Debt limit looms as Biden readies State of the Union

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Feb 06, 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. President Joe Biden will be able to brag about a surging labor market and cooling inflation when he takes the stage for his second State of the Union address on Tuesday. He’ll also look to leverage the economy’s surprising resilience in his bid to spare markets from a protracted battle with GOP lawmakers over the debt ceiling and government spending. The speech marks Biden’s biggest opportunity to highlight how the debt ceiling — an arcane mechanism that allows Treasury to follow through on government spending that’s already been approved — poses a massive threat to an economy that’s remained relatively healthy despite a historic series of Federal Reserve rate hikes that most economists assumed would push the U.S. into a recession. That miserable outcome is no longer looking like a sure thing. Unemployment is as low as it’s been since the Nixon administration. Prices on vital consumer goods, including gasoline, have started to drop. And while wage growth remains much stronger than what anyone at the Fed would like, pressure that had threatened to blow-up the economy’s gaskets is no longer quite so severe. The Biden administration wants credit for that. And, as our Jonathan Lemire reports, the President’s speech will reflect that he isn’t keen on a debt ceiling fight with House Speaker Kevin McCarthy kneecapping that progress. The deadline to raise the limit is likely several months away, according to Treasury’s estimate. Failure to do so would lead to an unprecedented and disastrous default on government bonds. Biden on Tuesday “will make clear that he will not negotiate on the country’s fiscal future, connecting it to his stewardship of the economy,” writes Lemire. Given the severity of the threat, White House officials have insisted that politics are on their side. While Republicans haven’t shied about clanging alarms over the long-term consequences of profligate government spending, McCarthy and other House GOP leaders have been slow to offer specifics on what they’d like to see cut. “I don’t think anyone gains an advantage by putting out a hard ask months in advance that will be scrutinized and torn apart by opponents,” Stephen Newton, a former aide to Sen. Mitt Romney (R-Utah) who’s now a vice president at the government affairs firm Porterfield, Fettig & Sears, told MM. Meanwhile, Wall Street groups have largely kept their powder dry on the Hill. While bank CEOs like JPMorgan Chase’s Jamie Dimon are peppering their concerns about the debt limit into unrelated meetings with policymakers, those efforts have not yet escalated into a full-fledged advocacy and lobbying push on the issue. “We don’t want to get in the middle of a food fight,” one Washington-based industry association told MM, who requested anonymity to speak frankly about their organization’s strategy. “We’re watching it closely.” IT’S MONDAY — Morning Money is raising a glass to POLITICO New Jersey editor John Appezzato, who retired on Friday after more than four decades in the news business. Journalism needs more John Appezzatos. Send tips to Sam at ssutton@politico.com and Zach Warmbrodt at zwarmbrodt@politico.com. You can also find us on Twitter @samjsutton and @zachary   JOIN POLITICO ON 2/9 TO HEAR FROM AMERICA’S GOVERNORS: In a divided Congress, more legislative and policy enforcement will shift to the states, meaning governors will take a leading role in setting the agenda for the nation. Join POLITICO on Thursday, Feb. 9 at World Wide Technology's D.C. Innovation Center for The Fifty: America's Governors, where we will examine where innovations are taking shape and new regulatory red lines, the future of reproductive health, and how climate change is being addressed across a series of one-on-one interviews. REGISTER HERE.     DRIVING THE WEEK MONDAY … Secretary Yellen will appear on ABC’s Good Morning America for a live interview at 8 a.m. ... The House Ways and Means Committee holds a field hearing on the state of the economy in Appalachia at 11 a.m. … TUESDAY … House Financial Services will hold a hearing on China at 10 a.m … The SEC’s Small Business Capital Formation Advisory Committee will meet at 10 a.m. … The New York Fed inflation’s expectations survey will be released at 11 a.m. … Consumer credit data will be released at 3 p.m. …Federal Reserve Chair Jerome Powell speaks at 12:40 p.m. at the Economic Club of Washington … Fed Vice Chair for Supervision Michael Barr will give a speech on financial inclusion at 2 p.m. … Biden will deliver his State of the Union speech at 9 p.m. … WEDNESDAY … House Financial Services subcommittees will hold hearings on revitalizing the banking industry, the accredited investor definition and capital markets … Barr will give another speech at 10 a.m. … New York Gov. Kathy Hochul, Minnesota Gov. Tim Walz, Maryland Gov. Wes Moore, North Carolina Gov. Roy Cooper and Colorado Gov. Jared Polis will speak at a Center for American Progress economic summit starting at noon …Fed Gov. Christopher Waller will give a speech on the economy at 1:45 p.m. … CFTC Commissioner Kristin Johnson will participate in a fireside chat at the Berkeley Cryptocurrency Regulation Virtual Conference … THURSDAY … Senate Banking will hold a hearing on housing at 10 a.m. … CFTC Commissioner Caroline Pham speaks at the Bank for International Settlements Financial Stability Institute conference … FRIDAY … The University of Michigan inflation expectations survey will be released at 10 a.m. … Waller will deliver a speech on digital assets at 12:30 … Federal budget balance will be released at 2 p.m. WALK IT BACK — Declan Harty was working through the weekend on news that Securities and Exchange Commission Chair Gary Gensler might scale back a potentially groundbreaking climate-risk disclosure rule that’s faced stiff opposition from corporate America, according to three people familiar with the matter. “The top Wall Street regulator’s team has signaled that a primary concern is the wave of lawsuits that are expected to challenge the rule once it’s finalized, said the people, who asked not to be named while discussing private conversations. The SEC is weighing what to do with one of the most contentious pieces of the plan: A mandate that certain large public companies report data about carbon emissions from their extensive supply chain networks and customers, known as scope 3, the people said.” FTX BLOWBACK — Disgraced FTX founder Sam Bankman-Fried became Washington’s favorite crypto executive after spending tens of millions of dollars in political contributions. Now, FTX’s bankruptcy team wants that money back. “FTX Debtors are sending confidential messages to political figures, political action funds, and other recipients of contributions or other payments that were made by or at the direction of the FTX Debtors, Samuel Bankman-Fried or other officers or principals,” the company said in a statement on Sunday. Groups that slow walk their returns could face actions in bankruptcy court. START YOUR ENGINES — POLITICO’s Olivia Olander:“Americans for Prosperity, a fundraising organization established by powerful conservatives Charles and David Koch, is not endorsing former President Donald Trump in the 2024 Republican primary, the organization implied in a memo Sunday.” MORE ON THE DEBT CEILING — Democrats are now using the threat of default — and potential Republican cuts to government programs — as a fundraising tool. Key lawmakers like Senate Majority Leader Chuck Schumer, Senate Banking Chair Sherrod Brown (D-Ohio) and Rep. Alexandria Ocasio-Cortez (D-N.Y.) and have started to load their fundraising emails and advertisements with references to the economic migraine that would come with a default on U.S. debt payments, according to Pundit Analytics data. (h/t to Bloomberg’s Bill Allison and Laura Davison). ABOUT THAT ECONOMIC MESSAGING… — ABC’s Gary Langer — “Four in 10 Americans say they've gotten worse off financially since Joe Biden became president, the most in ABC News/Washington Post polls dating back 37 years.” — WSJ’s Akane Otani: “The U.S. labor market remains incredibly strong. Investors can’t decide if that is a good or bad thing.” BALLOON FALLOUT — Our Adam Cancryn and Christopher Cadelago: “As a Chinese spy balloon drifted across the U.S., Joe Biden kept quiet for four agonizing days while the rest of Washington rushed to weigh in on the diplomatic crisis … The single missile fired by an F-22 Raptor brought a swift end to an international incident that captured the country’s attention, and underscored the growing bipartisan consensus that when it comes to politics, it pays to be tough on China.” FAULT LINES — Our Eleanor Mueller: “House Financial Services Chair Patrick McHenry rolled out a Republican working group on Friday tasked with coordinating the party's response to ESG, or the emphasis on environmental, social and governance goals when making investments.” A message from the American Bankers Association: A strong banking industry is foundational to a strong economy. America’s banks are looking forward to working with the new Congress to advance common-sense policies that drive a healthy and inclusive economy and support a competitive and innovative financial services market. To learn more about what guides ABA’s policy advocacy in support of our customers and communities, read our 2023 Blueprint for Growth.   Markets BUSINESS OR PLEASURE? — NYT’s Emily Flitter and Katherine Rosman: “[Goldman Sachs CEO David] Solomon has long maintained that his D.J.ing passion has nothing to do with Goldman … But Mr. Solomon’s hobby occasionally brushes up against his day job in ways that could pose potential conflicts of interest, according to interviews with securities law experts and four people who have worked with Mr. Solomon who were not authorized to speak publicly.” CHINA’S WOES — Bloomberg: “China’s unprecedented housing slump and construction halt led to the worst earnings for real estate developers in at least seven years, according to Bloomberg estimates.” NEW BOSS — Bloomberg’s Dawn Lim: “Carlyle Group Inc. has chosen former Goldman Sachs Group Inc. Co-President Harvey Schwartz to be its next chief executive officer, the private equity firm’s latest attempt to resolve a long-running succession challenge.” COOL OFF — FT’s Justin Jacobs: “Talks to send more US natural gas to Europe have stalled as the continent’s climate goals deter buyers from making long-term fossil fuel supply commitments, according to two US energy executives.” IF YOU MOVE THERE, THEY WILL COME — High income earners bid adieu to high-cost coastal cities like New York and San Francisco during the pandemic. The restaurants and brick-and-mortar retailers that cater to their tastes followed them to the suburbs and the Sun Belt, according to a new report from the JPMorgan Chase Institute. The retail sector’s exodus to the ‘burbs could have sweeping implications for land use, zoning, transportation and tax policy, as well as employment trends, and could force a realignment of a commercial real estate sector that’s long been dominated by major municipalities. And while the institute’s President Chris Wheat declined to say if those trends will persist, things have not “immediately snap[ped] back to what was happening before COVID,” he said in an interview.   A message from the American Bankers Association:   Jobs Report Meghan Pennington has been named partner at Penta Group, formerly Hamilton Place Strategies. The former Sen. Tom Carper (D-Del.) staffer has worked at the firm since early 2018 and advises clients at the intersection of business and politics.   DOWNLOAD THE POLITICO MOBILE APP: Stay up to speed with the newly updated POLITICO mobile app, featuring timely political news, insights and analysis from the best journalists in the business. The sleek and navigable design offers a convenient way to access POLITICO's scoops and groundbreaking reporting. Don’t miss out on the app you can rely on for the news you need, reimagined. DOWNLOAD FOR iOS– DOWNLOAD FOR ANDROID.     Fly Around Karen Bass has pledged to tackle the homelessness problem here by getting 17,000 people off the streets during her first year in office. But her success as mayor will depend on what happens after that. —Our Alexander Nieves French Economy Minister Bruno Le Maire will request “transparency” from Washington over its $369 billion green subsidy splurge in an upcoming trip to the U.S. — Our Camille Gijs The U.S., European Union and other major economies on Friday endorsed a Group of Seven cap on the price of Russian petroleum products, which will come into force on Sunday at the same time as the EU bans all imports derived from Russian oil. — Our Charlie Cooper and Victoria Guida A message from the American Bankers Association: America’s banks help drive the U.S. economy, safeguarding $19.4 trillion in deposits and extending $12 trillion in loans. They also serve 251 million retail customers and 55 million small-business customers across the nation. That’s why the American Bankers Association is committed to maintaining a strong and resilient banking industry. As part of our mission, we collaborate with policymakers to advance common-sense initiatives that spur growth and support a dynamic and innovative financial services market. Read more about ABA’s policy priorities in our 2023 Blueprint for Growth.     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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