A GOP warning shot for the Fed

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Sep 20, 2023 View in browser   By Zachary Warmbrodt Presented by Sallie Mae® 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 House Republicans are teeing up what is shaping up to be a key feature of the GOP’s Federal Reserve agenda if it controls Washington in 2025: blocking the launch of a new digital dollar. The Republican-led Financial Services Committee today will vote on legislation that would restrict the Fed from moving ahead with a central bank digital currency, even as other countries roll forward. It’s the latest move by Republicans to make hay of the issue and to play up potential government surveillance concerns in particular. The shift is a boon to private cryptocurrency issuers and banks that have also pushed back. The Blockchain Association, which represents the crypto industry, is applauding the House moves this week. Florida Gov. Ron DeSantis, who enacted CBDC restrictions in Florida, has trashed the idea of a digital dollar on the campaign trail and vowed to ban it if elected president. The conservative presidential transition plan being organized by the Heritage Foundation — Project 2025 — would also prevent the Fed from issuing a CBDC. "Central bank digital currency is a tool that will inherently be used for coercion and control, so we should destroy it,” Rep. Warren Davidson (R-Ohio) told our Eleanor Mueller. “We should never let it be built.” House Financial Services will vote today on legislation that would prohibit the Fed from issuing a CBDC without congressional approval. The bill would also block the Fed from issuing digital currencies directly to individuals and prohibit it from using CBDC in monetary policy. (There are multiple ways that a CBDC could be designed, including as a consumer instrument or as a means of transacting between banks.) Democrats are split on the issue. Rep. Jake Auchincloss (D-Mass.) introduced the bipartisan proposal to require the Fed to get congressional approval to launch a CBDC. It has two Democrats as co-sponsors. “Our hearing last week showed that even some Democrats agree that the Federal Reserve can’t issue a CBDC without Congress,” Rep. French Hill (R-Ark.), the chair of the digital assets subcommittee, told MM. “We’re going to have a vigorous debate today about the legislation but this view isn’t controversial or partisan.” Other Democrats have taken a different tack. Rep. Stephen Lynch (D-Mass.) just launched a caucus to educate members on a U.S. digital dollar and introduced a bill that would require the Treasury Department to launch a pilot program. “I worry about some of the recent false narratives and fear mongering, much of which has been fueled by the crypto industry itself,” Lynch said at a hearing last week. “It's important to correct some of the inaccurate and misleading claims that could lead us to shut down innovative policy approaches, before we have even begun a meaningful discussion.” Happy Fed Day — We’d love to hear your FOMC reaction: Zach Warmbrodt, Sam Sutton. A message from Sallie Mae®: Students and families borrow nearly $100 billion in federal student loans each year but that should never be the first option. We need to connect more students to scholarships and grants and simplify financial aid offers to limit overborrowing and help families make informed decisions about paying for college. Learn more about common sense reforms to the federal higher education financing system.   Driving the day Senate Banking holds a hearing on AI in financial services at 10 a.m. … House Financial Services votes on CBDC, China and FinCEN bills at 10 a.m. … The SEC considers a rule on investment company naming at 10 a.m. … FDIC Chair Martin Gruenberg talks nonbank financial institution risks to the Exchequer Club at 1 p.m. … The FOMC releases its interest-rate decision at 2 p.m. followed by a press conference from Fed Chair Jerome Powell … The Fed’s surprising ally against inflation — Victoria Guida has a deep dive into something you might not have known about the economy: A spike in legal immigration is boosting the Fed’s hopes that inflation can cool without a big jump in unemployment. Cannabis compromise — A Natalie Fertig scoop: The Senate’s revamped cannabis banking legislation appears to pare back a controversial proposal that would limit when bank regulators can press banks to close customer accounts. The revised bill would still restrict regulators from closing bank accounts for reputational reasons, but it spells out more ways for banking agencies to intervene in risky or illegal customer activity. Senators tweaked the bill in response to concerns that the account closure restrictions – a priority for Republicans – would tie regulators’ hands. A Banking Committee vote is planned for Sept. 27. Read the new bill text here. More strikes in sight — Reuters reports that it’s unclear when auto industry labor talks will resume, prompting concerns among auto executives and on Capitol Hill that a deal won’t be struck before a Friday deadline. ICYMI, Eleanor and our Nick Niedzwiadek have a rundown of the “X” factors determining how long the unprecedented United Auto Workers strike could go on. Barra and Biden — GM CEO Mary Barra’s role as one of the White House’s closest corporate allies could become a problem for President Joe Biden, our Scott Waldman, Hailey Fuchs and Holly Otterbein report. SBF’s parents sued by FTX — The NYT has the details on a lawsuit that the bankrupt crypto exchange filed against Joe Bankman and Barbara Fried. The company wants to claw back millions of dollars that the Stanford law professors received from their son, Sam Bankman-Fried.   A message from Sallie Mae®:   Economy The politics of a UAW slowdown — Midwestern Democrats and Republicans are happy to talk up striking auto workers. But they’re split on the prospects for economic fallout from the work stoppage heading into campaign season. “I don’t get upset very often at reporters, but that’s the question I get over and over,” Senate Banking Chair Sherrod Brown told our Jasper Goodman in response to a question about the economic impact of the strike. “‘What are the auto workers doing to damage the economy?’ I just don’t buy that," he added, insisting more scrutiny should be directed toward the automakers and their executives. Republicans, including former President Donald Trump, are using the strike as an opening to appeal to the workers and bash Biden. They’re also more willing to talk openly about the broader economic impact. “You're already seeing some effects,” Brown’s fellow Ohioan, GOP Sen. J.D. Vance, told Eleanor. “If this goes on for a couple of months, it's going to cause a lot of economic harm to Ohio.” Politicians on both sides of the aisle are maneuvering to ally themselves with workers who could be the shot-callers in battleground states like Ohio and Michigan. So far, UAW leadership isn't buying it, with union president Shawn Fain bashing Trump ahead of his visit to Detroit next week. “You can make all kinds of speeches, but do you sign up to protect the right to organize?” Brown told reporters Tuesday. “I’ll believe this economic populism when I see them do that.” The White House view — “There's this mythology that you can't have a strong macro economy and have striking workers, I think that's demonstrably wrong,” Council of Economic Advisers Chair Jared Bernstein said Tuesday at POLITICO’s "Building the New American Economy" live event.   GO INSIDE THE CAPITOL DOME: From the outset, POLITICO has been your eyes and ears on Capitol Hill, providing the most thorough Congress coverage — from political characters and emerging leaders to leadership squabbles and policy nuggets during committee markups and hearings. We're stepping up our game to ensure you’re fully informed on every key detail inside the Capitol Dome, all day, every day. Start your day with Playbook AM, refuel at midday with our Playbook PM halftime report and enrich your evening discussions with Huddle. Plus, stay updated with real-time buzz all day through our brand new Inside Congress Live feature. Learn more and subscribe here.     Climate Treasury nudges banks on climate — The Treasury Department released a set of principles for net-zero financing and investment, Jordan Wolman reports, as the Biden administration seeks to encourage private-sector action to aid the green transition. House Financial Services Chair Patrick McHenry blasted the announcement as a move by Treasury to “direct credit to politically favored activities in order to appease far-left climate activists.” Regulatory Corner Back to 100 F St. NE — From Declan Harty: More than 1,300 days after the SEC’s last in-person, public meeting, the Wall Street regulator is back. Later this morning, the SEC’s commissioners are expected to gather in the basement of the agency’s Washington headquarters for an open session, the first of its kind since the pandemic — and the first under Chair Gary Gensler.  On the docket: Finalizing an expansion of a rule that requires funds to invest in what their names indicate. It’s a big deal in the ESG investing world, where concerns are rampant about “greenwashing.”   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.     Markets Cboe CEO steps down — The WSJ reports that Cboe Global Markets chief executive and chair Edward Tilly unexpectedly resigned from the options exchange after a board investigation found that he didn’t disclose personal relationships with colleagues. On the Hill Spotted: Ripple CEO Brad Garlinghouse and Chief Legal Officer Stu Alderoty were on Capitol Hill Tuesday for meetings, as the company challenges the SEC’s authority over crypto. A message from Sallie Mae®: The federal higher education system does too much for too many and not enough for those who need the most assistance. Some federal lending programs allow students and families to borrow virtually unlimited amounts to pay for higher education, a policy that has driven up both student loan debt and the cost of tuition. In fact, federal debt for graduate students has reached an all-time high, according to the U.S. Department of Education. Read more about solutions for limiting overborrowing and reducing federal student debt.     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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