for POLITICO 'CURSE AND SALVATION' — Donald Trump's most famous chronicler can't escape him. Maggie Haberman has been following Trump for decades, beginning when she worked at the New York Post and when he was simply a bombastic businessman. After following his every move on the way to and within the White House, Haberman can't escape his orbit, even if she wanted to. "Even if I did move on," she told Michael Kruse in a new profile, "I don't get to move on, because at this point I am so publicly associated with this story — so, until he stops being a story, I think I'm stuck." "So what do you —?" "What do I want? Some sleep," she said. "I just want some sleep." Haberman has grown into the position of permanent villain for many passionate partisans on Twitter, who take issue with her style — they see her as going easy on Trump in return for an inside track to scoops from him and his White House. That the general push and pull between a president and the media should be set aside when there's a character that breaks as many norms as Trump does. But Trump and Haberman also have a longstanding, complex relationship. As Kruse writes: "Trump and Haberman in so many ways couldn't be any more different — he, for starters, is a serial liar, and she occupationally and dispositionally is a seeker of truth — but the Venn diagram of the two is not nil. They both are born-and-raised New Yorkers who followed their fathers somewhat reluctantly into their respective family businesses. They both can show similarly obsessive tendencies but also enduring insecurities in spite of their manifest successes (albeit of utterly disparate sorts). They both have skins that can be simultaneously thick and thin and sometimes find it hard to slough off slights. 'There's a frame of reference that she understands and that he knows or senses she understands,' Trump biographer Michael D'Antonio told Kruse. 'Their stories are very intertwined,' said a person who knows them both. 'She's just the key,' said Gregg Birnbaum, a mentor and former editor at both the Post and POLITICO, 'that fit this lock.' Did someone forward this email to you? Sign up here. A message from Altria: Moving beyond smoking. Altria's companies are leading the way in moving adult smokers away from cigarettes. Today, we are taking action to transition millions toward less harmful choices. From cigarettes to innovative alternatives. By investing in a diverse mix of businesses, Altria is working to further broaden options. Our companies are encouraging adult smokers to transition to a range of choices that go beyond traditional, combustible cigarettes. From tobacco company to tobacco harm reduction company. And while Altria is moving forward to reduce harm, we are not moving alone. We are working closely with FDA and other regulatory bodies, and will work strictly under their framework. See how we're moving.     Follow us on Twitter Charlie Mahtesian @PoliticoCharlie Calder McHugh @calder_mchugh Myah Ward @myahward Naomi Andu @naomiandu   Follow us

To change your alert settings, please log in at https://www.politico.com/_login?base=https%3A%2F%2Fwww.politico.com/settings This email was sent to rouf@idiot.cloudns.cc by: POLITICO, LLC 1000 Wilson Blvd. Arlington, VA, 22209, USA Please click here and follow the steps to unsubscribe.