Seeking Goldilocks

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Mar 08, 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.   A message from Bank Policy Institute: 97% of the public agrees: The Federal Reserve’s Basel Endgame proposal will create a drag on our economy for years to come and will hurt working families and small businesses. Tell regulators that it’s time to #StopBaselEndgame and re-propose. Learn more at StopBaselEndgame.com.   QUICK FIX Today’s jobs report is expected to be a much-needed chill pill for markets. But you might want to brace for a freakout. February employment data due out at 8:30 a.m. is landing as Federal Reserve watchers grapple with what might have been unthinkable just a few weeks ago: What if we get no interest rate cuts this year? It’s a possibility that’s been creeping into the financial discourse thanks to a series of upside data surprises and a belief among some that the unexpectedly resilient U.S. economy may be re-accelerating when it should be slowing down. “What would support the markets would be a Goldilocks situation,” Boston College economics professor Brian Bethune told MM before today’s Labor Department report. “You don’t want things to be too hot or too speculative, and you don’t want things to cool off too much, either. The February number should basically support that things are not getting out of hand on the real side of the economy.” What economists expect Per Bloomberg, economists are forecasting that U.S. employers added 200,000 jobs last month. That would be a solid read on the economy and something that’s more down to earth compared to January’s shock report of 353,000 jobs. It’s worth keeping in mind that some economists believe January’s report was inflated by seasonal factors and therefore wasn’t a great snapshot of the jobs market. “This is not to say we think the underlying report was weak or that labor markets conditions softened, but we have doubts about whether we should take the data at face value,” Bank of America’s Michael Gapen and Stephen Juneau wrote Wednesday. Why it matters After overhyping the pace and number of potential rate cuts, markets have been dialing back expectations in recent weeks thanks to signals from Fed officials and economic data. A February jobs report in line with forecasts may help keep things steady, while another surprise spike might fuel further “no cuts” talk. Apollo’s Torsten Slok made the case for no cuts in a note last week, and on Wednesday he followed up with a list of reasons why the February employment report will be strong, including looser financial conditions and low jobless claims. “The employment-to-population ratio is almost a full percentage point lower than pre-Covid, and immigration continues to be strong, suggesting there is still more upside potential to employment,” he said. Fed Chair Jerome Powell grabbed the wheel in Senate testimony Thursday and began to signal that rate cuts are still coming. Stocks closed higher. “We’re waiting to become more confident that inflation is moving sustainably at 2 percent,” he said. “When we do get that confidence — and we’re not far from it — it’ll be appropriate to begin to dial back the level of restriction.” Happy Friday — Is Congress going to pass bank executive accountability legislation, also known as the RECOUP Act? What have you heard? Send tips to zwarmbrodt@politico.com.   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.     Driving the day DOL releases February jobs numbers at 8:30 a.m. SOTU highlights — Biden’s economy line of the night: “The landing is and will be soft.” Economists think he’s probably right, but what’s next? Biden floated tax hikes for big corporations and billionaires, while pledging that individuals making less than $400,000 won’t see increases. He took a big swipe at banks as he vowed to cut down on junk fees and price gouging. He touted the CFPB’s new $8 cap on credit card late fees. The speech sparked some inter-industry warfare in MM’s inbox, with banks blasting retailers for higher prices and fintech startup Chime chiding banks for their credit card fees. In a pitch to tackle housing costs, he called for tax credits to help first-time buyers and those trading up for more space, as well as scrapping title insurance on government-backed mortgages. A key detail noted by our colleague Adam Cancryn: The president’s prepared speech included no reference to “Bidenomics.” TikTok vs. Washington — House Energy and Commerce voted 50-0 to approve a bill that would force Beijing’s ByteDance to sell TikTok or face a U.S. ban. The crackdown prompted the social video giant to rally users against the legislation. Hill offices have been bombarded with calls. NYCB’s Mnuchin era — Shares of New York Community Bancorp rose by nearly 6 percent Thursday following a $1 billion rescue led by former Treasury Secretary Steven Mnuchin’s investment firm. Moody’s Ratings put NYCB on review for upgrade, but said its outlook for the U.S. banking system remains negative. CFPB sued — Katy O’Donnell reports that the U.S. Chamber of Commerce, joined by the American Bankers Association and Consumer Bankers Association, filed a lawsuit to block the CFPB rule that caps credit card late fees at $8. “The CFPB will defend this rule, which will rein in these excessive charges and put $10 billion back in consumers’ pockets,” a bureau spokesperson said.   A message from Bank Policy Institute:   Climate Treasury rethinks insurance plan — The Treasury Department is announcing this morning that it will partner with state regulators to collect data on climate risks from property insurers. It will drop a similar collection effort that it was pursuing separately amid opposition from the insurance industry, Jasper Goodman reports. Treasury is seeking the data as it tries to get a better handle on a growing problem with property insurance affordability and availability. The latest SEC fallout — Declan Harty has a new breakdown of the left’s backlash against SEC Chair Gary Gensler after the agency finalized a scaled-back climate-risk disclosure rule for public companies. As Declan writes, the SEC’s approach makes clear that financial regulators "have deep reservations about steering their agencies too far into the thicket of debates over climate policy — even if that means frustrating friends.”   DON’T MISS POLITICO’S HEALTH CARE SUMMIT: The stakes are high as America's health care community strives to meet the evolving needs of patients and practitioners, adopt new technologies and navigate skeptical public attitudes toward science. Join POLITICO’s annual Health Care Summit on March 13 where we will discuss the future of medicine, including the latest in health tech, new drugs and brain treatments, diagnostics, health equity, workforce strains and more. REGISTER HERE.     Crypto Powell on CBDC fears: Don’t worry — The Fed chair told senators that the central bank isn’t “remotely close” to issuing a digital currency, Victoria Guida reports. “People don’t need to worry about a central bank digital currency,” he said. “Nothing like that is remotely close to happening anytime soon.” Powell went further in trying to address potential concerns about government surveillance. “If we were to ever do something like this, and we’re a very long way from even thinking about it — we would do this through the banking system,” he said. “The last thing we would want, we the Federal Reserve would want, would be to have individual accounts for all Americans or any Americans for that matter. Only banks have accounts at the Fed.” Elizabeth Warren’s new challenger? — Ian Cain may be the second crypto-friendly Republican to enter the race to unseat Sen. Elizabeth Warren, the Boston Globe reports. Economy ECB cut in June? – The European Central Bank kept rates unchanged Thursday but lowered its inflation forecast and signaled rate cuts may begin in June. “We are making good progress towards our inflation target and we are more confident as a result,” ECB president Christine Lagarde said, per the FT. “But we are not sufficiently confident. We clearly need more evidence and more data. We will know a little more in April, but we will know a lot more in June.” On the Hill Banks’ growing Jan. 6 problem — Jasper reports that House Republicans are ramping up scrutiny of law enforcement’s financial data searches following the Jan. 6, 2021, attack on the Capitol, highlighting privacy concerns some lawmakers on the right have with the Bank Secrecy Act. A new House Judiciary report accuses Treasury’s Financial Crimes Enforcement Network of using “politicized search terms and typologies for financial institutions to probe their databases for problematic accounts or transactions.” At a subcommittee hearing Thursday, Judiciary Chair Jim Jordan said the federal government was colluding with big banks to "spy on everything Americans buy.”   A message from Bank Policy Institute: Local governments, energy companies and bankers agree: Basel Endgame is bad for the economy. Government Finance Officers Association: “We believe … that the implementation of these proposed rules would increase the costs to financial institutions that make loans to issuers of municipal debt, and those that underwrite and hold municipal debt in inventory and will disincentivize market makers, resulting in increased borrowing costs and reduced liquidity and stability in the municipal debt market.” American Public Gas Association: “The increased cost to use commodity derivative contracts to hedge will most likely be directly passed onto APGA member systems customers in the form of higher utility bills. In some circumstances, these increased costs could also discourage hedging and expose utility customers to market volatility. These regulations, if finalized, will unfortunately burden consumers with higher utility bills due to costs of upstream regulatory compliance obligations, instead of helping.” Learn more at StopBaselEndgame.com.   Fly Around People moves – Senate Banking approved the nomination of Ron Borzekowski to be director of the Office of Financial Research … Walt Cronkite is the new director of communications at the Structured Finance Association   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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