Inflation fears remain — Huge fiscal fights ahead — Yellen to China?

From: POLITICO's Morning Money - Thursday Aug 12,2021 12:02 pm
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By Ben White

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Quick Fix

Inflation fears over? — One of the biggest threats to President Joe Biden's administration is the rate of inflation. Republicans are hammering at it at every opportunity. And it’s a real thing, with significantly higher prices for gas, cars, hotels, food and lots of other items, significantly impacting household finances and taking at least a bit of a bite out of Biden’s still strong approval ratings.

The White House remains hyper-focused on inflation even as Democrats prep to pump another $4 trillion-plus into the economy, though that cash would flow in over a decade. And they got some decent news on the prices front.

Via Reuters: “Data … hinted that U.S. inflation may have peaked, reassuring investors that the Federal Reserve will not feel obligated to hasten plans to rein in emergency-level support of the economy, but they remained worried that rising prices could continue to weigh on everything from bond prices to corporate margins.

“Data showed … that U.S. consumer price increases slowed in July even as they remained at a 13-year high on a yearly basis. The S&P 500 and the Dow ... closed at record levels, while U.S. Treasury yields fell across most maturities.”

Too soon to declare victoryVia Mohamed A. El-Erian on Bloomberg View : “[M]ost economists are likely to agree on one conclusion, and it suggests that the heightened inflation watch is far from over. … The reality is that the new data does not provide a strong enough basis for resolving this disagreement” over inflation.

The battle ahead — MM is not sure Wall Street (or anyone) is really prepared for how big fiscal fights will get in September and October as the debt ceiling looms and Democrats try to push through both the bipartisan infrastructure bill and the much larger budget reconciliation package, totaling around $4.1 trillion.

Markets, which keep hitting new highs, are absolutely counting on a smooth debt limit hike and significant further fiscal stimulus paired with sustained easy money Fed policy. But pulling all this off in a clean fashion seems perhaps not impossible but at least highly difficult.

Via Bloomberg’s Billy House and Steven T. Dennis: “The convergence will test the limits of how well House Speaker Nancy Pelosi and Senator Majority Leader Chuck Schumer can manage their narrow — and often fractious — majorities and Biden’s ability to bargain with dissenters. …

“Pelosi is briefly interrupting the chamber’s summer recess by calling lawmakers back to Washington on Aug. 23 to vote on the Senate’s budget resolution. … For now, the infrastructure bill is on hold.”

GOOD THURSDAY MORNING — Email me on bwhite@politico.com and follow me on Twitter @morningmoneyben.

 

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Driving the day

MORE ON THE DEBT LIMIT — Via email from Andrew Boardman: “[O]ne thing that makes the Democrats' strategy especially perplexing to me is that they had the opportunity to include a debt-ceiling increase in the American Rescue Plan but opted not to for no discernable reason.

“Would anyone have really noticed or cared if Democrats averted this showdown before it even became an issue by slipping a debt-ceiling hike into a super popular piece of legislation?”

YELLEN WEIGHS CHINA TRIP — Bloomberg’s Saleha Mohsin and Jennifer Jacobs: “Janet Yellen is weighing a trip to China in the coming months that would be her first as U.S. Treasury secretary … as the Biden administration engages in a broad review of policy toward the Asian power and the tariffs on imported goods enacted under former President Donald Trump.

“The Treasury Department’s discussions on a possible Yellen visit are in the early stages and no decision has been made, with considerations including travel risks stemming from the delta variant of the coronavirus … If the trip goes ahead, she would likely meet with Vice Premier Liu He -- regarded as China’s top economic official -- and would be the highest-ranking Biden appointee to visit the country.”

Fly Around

WAGES ARE RISING BUT SO ARE PRICES — Our Megan Cassella: “Rising prices on everything from groceries to gasoline have eaten away the wage gains workers have seen since the start of the year, leaving most Americans earning less than they were before the pandemic began and derailing the White House’s argument that paychecks have grown under … Biden’s tenure.

“Prices climbed 0.5 percent over the month from June to July, a slower pace than in recent months but still sizable enough that it outpaced the healthy wage gains workers across the income spectrum have received. As a result, real earnings decreased 0.1 percent over the month, government data shows. … It's the second straight month of year-over-year increases at that level, the biggest jump since 2008.”

INFLATION STAYS HIGH — WSJ’s Gwynn Guilford: “Inflation remained elevated in July as the economic recovery continued, but prices showed evidence of cooling amid pandemic-related supply problems and signs that the recent rise in coronavirus infections is starting to crimp some business activity. … Consumer prices rose 5.4% in July from a year earlier, the same pace as in June, the highest 12-month rate since 2008, the Labor Department reported …

“The weakening of price pressures in July from June isn’t necessarily a sign that the inflation fever of the past few months is breaking. ‘It’s like the equivalent of going from a 104-degree to a 101-degree fever—it’s still elevated. It’s just not as hot as what we saw in the prior three months,’ said Aneta Markowska, chief financial economist at Jefferies LLC. ‘There is still some pressure in the pipeline that should show up in the next few months.”

DEMS BREAK WITH BANKS ON TAX REPORTING AMENDMENT — Our Kellie Mejdrich: “Senate Democrats … dealt a blow to banks as they blocked a GOP messaging amendment that opposed the creation of new tax reporting requirements for lenders. …

“Banks have been gearing up to lobby against the plan. Lenders say that they support cracking down on tax evaders but that their participation would raise a variety of potential problems, including threats to privacy and data security, increased compliance costs and damage to customer relationships.”

WARREN PLOTS CRYPTO LEGISLATION AFTER SEC PLEAAlso via Kellie: “Sen. Elizabeth Warren … said she would try to use legislation to strengthen cryptocurrency oversight after SEC Chair Gary Gensler called on Congress to bolster consumer protections.

“The Massachusetts Democrat signaled her support as she released a Thursday letter from Gensler in which he said Congress should provide regulators with more authority to police crypto trading, lending and decentralized finance platforms. In the meantime, Gensler said the SEC “has taken and will continue to take our authorities as far as they go."

JUDGE ORDERS TRUMP ACCOUNTANTS TO TURN OVER RECORDS — Our Josh Gerstein: “A federal judge has ruled that former President Donald Trump’s accountants must turn over two years’ worth of his tax and financial records to a House committee investigating whether Trump and his businesses profited from his service in the White House.

“U.S. District Court Judge Amit Mehta … approved a House Oversight and Government Reform Committee subpoena for Trump’s records covering 2017 and 2018, but turned down most of the panel’s request for similar information dating back to 2011. The decision is likely to be appealed by Trump’s lawyers and could also be challenged by the House panel.”

NYC MAYOR-TO-BE WILLING TO DEAL WITH AMAZON — CNBC’s Brian Schwartz: “Democratic mayoral nominee Eric Adams has privately signaled he's open to strengthening New York's relationship with Amazon and other tech giants if he wins election in November, according to people familiar with recent conversations he has had with business leaders.

“Adams' openness to fostering stronger ties with Amazon comes as the e-commerce giant looks to expand its footprint in New York after a deal for a headquarters in Queens was scrapped in 2019. … Amazon bolted on the plan to build in the Long Island City section of Queens after strong resistance from progressive lawmakers, including Rep. Alexandria Ocasio-Cortez, D-N.Y. Amazon had promised to create at least 25,000 jobs, but critics said the company was getting too many tax breaks and was not involving the local community.”

HOCHUL VOWS NEW TONE — NYT’s Luis Ferré-Sadurní: “In her first remarks since Gov. Andrew M. Cuomo announced his resignation, Lt. Gov. Kathy Hochul, the state’s governor-in-waiting, distanced herself from the embattled governor, while declaring she was prepared to lead New York through economic turmoil and an enduring pandemic.

“Ms. Hochul stressed she had ‘not been close’ to the governor, saying she was unaware of the conduct outlined in a state attorney general report that found Mr. Cuomo had sexually harassed nearly a dozen women. Ms. Hochul said she would oust Cuomo staffers who acted unethically, signaling she would transform the workplace culture in the governor’s office, which the report had described as hostile and vindictive.”

 

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