Why Lael Brainard landed at NEC

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Feb 15, 2023 View in browser   By Zachary Warmbrodt 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. It’s official: Fed Vice Chair Lael Brainard will be the next director of President Joe Biden’s National Economic Council. Jared Bernstein, Biden’s longtime confidant, will be nominated to lead his Council of Economic Advisers. As our Ben White and Victoria Guida report, Biden is opting for deep Washington experience and knowledge of how to pull the levers inside the executive branch to boost the economy. Their mission: Implementing signature economic policies passed the last couple years and dealing with House Republicans, who are pushing for budget cuts in exchange for allowing the government to pay its bills. “The White House sees moderate Republicans as gettable on certain issues,” said one White House official in explaining the pick, according to Ben and Victoria. “So they want adults with some gravitas in the room.” Our Eleanor Mueller canvassed senators on Capitol Hill Tuesday and found that Democrats appear to support Brainard across the board. Republicans? Not so much. “I don't agree with her economic analysis,” Sen. John Kennedy told Eleanor. “She seems to be a nice enough person. But I just don't think she understands, either macro — and certainly not micro — economics.” It underscores how Brainard will be in the thick of political fights at the NEC, rather than trying to stay above the fray like a Fed governor. “Throughout her career, Dr. Brainard has made her political agenda clear and has attempted to expand executive regulatory authority and control to accomplish it,” House Financial Services Chair Patrick McHenry said. As for Brainard’s replacement, Sen. Elizabeth Warren wants someone new at the Fed “soon.” Warren has been sharply critical of Fed Chair Jerome Powell’s vow to continue raising rates to kill inflation. “Chairman Powell continues to signal that he will impose more extreme rate increases, and he still is in a position where he could tip our economy into recession,” Warren said. “We need another voice at the Fed to help put the brakes on that.” Senate Banking Chair Sherrod Brown, who would oversee the confirmation of a new Fed vice chair, said he has talked to the White House. But he stayed mum on potential names Tuesday. Are you Lael Brainard or Jared Bernstein? — Congratulations. We’d love to hear from you. I’m zwarmbrodt@politico.com and Sam is ssutton@politico.com.   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.     Driving the Day SEC commissioners will vote on rules to shorten the settlement cycle and safeguard advisory client assets at 10 a.m. … Former Bank of England Governor Mark Carney is among the witnesses at a Senate Budget hearing on climate-related economic risks at 10 a.m. … Senate Finance considers Daniel Werfel’s IRS commissioner nomination at 10:30 a.m. … The Congressional Budget Office will release its budget and economic outlook at 2 p.m. … President Biden will talk about deficit reduction in Lanham, Maryland at 2:30 p.m. … Latest inflation report means Fed will keep hiking – Inflation continued to ease in January but at a slower pace than previous months. It’s another factor, like January’s blowout jobs number, that will likely sustain Federal Reserve rate increases for the near future. As Victoria neatly summed it up on Twitter: “Roses are red, Violets are blue, Inflation is getting worse, But it’s getting better too.” Biden on the deficit — Per a White House official, Biden this afternoon will contrast his deficit-reduction plans with those of Republicans and argue that GOP policies would add to the national debt. He’s speaking at International Brotherhood of Electrical Workers Local Union 26 in Lanham, Maryland. Big bank execs see brighter economic picture — The FT has a roundup of fresh comments from leaders at Goldman Sachs, Bank of America and Wells Fargo, who say the U.S. economy is holding up better than expected. Goldman CEO David Solomon said, “The consensus has shifted to be a little bit more dovish in the CEO community that we can navigate through this in the United States with a softer economic landing than what people would have expected six months ago.” Apple to mine customer data for ‘Pay Later’ — Bloomberg reports that Apple’s upcoming “buy now, pay later” service will vet borrowers based on their spending history and which of the company’s devices they own. Apple is also developing a “homegrown infrastructure for financial products” to reduce its reliance on bank partners. Crypto Sherrod Brown and Tim Scott set the table for crypto talks — Senate Banking Chair Brown kicked off the committee’s 2023 crypto work Tuesday with a hearing that shed a bit of new light on the direction senators may want to go with digital asset policy. As we’ve been previewing in MM in recent weeks, Sen. Tim Scott — the new top Republican on Banking — made clear he sees serious risks in the crypto space. He questioned why regulators didn’t do more before last year’s market meltdown exposed widespread industry mismanagement. “Financial innovation must be done so in a safe and sound manner, which, unfortunately, has not been the case with a number of actors in the digital asset space,” Scott said. “This is particularly alarming when we see reports that 44 percent of Americans who own and trade digital assets are new investors or people of color. Which means when there is a $2 trillion drop in market cap, our most vulnerable citizens bear the significant brunt,” Scott added. Brown doubled down on fundamental flaws he sees in the industry. “[D]igital assets — cryptocurrencies, stablecoins and investment tokens — are speculative products run by reckless companies that put Americans’ hard-earned money at risk,” Brown said. Brown outlined what he called “basic principles of regulation” that should be enforced in crypto, including restrictions on self-dealing, segregation of customer funds from company funds and anti-money laundering protections. First in POLITICO: Republicans revive Crypto 401(k) bill — Sen. Tommy Tuberville later today will reintroduce legislation that would try to stop the Labor Department from restricting employers and investment firms from offering cryptocurrency as part of 401(k) retirement plans. Rep. Byron Donalds is introducing in the House. It’s a response to DOL guidance from last year that threatened investigations into retirement plan administrators if they invested employee funds in digital assets. Tuberville says "the federal government shouldn’t choose winners and losers in the investment game." Regulatory Corner FTC’s sole GOP commissioner to resign in protest — Republican FTC Commissioner Christine Wilson on Tuesday announced plans to resign in a WSJ op-ed that blasted Chair Lina Khan’s “disregard for the rule of law and due process and the way senior FTC officials enable her.” Wilson’s exit could leave the FTC with three Democratic commissioners and no Republicans. Fly Around Powell gets pay of low-level banker — Bloomberg: “When it comes to total compensation, the Fed Chair’s salary pay is closer to that of third-year analysts, who take home about $194,000 on average, according to Wall Street Oasis data of top banks through 2021." The anti-ESG tax — Bloomberg editor-in-chief emeritus Matthew Winkler: “Since it began its assault on ESG in 2022, Texas, with its perfect AAA credit rating, is paying 19 basis points more in yield (the equivalent of $1.9 million on every $1 billion of bonds sold) than AA rated California on routine borrowings, according to data compiled by Bloomberg. … Florida now pays 43 basis points more in yield (or $4.3 million for every $1 billion of bonds sold) than California with an inferior credit rating, or 0.35% more than it did prior to 2022.” Chip shortage slows credit and debit card issuance — WaPo: “Wait times of six weeks or more have become common — particularly for credit union members — compared with the five- to 10-day turnarounds seen in the past.”   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.       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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