‘Higher but healthy’

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

Feb 06, 2024 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. QUICK FIX Remember the ‘90s? The U.S. economy boomed, the stock market surged and inflation stayed in check with a series of interest rate hikes. Philipp Carlsson-Szlezak, Boston Consulting Group’s chief economist, believes the U.S. could be entering a similar growth phase – and that elevated rates could help, rather than hurt. He calls it “higher but healthy.” “What we’re looking at is an era of tightness that comes with better growth, a pressure cooker kind of economy more like the late 1990s than the 2010s, and that feeds into higher interest rates,” he told MM. “Which need not be unhealthy.” Consumers, investors and some politicians aren’t enthusiastic about higher for longer, and that’s a no-brainer. It makes stuff more expensive, including credit for businesses that may be forced to shutter or trim staff. Plus, as we saw with last year’s bank failures, it can introduce its own kind of instability. But Carlsson-Szlezak, who will dig further into his views in a book publishing later this year, says the benefit is it could lead to more capital discipline. “Some businesses won’t be viable,” he said. “But what’s the use of businesses that are only viable because we’re artificially subsidizing them with low rates? They don’t create value in the economy.” Moreover, he sees it as an “expression of strength.” “Rates can be higher because of bad things, like structurally higher inflation,” he said. “And rates can be higher because the economy’s strong, well utilized and resources are scarce — all of that feeds into higher rates. That’s my view of what’s going to go down over the next six years.” It’s Tuesday — Send tips to zwarmbrodt@politico.com. A message from Chime: Tired of overdraft fees? Learn how Chime is different. Chime is expanding banking with no overdraft fees to everyday people. Cost is a barrier to many, which is why Chime never charges overdraft or monthly fees — and there are no minimum balance requirements for our checking and savings accounts. We reach customers traditional banks don't, can't or won't and are helping everyone unlock financial progress. Learn more.   Driving the day Treasury Secretary Janet Yellen testifies on FSOC’s annual report at House Financial Services at 10 a.m. … NCUA Chair Todd Harper speaks at Brookings at 11 a.m. Banks take the Fed to court — Banking trade groups and the U.S. Chamber of Commerce sued the Federal Reserve, FDIC and OCC to halt a revamp of anti-redlining rules, Victoria Guida and Jasper Goodman report. They said the agencies exceeded their legal authority. It comes as banking groups separately threaten litigation over a proposed overhaul of capital rules for large lenders. “The banking industry is showing its true colors,” National Community Reinvestment Coalition President and CEO Jesse Van Tol said in response to Monday’s lawsuit. “Out of one side of their mouth they say higher capital requirements will hurt people of color and low-income people, but then out of the other they attack the nation’s preeminent law requiring them to lend to those same people.” China deal coming soon? — House Foreign Affairs Chair Michael McCaul expects Republicans to reach an agreement this month on legislation to crack down on outbound investment in China, Jasper reports. McCaul and other GOP China hawks have pushed to bar investments on a sector-by-sector basis. They are negotiating a compromise with top House Financial Services Republicans, including Chair Patrick McHenry, who support a sanctions-based approach. The talks are “going very well," McCaul told reporters. "Mr. McHenry and I are ... meeting with the leader's office and our staff, and we're hopeful to get a resolution on outbound investments — sector-based, but also sanctions with OFAC."   CONGRESS OVERDRIVE: Since day one, POLITICO has been laser-focused on Capitol Hill, serving up the juiciest Congress coverage. Now, we’re upping our game to ensure you’re up to speed and in the know on every tasty morsel and newsy nugget from inside the Capitol Dome, around the clock. Wake up, read Playbook AM, get up to speed at midday with our Playbook PM halftime report, and fuel your nightly conversations with Inside Congress in the evening. Plus, never miss a beat with buzzy, real-time updates throughout the day via our Inside Congress Live feature. Learn more and subscribe here.     First in MM: Senate GOP targets home loan banks — Senate Republicans are pressing the FHFA for information on Federal Home Loan Bank pilot programs that allocate financial assistance based on racial factors. In a letter to FHFA Director Sandra Thompson, Sens. Bill Hagerty, Thom Tillis, Katie Britt and J.D. Vance frame the effort as racial discrimination and suggest it's a break from statutory mandates. The Banking Committee Republicans cited programs at Federal Home Loan Banks in Atlanta, Boston and Indianapolis. “In addition to requesting information about these concerning activities, we urge the FHFA and its regulated entities to refrain from advancing politically contentious social agendas, and to refocus on their mission of supporting the U.S. housing system,” they said. The FHFA did not respond to a request for comment. Council of Federal Home Loan Banks president and CEO Ryan Donovan said in a statement: “All FHLBank voluntary programs are designed to support affordable housing and economic development in the communities our members serve, including historically underserved populations.” Crypto and AI, oh my — Treasury Secretary Janet Yellen will flag looming risks from digital assets and artificial intelligence in testimony she’ll give to House Financial Services this morning. The focus of the hearing is the work she leads at the Financial Stability Oversight Council.   A message from Chime:   Economy Inflation outlook — The FT reports that the Paris-based OECD sees U.S. inflation at just 2.2 percent this year and 2 percent in 2025, among the lowest rates in the G-7. Only Italy is expected to see less price growth. The U.K. is expected to experience the highest inflation in the G-7 this year at 2.8 percent. Regulatory Corner The NYCB backstory — Per Bloomberg, pressure from the Office of the Comptroller of the Currency led to New York Community Bancorp’s surprise decision to cut its dividend and stockpile cash in case commercial real estate loans go bad. The moves triggered a dramatic drop in the bank’s stock price and brought down shares of other lenders last week. Republicans press the Fed on global groups — Eleanor Mueller reports that McHenry and Rep. Andy Barr are demanding that the San Francisco and New York Federal Reserve banks provide details on their relationships with the Bank for International Settlements and the Network for Greening the Financial System. Housing Habitat for Humanity’s fly-in — Eleanor reports that the affordable housing group is sending around 450 staff, homeowners and others to the Hill this week to push for Congress to appropriate more money for HUD programs and to pass a bipartisan housing tax credit. Habitat Vice President of Government Relations Chris Vincent said in an interview that the group wants Congress to add the tax credit to the tax bill the House passed late last month.   YOUR GUIDE TO EMPIRE STATE POLITICS: From the newsroom that doesn’t sleep, POLITICO's New York Playbook is the ultimate guide for power players navigating the intricate landscape of Empire State politics. Stay ahead of the curve with the latest and most important stories from Albany, New York City and around the state, with in-depth, original reporting to stay ahead of policy trends and political developments. Subscribe now to keep up with the daily hustle and bustle of NY politics.      Fly Around People moves — Jennifer Jacoby, previously of SIFMA, is joining Invariant as financial services policy counsel … Kamran Kara-Pabani is now an adviser to White House chief of staff Jeff Zients. He most recently worked for the National Economic Council. (h/t Daniel Lippman) A message from Chime: Chime is expanding banking with no overdraft fees to everyday people. Cost is a barrier to many, which is why Chime never charges overdraft or monthly fees — and there are no minimum balance requirements for our checking and savings accounts. We reach customers traditional banks don't, can't or won't and are helping everyone unlock financial progress. Learn more.     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

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 Unsubscribe | Privacy Policy | Terms of Service