Powell’s inflation hedge

Presented by the Electronic Payments Coalition: Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy.

Mar 08, 2023 View in browser   By Zachary Warmbrodt 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. Jerome Powell is keeping his options open and wants you to know he’s preparing for the worst. The Fed chair made clear in Capitol Hill testimony Tuesday that he’s ready to accelerate the size and pace of interest rate increases — upping the ante for a potential recession — if the U.S. economy and jobs market continue to defy expectations. Powell is doing all he can to avoid being boxed in before February jobs numbers come out Friday, followed by CPI data next Tuesday. He floated a more pessimistic scenario to prime the markets before he and other officials have to clam up next week during their pre-meeting Fedspeak blackout. It comes after economists were caught off guard by January data that showed a hiring surge, despite the Fed’s attempts to cool down the jobs market. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell told lawmakers. “Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time.” Powell, so far, is getting little resistance from Congress as he prepares to steer the U.S. even closer to a possible recession – save for Sen. Elizabeth Warren. The Massachusetts Democrat appeared to get under Powell’s skin with a thinly veiled accusation that he doesn’t care about millions of people who might lose their jobs as a result of the Fed’s campaign against inflation. As our Victoria Guida reports, it triggered an “unusually testy” response from the typically reserved Powell. “Will working people be better off,” he told Warren, “if we just walk away from our jobs and inflation remains 5, 6 percent?” I don’t want to miss a thing — Send tips to zwarmbrodt@politico.com and ssutton@politico.com.   A message from the Electronic Payments Coalition: CONVENIENCE STORES, NOT CREDIT CARDS, ARE RAISING COSTS FOR CONSUMERS: Corporate convenience store chains and their special interest allies are trying to trick Congress into believing that interchange rates on credit card transactions are increasing. The truth: it’s exactly the opposite. Over the last decade, retailers and merchants have received billions of dollars due to the Durbin Amendment—but haven’t lowered prices for consumers as they promised. Learn more.   Driving the Day Powell testifies at House Financial Services at 10 a.m. … CFTC Chair Rostin Behnam testifies at Senate Agriculture at 10 a.m. … Senate Budget holds a hearing on the economic costs of wildfires at 10 a.m. … Inspectors general for the Fed, CFPB and SEC testify at House Financial Services at 2 p.m. … HUD senior adviser Richard Cho testifies at a Senate Banking hearing on homelessness at 2:30 p.m. … Exclusive: Gensler brushes off threat that crypto firms will flee U.S. — The EU and other jurisdictions are opening their doors to crypto startups and rolling out tailor-made regulations, but SEC Chair Gary Gensler, who is ramping up enforcement actions against the industry, isn’t worried about the U.S. losing out. “We lose more if investors get harmed here,” he told Sam Sutton, Declan Harty and your MM host Tuesday. “It’s a basic bargain in finance: If you want to raise money from the public, disclose certain facts and figures.” Gensler sounded skeptical about the EU’s new law, known as Markets in Crypto-Assets, or MiCA. “Do you know that MiCA doesn’t even cover Bitcoin?” he said. Powell fly around — The Fed chair's hearing covered much more than interest rates. A few nuggets: — Bank capital: In response to questions from Sen. Tim Scott and other Republicans who have questioned the need for the Fed to raise bank capital requirements, Powell committed that any proposals would be risk-based and tailored to banks' activities. Republicans are making bank capital a top oversight target after Fed Vice Chair for Supervision Michael Barr launched a “holistic review” of capital rules and suggested banks need bigger buffers to absorb losses. But Powell affirmed Barr’s right to conduct the review, which is rattling big banks. “[W]e all agree capital is strong, certainly the vice chair does," Powell said. "The question is, is it at the right level?" — Crypto: Powell said it’s important for the U.S. to have “a workable legal framework around digital activities.” He put the responsibility on lawmakers. "That is important, and something Congress in principle needs to do because we can't really do that," he said. — Fed diversity: Sen. Bob Menendez is getting support in his push to get Latino policymakers appointed at the Fed. Sen. Catherine Cortez Masto said she was aligned with Menendez in “supporting a Latino nominee to the open seat on the Federal Reserve.” Sen. Raphael Warnock said it’s important for the Fed’s governing board to “reflect the diversity of our nation.”   A message from the Electronic Payments Coalition:   Economy White House angst over Powell? — Reuters reports that an unnamed White House official said the Fed should “take a breath” on rate hikes. Ken Griffin’s recession warning — The Citadel founder told Bloomberg that the setup for a U.S. recession is unfolding, with the Fed needing to raise rates further to fight inflation. Griffin’s advice for Powell? Talk less about inflation. “Every time they take the foot off the brake, or the market perceives they’re taking their foot off the brake, and the job’s not done, they make their work even harder,” Griffin said.   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 Biden administration fights JetBlue-Spirit merger — DOJ and DOT are challenging the $3.8 billion acquisition, alleging that the airline deal would raise prices and reduce consumer choice. Crypto FDIC descends on Silvergate — Bloomberg reports that FDIC officials are talking with management at crypto’s go-to bank about ways to avoid a shutdown, including tapping crypto-industry investors to shore up liquidity. Judge OKs Binance.US takeover of Voyager assets — Coindesk reports that a judge overseeing Voyager’s bankruptcy overruled objections to Binance.US’s proposed acquisition.   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 FT ed board backs Biden ESG rule that GOP wants to repeal — FT: “Blocking some investment considerations not only amounts to interference in the market of a kind Republicans have long claimed to oppose. It could also result in the opposite of what is intended.” FTC wants to talk with Musk — NYT: “The Federal Trade Commission is intensifying an investigation into Twitter’s data and privacy practices and is seeking testimony from Elon Musk, who has laid off the bulk of Twitter’s work force since acquiring the company last year.”   A message from the Electronic Payments Coalition: CONGRESS: OPPOSE HARMFUL CREDIT CARD ROUTING MANDATES: Despite vigorous lobbying attempts from corporate convenience store chains and their allies, credit card routing mandates are deeply unpopular—among both Democrats and Republicans. Credit card routing mandates hurt small businesses by increasing costs, weakening payment security, harming small financial institutions, reducing access to credit for those who need it the most, and ending popular credit card rewards programs. THE CHOICE IS CLEAR: CONGRESS MUST OPPOSE CREDIT CARD ROUTING MANDATES Learn more.     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

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.