‘All over the place’: What’s next for the U.S. economy

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Sep 19, 2023 View in browser   By Sam Sutton 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 What’s next for the U.S. economy? Spin the wheel to find out. Apollo Global Management’s chief economist Torsten Slok on Monday observed that the Atlanta Fed’s estimate for third quarter GDP growth stood at a whopping 4.9 percent. But another recent estimate from the St. Louis Fed was pointing to an economic contraction of 0.25 percent (the regional bank has since revised that estimate into slightly positive territory). The divergence in regional Fed estimates reflects crosscurrents that are confounding Washington policymakers, Wall Street and consumers alike. They suggest “the economy is booming or the economy is growing really slowly,” Slok told your host Monday afternoon. “It’s really remarkable how all over the place they are.” With the Fed expected to hold rates steady at its meeting this week, the data that Chair Jerome Powell and other policymakers use to measure economic health “are pointing in all directions,” he said. Or, to put it more bluntly, nobody really knows what’ll happen next.  Larry Summers made a similar point when he spoke with Sam and Zach in an upstairs office at the Peterson Institute for International Economics (moments before delivering a lengthy critique of President Joe Biden’s trade and economic policies. “The news has been relatively good for the last few months, but there are still substantial risks— both on the overheating side and for a possible slowdown towards recession,” the former Treasury secretary said. “Declarations of victory are substantially premature.” What factors might cause inflation to rebound?  — Health insurance costs were at the top of Summers’s list. The Wall Street Journal earlier this month reported that employer plan costs are expected to climb by 6.5 percent next year — the largest increase in years. Premiums on Obamacare plans tracked by KFF and the Peterson Center on Health Care are expected to climb by around 6 percent. — Wage growth remains strong — something that Summers and Fed officials have repeatedly identified as a factor in rising prices — and the labor market remains tight. — Meanwhile, home prices are climbing as consumers scrap over limited inventory. Rising gas and commodity prices elevated the consumer price index last month and the United Auto Workers strike — as well as its influence on labor movements in other sectors — could also create inflationary headwinds. But the real economy faces risks, Summers said. The outlook for consumers is uncertain. Covid savings have eroded as the net worth of American households rebounds. There’s a wall of corporate debt maturing that will need to be refinanced at higher rates, which would put a strain on investment. And credit conditions could deteriorate as regional banks take steps to lower their risk profile. To the extent there’s a slowdown in credit, “there's no certainty that it necessarily translates into disinflation rather than to stagflation,” Summers said. “There's more grounds for optimism than before but it's still a very long road before we can declare that this episode is over,” he added. IT’S TUESDAY — What other economic crosscurrents should we explore? Send tips, gossip and suggestions to Sam at ssutton@politico.com and Zach at zwarmbrodt@politico.com 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 The FOMC begins its two-day meeting … SEC Division of Investment Management Director William Birdthistle testifies before House Financial Services at 10 a.m. … Senate Judiciary has a hearing on Chapter 11 proceedings at 10 a.m. … House Oversight holds a hearing on Bidenomics and inflation at 2 p.m ... House Financial Services has a subcommittee hearing on regulatory overreach at 2 p.m. … Treasury Secretary Janet Yellen will announce new climate change initiatives at the Bloomberg Transition Finance Action Forum at 4 p.m. And later today, don't miss — Our Victoria Guida and the Playbook team will play host on Tuesday at POLITICO’s Building the New American Economy (RSVP with the link). Speakers include Jared Bernstein, chair, White House Council of Economic Advisers, as well as, Rep. David Schweikert (R-Ariz.) and Rep. Drew Ferguson (R-Ga.) from the U.S. Joint Economic Committee. Another slow growth indicator — The Organisation for Economic Co-operation and Development this morning released updated projections that have U.S. GDP growth slowing from 2.2 percent this year to 1.3 percent in 2024 “as tighter financial conditions moderate demand pressures.” Global growth is also expected to slow as tighter monetary policies take root, consumer confidence fades and questions swirl around China’s trajectory. — The WSJ’s Justin Lahart: “Federal Reserve policy makers’ projections for inflation this year look as if they could be too high, while their GDP projections look too low” SAFE Banking — Our Jasper Goodman: Sen. Kevin Cramer (R-N.D.) said Monday that lawmakers’ agreement on a cannabis banking bill largely resembles the original text introduced earlier this Congress. Sticking largely with the original proposal "demonstrates that we've been at this a little while and probably have found the sweet spot in passing a piece of legislation." He said the agreement would leave section 10 of the bill "intact, as it is" despite concerns Banking Committee member Jack Reed (D-R.I.) raised about the provision, which would make it more difficult for regulators to compel banks to cut ties with certain customers. Reed said in an interview that "we’ve talked extensively about Section 10, and we’ve made some progress," but deferred to Banking Chair Sherrod Brown (D-Ohio) on the specifics of any deal. "I think we’ve resolved most of the issues we had — and I hope we have so we can get it out of the committee with a strong vote," Reed said. Still on — Bloomberg’s Michael Gunn: “The International Monetary Fund and World Bank will stick with plans to hold their annual meetings in Morocco in October despite a devastating earthquake earlier this month that claimed about 3,000 lives.” Griffin: Still on the sidelines — Citadel CEO Ken Griffin is still waiting in the wings for a non-Trump Republican to capture the hearts and minds of GOP primary voters, reports CNBC’s Brian Schwartz. He also said this about Florida Gov. Ron DeSantis’ sputtering presidential campaign: “I don’t know his strategy,” he said. “It’s not clear to me what voter base he is intending to appeal to.” Community Reinvestment Act pushback — Our Victoria Guida: “Advocacy group Better Markets is arguing that there are serious shortcomings in the Community Reinvestment Act proposal that regulators expect to finalize soon, including that it won’t even capture textbook cases of redlining.” The striking economy — CNBC’s Jeff Cox reports that recent strikes “resulted in the most missed hours of work in some 23 years, according to Labor Department statistics.”   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.     Crypto The crypto advertisements are back — Get ready, Washington, you’re about to be hit with another wave of digital asset ads. Coinbase has granted a new 501c4 organization an eight-figure budget to support organizing efforts, paid media and events — with a big focus on 2024 swing states — in a bid to sway lawmakers on the need for new laws to govern digital asset markets, a source familiar with the efforts told MM. Coinbase CEO, Brian Armstrong, will be on Capitol Hill on Sept. 27 — the same day SEC Chair Gary Gensler will testify at House Financial Services — with other industry executives and advocates to make the case for pro-crypto policies. Early efforts have also been focused on Ohio, where Coinbase adviser and former Democratic Rep. Tim Ryan hosted a town hall last week to tout the industry’s potential. The industry is making a bid to sway Senate Banking Chair Sherrod Brown (D-Ohio) — one of the sharpest crypto critics in Washington — on the need for new legislation. Brown last week sent a letter to Treasury Secretary Janet Yellen, Gensler and CFTC Chair Rostin Behnam urging them to assess ways to target investor disclosure deficiencies at token issuers and trading platforms — adding that “Congress can work” if more tools are needed. “All roads lead through Ohio,” Kara Calvert, Coinbase’s head of U.S. policy, told MM. “What I read in [Brown’s] letter is an interest in how to move the ball forward. Does that mean legislation? I hope so. Does that mean movement in the Senate? I hope so.”   A message from Sallie Mae®:   On the Hill Shutdown watch — Our Jordain Carney: “Speaker Kevin McCarthy still plans to bring up the GOP’s short-term plan to fund the government in a vote on Thursday, even as his members indicate it’s doomed.” — Our Caitlin Emma: “Senate Appropriations Chair Patty Murray took action Monday to skirt conservative opposition blocking the chamber from passing a three-bill ‘minibus’ this week.” — But, as our Ursula Perano and Burgess Everett report, “the odds of a shutdown are peaking.” Wall Street A tale of two cities — In Chicago, Mayor Brandon Johnson’s plan to plug the city’s budget with $800 million in new taxes — including a levy on financial transactions — has given some of the city’s storied derivatives brokerages reason to consider pulling up stakes, reports Bloomberg’s Isis Almeida. That would pose a major threat to the city’s office market. Meanwhile, in San Francisco — which has been the poster child for distressed commercial real estate — the “office market is seeing progress for the first time since the onset of the pandemic,” writes The WSJ’s Peter Grant. Off the sidelines — Bloomberg’s Shawn Donnan and Enda Curran: “From Wall Street giants like BlackRock Inc. to consumer titans like Coca-Cola Co. and Tesla Inc. and industrial mainstays like 3M Co., S&P 500 chief executives and their lieutenants have used the word ‘geopolitics’ almost 12,000 times in 2023, or almost three times as much as they did just two years ago.”   JOIN US ON 9/20 FOR A TALK ON TRANSFORMING HEALTHCARE BILLING: Bipartisan legislation in the House and Senate would align costs for services across hospitals and doctors’ offices and reduce out-of-pocket spending that could potentially save the federal government billions of dollars. Can this legislation survive a polarized Congress? Join POLITICO on Sept. 20 to explore this and whether site-neutral payments and billing transparency policies could help ease health care costs. REGISTER HERE.     Jobs Report Big hire at BPI — Samantha Riley has joined the Bank Policy Institute as a senior vice president and senior associate general counsel on its regulatory affairs team. Riley previously held several senior roles at the Bank of England, where she advised Deputy Governor Sir Jon Cunliffe. Structured Finance Association staffs up — The Structured Finance Association has tapped former Treasury and Senate Banking attorney David Dwyer as the lead counsel for its policy and regulatory affairs team. Frank Tallerico, formerly of Macquarie, has signed on as ABS Policy Director. 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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