Can you spare some change for the wealthy?

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Aug 15, 2023 View in browser   By Sam Sutton 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 Those pernicious rumors of a “richcession" weren’t necessarily overstated. While Washington and New York’s top power brokers soak up rays from the sundecks of their second homes, some of their well-heeled peers are feeling a chill. Consumers making more than $125,000 — a cohort that Bank of America economists consider “higher-income” — are joining the unemployment rolls at more than three times the rate of those with low or moderate incomes, according to the bank’s deposit data. Wage growth among wealthier households also deteriorated much more quickly over the last year and a half; a trend that continued even after Wall Street’s disappointing bonus season concluded, according to BofA. High-paying industries like tech and financial services have been laying off workers even as other industries grappled with a dearth of workers, BofA Institute economist Anna Zhou told your host. That’s one reason why — at least until recently — top earners were more pessimistic about the economy than consumers with smaller incomes. “When you think about the lower end of the income spectrum, it's people who work at retail stores, or hospitality, and in fact there's still a little bit of labor shortage on that front,” she said. “That explains why wages are holding up well and unemployment numbers are fairly low [in those sectors].” That’s a point of pride for the Biden administration. In a speech on Monday commemorating the one-year anniversary of the Inflation Reduction Act, Treasury Secretary Janet Yellen told a Las Vegas crowd that wage gains are now outpacing inflation and that in a majority of major economic sectors, real wages are growing faster than they were before the pandemic. “This has had a sizable impact on reducing inequality,” Yellen said. The declines experienced by higher-income households aren’t particularly widespread, Zhou noted. The unemployment rate is still near historic lows, after all, and the monthly jobless claims reported by the Labor Department are still “very healthy” compared to historical levels, she said. What’s more, the financial cushions that households amassed during the pandemic are still in decent shape, Zhou added. Like the Federal Reserve, Bank of America economists no longer anticipate a recession. Even though there are some cracks on the higher end of the income spectrum, deposits for those customers are “resilient,” Zhou said. “Even if we continue to see deterioration in the labor market, the buffer [consumers] have will continue to make the slowdown more gradual.” IT’S TUESDAY — Send tips, gossip and suggestions to Sam at ssutton@politico.com and Zach at zwarmbrodt@politico.com   A NEW PODCAST FROM POLITICO: Our new POLITICO Tech podcast is your daily download on the disruption that technology is bringing to politics and policy around the world. From AI and the metaverse to disinformation and cybersecurity, POLITICO Tech explores how today’s technology is shaping our world — and driving the policy decisions, innovations and industries that will matter tomorrow. SUBSCRIBE AND START LISTENING TODAY.     Driving the day Data on retail sales and import price index for July will be released at 8:30 a.m. … Minneapolis Fed President Neel Kashkari speaks at the APi Group Global Controllers Conference at 11 a.m. An addendum — Bloomberg’s Claire Ballentine and Charlie Wells ask: Are you rich? “Billionaires know they are. Low-wage workers are very well aware that they aren’t. But vast swaths of America’s ‘regular rich’ don’t feel that way, and it’s keeping everybody down.” Meanwhile — The WSJ’s Jon Kamp and Shannon Najmabadi: “The U.S. has seen a record increase in homeless people this year as the Covid-19 pandemic fades … The data so far this year are up roughly 11% from 2022, a sharp jump that would represent by far the biggest recorded increase since the government started tracking comparable numbers in 2007.” Biden to Wisconsin — President Joe Biden will head to Milwaukee today to celebrate the one-year anniversary of the Inflation Reduction Act. A White House official said that in conjunction with the visit, Siemens will announce that it will use the IRA’s clean energy incentives to manufacture solar products in nearby Kenosha County. Big — Our Katy O’Donnell reports that a jury in Washington, D.C. awarded $612 million to shareholders after “a long-running dispute over the government’s 2012 decision to sweep profits from Fannie Mae and Freddie Mac directly to Treasury coffers.” Rollout — Zach reports on FDIC Chair Martin Gruenberg’s plan to require regional lenders to set up debt buffers. The bank regulator is also calling for stronger plans to navigate banks through failure and greater oversight of uninsured deposits. “These are perhaps lessons we should have learned from the 2008 financial crisis,” he said. “The events of earlier this year provide us with another opportunity. This time I don’t think we’ll miss.” Gruenberg also pushed back on the conventional wisdom that regional bank depositors rushed to "too big to fail" banks in the wake of SVB's collapse. "There was some of that, but actually, according to the data that we have, perhaps less than is commonly thought," he said. "Most of the liquidity that left the regional banks was actually going to non-bank financial institutions by depositors seeking higher yield, rather than to the GSIBs." Flashback: BlackRock was among the biggest winners in the immediate aftermath of Silicon Valley Bank’s collapse. Great expectations — The New York Fed on Monday reported that consumers expect prices to climb at a slower clip moving forward amid improving outlooks on household finances, the job market as well as food, gas and shelter costs. In the markets Contagion risk — Reuters’s Clare Jim and Shuyan Wang: “China's largest private real estate developer Country Garden is seeking to delay payment on a private onshore bond for the first time, the latest sign of a stifling cash crunch in the property sector, piling pressure on Beijing to step in.” Fading — The NYT’s Jordyn Holman: “Several prominent companies, like the Gap and Kohl’s, have recently replaced female leaders with men. Industry observers see a loss in gender representation.” Long read — NYMag’s Jen Wieczner goes deep on how Goldman Sachs CEO David Solomon has fared amid growing dissent within the Wall Street institution.   DON’T MISS POLITICO’S TECH & AI SUMMIT: America’s ability to lead and champion emerging innovations in technology like generative AI will shape our industries, manufacturing base and future economy. Do we have the right policies in place to secure that future? How will the U.S. retain its status as the global tech leader? Join POLITICO on Sept. 27 for our Tech & AI Summit to hear what the public and private sectors need to do to sharpen our competitive edge amidst rising global competitors and rapidly evolving disruptive technologies. REGISTER HERE.     Regulatory Corner UBS fined $1.4 billion — Katy O’Donnell reports that UBS agreed to penalties to “settle claims of misconduct in its offering of mortgage-backed securities in the run-up to the 2008 global financial crisis.” Another wrinkle in the climate/ESG fight — Our Alex Guillen reports that a Montana court ruled the state’s pro-fossil fuel laws and policies “violated the state constitution, delivering a win for a group of young people who had challenged the measures that blocked the state from considering the damage oil, natural gas and coal posed to the climate.”   Follow us on Twitter Mark McQuillan @mcqdc Zachary Warmbrodt @Zachary Victoria Guida @vtg2 Declan Harty @ @declanharty Eleanor Mueller @eleanor_mueller Katy O'Donnell @katyodonnell_ Sam Sutton @samjsutton   Follow us

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