Powell to Wall Street: I know you’re excited. Please calm down.

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Jan 12, 2023 View in browser   By Sam Sutton Presented by 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. QUICK FIX Federal Reserve Bank presidents are warning that the central bank will keep raising rates until inflation is brought to heel. Wall Street traders don't want to take the hint. Markets jumped on Wednesday in anticipation of Consumer Price Index data that's expected to show that inflation is continuing to slow in the wake of an aggressive series of central bank rate hikes. Economists are projecting the December figures, which will be released at 8:30 a.m., to show that prices climbed 6.5 percent over the last year — down from 7.1 percent in November. That would still be much, much higher than the Fed's 2 percent target. And even as top policymakers like San Francisco Fed President Mary Daly and Atlanta Fed President Raphael Bostic argue that the war against inflation is far from over, a growing number of investors are pricing in the possibility of Fed hawks sheathing their talons in the new year. "The market is trying to believe that for sure," Luis Alvarado , an investment strategy analyst for the Wells Fargo Investment Institute, said in an interview on Wednesday. "However, — and this is a big however — we've heard from a lot of Fed presidents over the last few weeks [that] although we might get a slower print, the job's not done." That's making things complicated for Fed Chair Jerome Powell. Or, as our Victoria Guida put it: "Powell is locked in a battle with investors, who can't wait to celebrate the gradual easing of inflation. His message: Stop it." "Powell, whose Fed is cranking up interest rates at the fastest clip in decades to kill the spike in consumer prices, finds himself in the odd position of pushing against financial markets because he wants to squeeze the flow of money pouring into the economy … "'It is a very peculiar tango that we're dancing here,' said Torsten Slok, chief economist at Apollo Global Management. 'On the one hand, the Fed must surely be very happy with inflation going down. But they don't want markets to complicate the speed with which we're going down.'" What to look for in the Labor Department's release: Wilmington Trust Investment Advisors CIO Tony Roth , whose firm oversees roughly $153 billion of assets, told MM that he'll be paying close attention to price growth in non-housing, non-medical service sectors. The price of consumer goods has fallen in recent months amid improving supply chains and slowing demand. But the labor market remains very strong, and Powell has warned that an overheated jobs picture could force employers to drive up wages to a degree that would further inflame inflation. "That's really where wages come through. And at the end of the day, it's all about wages and wage growth," Roth said. IT'S THURSDAY — What else should we be keeping looking at in today's CPI data? Please send tips to ssutton@politico.com and zwarmbrodt@politico.com. A message from the American Bankers Association: The banking system works best when it works for all Americans. Thanks to initiatives like simple Bank On-certified accounts, the number of unbanked in the U.S. is now at its lowest level ever. Today more than 41,000 bank branches offer these low-cost, easy-access accounts. Learn more about Bank On.   Driving The Day Philadelphia Fed President Patrick Harker speaks at 7:30 a.m. … The Volcker Institute is holding its inaugural Richard Ravitch Public Finance Initiative Symposium, featuring several lawmakers and top state officials speakers, at 8 a.m. … CPI will be released at 8:30 a.m. … Jobless claims will be released at 8:30 a.m. … The Chamber of Commerce will hold an event on the state of American business at 11 a.m. … St. Louis Fed President James Bullard speaks at 11:30 a.m. … Richmond Fed President Tom Barkin speaks at 12:40 p.m. … Rep. Maxine Waters (D-Calif.) will appear at a Brookings Institution and National Fair Housing Alliance event a 1 p.m. YOUR 2023-2024 HFS REPUBLICANS — Our Eleanor Mueller: "The House Republican Steering Committee selected 11 new lawmakers to serve on the Financial Services Committee Wednesday as the party prepares to take control of the powerful panel. Several have been making their case to the conference for weeks. Their colleagues will formalize their appointments with a vote later this month." ANYWAY, HAPPY THURSDAY — In a foreword to The Aspen Institute's Economic Strategy Group's annual policy volume, former Treasury Secretaries Hank Paulson and Tim Geithner say the global economy is now facing an "era of uncertainty" that's "unlike any we have seen since the end of the Cold War." As for what questions are driving that uncertainty: "Can US firms continue to innovate the technologies of the future if crucial links to global talent are cut off? Will the recent push for industrial policy help or hurt American firms competing with foreign companies? To what extent can public policy alter America's demographic trends towards an aging population and lower fertility? Can workers adapt to the shifting labor markets caused by the global energy transition?" NEW SANCTIONS — WSJ's Andrew Duehren: "The U.S. and its allies are preparing their next round of sanctions on Russia's oil industry, aiming to cap the sales prices of Russian exports of refined petroleum products in an expansion of novel penalties the West has imposed on the country's crude." ABORTION ACCESS AS ECONOMIC DEVELOPMENT — Read Shia Kapos on how the border town of Carbondale, Illinois, has seen a surge in traffic as its neighbors pass new laws to restrict abortions: "Carbondale is just one of many blue-state towns near red-state borders that some abortion rights supporters didn't believe could sustain a clinic long-term if Roe were still standing. Now — with Choices and Alamo Women's Reproductive Services — it has two, and more could follow. And with the influx of patients has come more customers at local restaurants, booked up hotels and other early measures of economic change, particularly in the Midwest and the West."   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.     Regulatory Corner THERE GOES THE ARBITRAGE — Our Katy O'Donnell: "The CFPB is moving to force nonbank firms, including financial technology companies and mortgage lenders, to disclose the terms of contracts that waive certain consumer protections, in a bid to shed light on the fine print of so-called form contracts." CBA: CFPB NEEDS TO DO MORE ON P2P — The Consumer Bankers Association is calling on CFPB Director Rohit Chopra to collaborate with industry in combating scams on peer-to-peer payment platforms. The bankers are encouraging Chopra, who's described the level of fraud on instant payment networks as "frightening," to dedicate civil penalty funds to education initiatives. NOT ACTING — Our Declan Harty: "The SEC on Wednesday dropped the 'acting' from Paul Munter's title, appointing the long-time academic and former KPMG partner as chief accountant."   A message from the American Bankers Association:   Markets THE M&A SLOWDOWN HITS — Reuters Saeed Azhar, Sinead Cruise and Selena Li: "Goldman Sachs (GS.N) began laying off staff on Wednesday in a sweeping cost-cutting drive, with around a third of those affected coming from the investment banking and global markets division." — FT: "BlackRock plans to cut 500 jobs worldwide following 2022 sell-off" LUMBER BURNS OUT — Bloomberg's Jen Skerritt: "The chill in North America's housing market has lumber traders saying the commodity's recent rally may not have much more room to run." BATTLE OF THE BOBS PT. II: HERE COMES NELSON — WSJ's Lauren Thomas: "Activist investor Nelson Peltz plans to mount a proxy fight for a seat on Walt Disney Co.'s board, adding to the challenges Robert Iger faces after he recently returned to the role of chief executive at the beleaguered entertainment giant." Crypto BIG — CoinDesk's By Nikhilesh De, Sandali Handagama: "Crypto exchange FTX has recovered more than $5 billion in different assets, not including another $425 million in crypto held by the Securities Commission of the Bahamas, a bankruptcy attorney said during a hearing Wednesday. There's still a sum missing in what is owed to customers and the amount is still unclear, the attorney said." THE FREEDOM TO LOSE MONEY IN ANOTHER FORMAT —The Center for Economic and Policy Research has a new paper on the risks crypto investments pose to Black and underrepresented communities that were often targeted by the industry's marketing. "The risks of investing in crypto go far beyond FTX and Sam Bankman-Fried," coauthor Algernon Austin said. "This simple comparison with stock market indexes shows that crypto has failed to deliver to its investors. It's often a money-loser, and there are many other risks and pitfalls as well. Yet, we continue to see crypto touted as a boon to the Black community."   JOIN NEXT TUESDAY TO HEAR FROM MAYORS AROUND AMERICA: 2022 brought in a new class of mayors leading "majority minority" cities, reshaping who is at the nation's power tables and what their priorities are. Join POLITICO to hear from local leaders on how they're responding to being tested by unequal Covid-19 outcomes, upticks in hate crimes, homelessness, lack of affordable housing, inflation and a potential recession. REGISTER HERE.     Fly Around Aides to U.S. lawmakers from the Jan. 6 committee have engaged in early talks to cooperate with Brazilian lawmakers looking to investigate the storming of the capital Brasilia by protesters urging a military coup to overthrow the president, according to two people familiar with the matter. — Reuters Mexico and Canada won a trade dispute with the U.S. over cars shipped across regional borders, providing automakers more incentive to make vehicles in those nations. — Bloomberg's Eric Martin and Brian Platt A message from the American Bankers Association: The banking system works best when it works for all Americans. To promote financial inclusion and expand access to banking services, America's banks are joining the Bank On movement. Now available in more than 41,000 bank branches in all 50 states, Bank On-certified accounts are low-cost and give unbanked individuals a viable path toward long-term financial security. Learn about Bank On's impact here.     Follow us on Twitter Mark McQuillian @mcqdc Ben White @morningmoneyben Victoria Guida @vtg2 Katy O'Donnell @katyodonnell_ Zachary Warmbrodt @Zachary Sam Sutton @samjsutton   Follow us

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