The bigger the economy, the bumpier it gets

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Feb 08, 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. Would you prefer your economic news with a touch of optimism or a dash of bitterness? Unsurprisingly, Joe Biden’s leaning into the former. The president’s State of the Union address on Tuesday kicked off with a zippy rundown of topline figures that suggest the U.S. is close to resolving an array head-spinning crises that have left many Americans feeling worse off financially than they were a year ago. With Biden likely to seek re-election, the nationally televised address offered the president a primetime opportunity to sell unconvinced voters on an economy that’s in healthier shape than many would have assumed as recently as late 2022. “Inflation is coming down. Here at home, gas prices are down $1.50 from the peak. Food inflation is coming down — not fast enough — but it’s coming down. Inflation has fallen every month for the last six months,” Biden said. Millions of jobs have been added to the economy over the last year. And just as importantly — in fact, more importantly, considering how big a slice inflation has carved out of paychecks — “take home pay has gone up.” The tricky thing with a surging job market and persistent wage growth? That combination could make the economy’s path to recovery all the more difficult, according to Federal Reserve Chair Jerome Powell. Here’s that dash of bitterness. “It's probably going to be bumpy,” Powell told his former boss and Carlyle Group founder David Rubenstein in a Q&A at the Economic Club of Washington hours before Biden’s speech. While spiking prices in key sectors of the economy are finally starting to ease, January’s surprisingly hot jobs report — which landed just two days after the Fed raised its benchmark interest rate a quarter of a percentage point — signaled that “this will be a process that takes a significant period of time,” Powell told Rubenstein. “If we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise [rates] more than is priced in,” he said, per our Victoria Guida. “I think there has been an expectation that it will go away quickly and painlessly, and I don’t think that’s at all a guarantee.” IT’S WEDNESDAY — Were you surprised by anything in Biden’s speech? Send your thoughts and news tips to Sam at ssutton@politico.com and Zach Warmbrodt at zwarmbrodt@politico.com. You can also find us on Twitter @samjsutton and @zachary . A message from the American Bankers Association: A strong majority of U.S. adults (66%) support Congress passing legislation that allows cannabis businesses to access banking services in states where cannabis is legal, according to a recent Morning Consult survey. The 118th Congress can demonstrate its commitment to public safety, transparency and accountability by passing the bipartisan SAFE Banking Act. Learn more about the legislation.   Driving The Day New York Fed President John Williams speaks at 9:15 a.m. … Fed Gov. Lisa Cook speaks at 9:30 a.m. …Fed Vice Chair Michael Barr and Atlanta Fed President Raphael Bostic speak 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 … Minneapolis Fed President Neel Kashkari speaks at 12:30 p.m. … Fed Gov. Christopher Waller will give a speech on the economy at 1:45 p.m. … DID YOU THINK YOU’D GET A BREAK BECAUSE OF SOTU? — Think again. House Financial Services has three subcommittee hearings scheduled that will explore revamping banking regulations (10 a.m.), potential changes to the “accredited investor” definition (10 a.m.) and loosening restrictions around crowdfunding and certain venture and private equity funds (2 p.m.). Chair Patrick McHenry (R-N.C.) told POLITICO last year that overhauling capital formation rules would be a top priority for his committee. DEBT CEILING NEGOTIATIONS — Biden’s State of the Union also included a call on House Republicans to raise the debt ceiling. In one of the most raucous exchanges of the evening, the president claimed that some GOP members plan to leverage a vote on the debt limit — which needs to be lifted in order for the U.S. to make good on its bond payments — in order to “sunset” Medicare and Social Security. Of course, Speaker Kevin McCarthy (R-Calif.) has already said that cuts to either program aren’t being considered. But, but, but: As our Alice Miranda Ollstein noted, while McCarthy said Monday that cuts to Medicare and Social Security are off the table, he has not said the same for Medicaid. Per Alice: “Biden, notably, is also not mentioning Medicaid here as an untouchable program.” JUNK FEES IN THE SPOTLIGHT — Biden’s shout-out to a Consumer Financial Protection Bureau proposal to cap credit card late fees has kicked up a hornet’s nest with Washington groups that represent banks and credit unions. The Independent Community Bankers of America, National Association of Federally-Insured Credit Unions and Consumer Bankers Association blasted Biden’s labeling of the penalties as “junk fees” as a mischaracterization. CHINA ON THE HILL — U.S.-China relations were top of mind on the Hill on Tuesday even before Biden’s speech. Eleanor Mueller and Gavin Bade have more on how House Republicans are seeking to slow momentum to regulate American investments in China even as they advocate for new policies to crack down on the world’s second-largest economy. STRIKING THAT BALANCE COULD BE TRICKY — As Doug Palmer reports: Even as U.S.-China relations “reached a low point after the U.S. shot down a Chinese spy balloon was last week, “trade between the world’s two leading economies just hit an all-time high.” BOSTON BRAHMIN TO ADVOCATE FOR BRUINS — Our Lisa Kashinsky, Eleanor Mueller, Nick Niedzwiadek: “Labor Secretary Marty Walsh is set to leave the Biden administration to run the NHL Players Association … Walsh’s departure would come amid a wider shakeup within the Biden administration as it begins the tail end of its first term in office and prepares for a possible reelection campaign.”   A message from the American Bankers Association:   Regulatory Corner THE BANKS WILL BE THRILLED — From Sam: “Federal Reserve Vice Chair for Supervision Michael Barr called on large banks and regulators to step up efforts to address redlining, saying proposed changes in the Community Reinvestment Act will provide new incentives for lenders to invest in underserved communities.” PRIORITY SET — Our Declan Harty: “The SEC plans to ramp up scrutiny of investment advisers that manage certain risky private funds, including those that hold crypto assets and real estate investments, according to a report from the agency.”   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.     Markets STILL GOING — Bloomberg’s Rita Nazareth: “Stock traders bracing for Jerome Powell to push back against the powerful rally that led to a loosening in financial conditions didn’t really get that, with the market finding encouragement to move higher.” CREDIT SUISSE DRAMA CONTINUES — Bloomberg’s Gillian Tan and Crystal Tse: “Some of Credit Suisse Group AG’s junior and mid-level bankers will get their bonuses paid out in installments, the latest twist in the firm’s handling of employee compensation amid a tumultuous overhaul.” “LEARN TO CODE” HITS MIDDLE MANAGEMENT — Bloomberg’s Sarah Frier and Kurt Wagner: “Meta Platforms Inc. is asking many of its managers and directors to transition to individual contributor jobs or leave the company as it tries to become more efficient … Individual contributors aren’t in charge of others, and instead focus on tasks like coding, designing and research.” ABOUT THAT WORK FROM HOME POLICY — WSJ’s Will Feur: “Zoom Video Communications Inc. is laying off 1,300 of its employees, or 15%, of its staff, becoming the latest technology company to trim its workforce as it adjusts to more normalized trends after a pandemic-fueled growth spurt.”   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.     Crypto DCG/GENESIS — FT’s Nikou Asgari and Ryan McMorrow: “Crypto conglomerate Digital Currency Group has begun to sell shares in several of its most prized cryptocurrency funds at a steep discount, as it seeks to raise capital to pay back creditors of its bankrupt lending arm [Genesis].” — News of the sale follows a deal brokered late Monday between Genesis and its top creditors, including the Winklevoss-led crypto trading platform Gemini. Policymakers have been tracking the bankruptcy proceedings of several crypto startups in the aftermath of FTX’s collapse late last year. SBF’S TOPSY-TURVY TIME ON BAIL — Reuters’s Luc Cohen and Jonathan Stempel:  “A federal judge on Tuesday rejected a proposal to modify Sam Bankman-Fried's bail conditions, despite an agreement between the FTX cryptocurrency exchange founder and prosecutors to address potential witness tampering concerns.” A message from the American Bankers Association: It’s time for Congress to put public safety first and resolve the conflict between state and federal law when it comes to cannabis banking in the 37 states where marijuana is now legal in some form. Policymakers must pass the bipartisan SAFE Banking Act to increase transparency and accountability for the cannabis industry and make local communities safer. Learn more about the legislation.     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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