Jerome Powell’s job is about to get harder

Jul 31, 2024

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

Federal Reserve policymakers will likely hold interest rates steady when they meet today. But that’s not why market participants or Beltway economists are holding their breath.

Instead, they’ll be watching for any sign from Fed Chair Jerome Powell about how central bank officials are thinking about the possibility of rate cuts in September and beyond as a growing number of indicators point toward softening inflation and a weaker labor market.

Market participants are almost 100 percent sure that is what’s in store for September, according to CME’s FedWatch tool. But that would mark the first time the Fed has cut rates this close to an election since October 2008 — a little more than a month after the collapse of Lehman Brothers.

Powell has repeatedly said the Fed does not consider politics when it makes a decision on rate policy. But the political implications of what he and his colleagues do next — and Fed officials no doubt hate that we’re bringing this up — are enormous.

From Victoria Guida: “Former President Donald Trump recently told Bloomberg News that cutting rates just weeks before the election is ‘something that [central bank officials] know they shouldn’t be doing,’ while multiple Republican lawmakers have also suggested that such a move could raise questions of political bias. At the same time, standing pat — when markets overwhelmingly expect Fed policymakers to act in September — would also open them up to criticism.”

Trump has a lengthy history of making his opinions known when it comes to rate policy. But he’s hardly the only Republican to make the point that a September rate cut would raise questions about election interference. Both Sen. Kevin Cramer (R-N.D.), who sits on Senate Banking, and Kentucky’s Rep. Andy Barr, who could be the top Republican on House Financial Services next year, made that point in separate interviews with POLITICO.

It usually takes quite a bit of time for the Fed’s rate decisions to have an impact on macroeconomic indicators like the unemployment rate or price growth. But a September move would be a clear signal that the Fed believes its long-running battle against inflation has concluded and that the public can now anticipate lower borrowing costs.

That could breathe life into a dormant housing market and reduce the interest charges Americans pay on auto loans and credit card bills. It would also reduce the cost of financing merger activity, something investment bankers and private equity firms have craved for months. Put another way, it would provide a boost to markets and consumers as Vice President Kamala Harris makes the case for four more years of Biden-era economic policies.

The White House has made a point of staying away from any conversation about what the Fed should do. But Harris allies — including administration alums like Bharat Ramamurti, Jennifer Harris and Kitty Richards — this week said the Fed should not wait until September to start cutting rates.

“At this point, the Fed’s interest rate policies are actually contributing more to the cost of living problem that American families are facing than inflation,” said Richards, a former Treasury official who’s now a senior strategic adviser at Groundwork Collaborative. “That’s largely because most American families do not buy houses in cash. They do not buy cars in cash, and they put some significant amount of consumer spending — at least temporarily — on credit.”

It’s impossible to say with 100 percent certainty what the Fed will do next. But no matter the path Powell & Co. take, Democrats or Republicans will be furious.

IT’S WEDNESDAY — Soft landings aren’t supposed to be so hard. Send tips and suggestions to ssutton@politico.com.

Pro Briefing: Kamala Harris and the World. What we expect on foreign policy and trade. Join POLITICO Pro for a deep-dive conversation with our specialist reporters about the vice president’s approach to foreign policy. Register Now.

Driving the Day

Senate Banking will hold a hearing on infrastructure and public transportation investments at 10 a.m. … The Federal Reserve will announce its rate decision at 2 p.m. … Powell holds a press conference at 2:30 p.m.

Harris’s Full Nelson — Puck’s Julia Ioffe reports that Brian Nelson, Treasury’s undersecretary for terrorism and financial intelligence, will lead the Harris campaign’s policy team. Nelson was a top adviser to Harris when she was California's attorney general and helped lead the Biden administration’s Russia sanctions efforts following the invasion of Ukraine in 2022.

— A new Bloomberg/Morning Consult poll shows that Harris has wiped out Trump’s lead in key swing states. Donor enthusiasm is surging, Hailey Fuchs and Jessica Piper report. Jarrett Renshaw and Nandita Bose of Reuters report that a VP pick could come as soon as Monday.

Project 2025 founder steps down — After being hammered by Democrats and disavowed by Trump, Paul Dans — the director of the Heritage Foundation’s controversial 2025 Presidential Transition Project — is stepping down, Meridith McGraw and Daniel Lippman report. The project’s policy agenda includes proposals that would significantly alter the Federal Reserve, including eliminating its dual mandate of achieving stable prices and maximum employment.

Speaking of the dual mandate — The Labor Department on Tuesday reported that the number of job openings remained roughly flat in June. But as economist Guy Berger noted on X, the reported hiring rate of 3.4 percent is roughly comparable to late 2013 and early 2014 — when the unemployment rate stood at nearly 7 percent (current unemployment is 4.1 percent). Reports of layoffs and workers quitting their jobs have also fallen, which points to this being “a weird labor market — nobody leaving, nobody coming in,” he wrote.

— And it might not be a good type of weird. As The NYT’s Jeanna Smialek reports: “Policymakers are increasingly attuned to the possibility that conditions could deteriorate quickly, because weaknesses have begun to surface. Job openings have come down sharply, part-time employment is up, fewer companies are turning to temporary help to fill gaps and fewer workers are job hopping.”

The FDIC

Update on Goldsmith Romero — After scrapping plans for a Wednesday vote, Senate Banking Chair Sherrod Brown told Eleanor Mueller that he hopes to hold a vote on CFTC Commissioner Christy Goldsmith Romero’s nomination to lead the FDIC in September. "She's had bipartisan support through her career, twice in big votes, so there's no reason it shouldn't be — and this is an important job, and she's clearly qualified. I would think both parties would want to close that chapter with [current FDIC Chair] Marty Gruenberg and do this."

Speaking of Gruenberg — Following up on yesterday’s MM, Michael Stratford reports that the FDIC board is moving ahead with plans to step up oversight of investment firms that take stakes in banks. Gruenberg on Tuesday said the banking regulator would no longer rely on self-certifications that those investments are passive and that they would give examiners tools to “analyze the ongoing interaction between an investor and the institution.”

— Michael also scooped a new letter from Sen. Thom Tillis and all Republicans on the Senate Banking Committee, including vice presidential nominee JD Vance, saying the lawmakers are making a new push to get the FDIC to drop its plan for stricter guidelines on how bank boards manage risk.

The FDIC last fall proposed new corporate governance standards aimed at beefing up the risk-management responsibilities of bank board directors. Proponents said it was a necessary response to the spring 2023 bank failures.

But the Senate Republicans wrote to Gruenberg that they’re worried the plan “seeks to micromanage Board affairs in a manner that will inject unnecessary uncertainty in key bank management activities.” Industry groups and state regulators similarly oppose the new guidelines.

SUBSCRIBE TO GLOBAL PLAYBOOK: Don’t miss out on POLITICO’s Global Playbook, our newsletter taking you inside pivotal discussions at the most influential gatherings in the world. Suzanne Lynch delivers the world's elite and influential moments directly to you. Stay in the global loop. SUBSCRIBE NOW.

At the regulators

StubHub targeted for “junk fees” — District of Columbia Attorney General Brian Schwalb is suing the ticket marketplace StubHub for allegedly deceptive and unfair practices to hide mandatory fees from consumers, according to a copy of the complaint shared with MM. Schwalb alleges that the company’s “drip pricing” model — which uses a countdown clock as consumers go through the purchasing process before disclosing fees at the final step — prevents consumers from comparison shopping.

Follow us on Twitter