Powell's big Jackson Hole moment — Dems roll out tax hike plans — Unease on Wall Street

From: POLITICO's Morning Money - Thursday Aug 26,2021 12:03 pm

Aug 26, 2021

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Quick Fix

Jackson Hole Prep — Still one more day to wait for Jay Powell’s big speech at the annual Kansas City Fed symposium in Jackson Hole, Wyo. But worth looking ahead to what the Fed Chair is likely to say in his most important address before President Biden and senior White House aides decide on his future in the job.

It’s a tricky dance for Powell, who is likely to nod toward an asset purchase tapering announcement coming at the November FOMC meeting. Markets expect this given continued strong economic data despite the Delta surge. But Powell can’t tilt too hawkish as he auditions for a second term in the big chair.

And he remains in significant jeopardy if inflation persists . RBAdvisors’ Richard Bernstein emails: “[I]f Powell stays then Biden owns inflation and, if inflation isn’t transitory, the rift within the Democratic party will widen and Biden will be vilified by the left-wing of the party because inflation affects the poor and the middle-class more than it affects the wealthy. Add inflation to Afghanistan and the Democrats will lose the mid-terms as the Republicans will compare Biden to Jimmy Carter.”

More palace intrigue — A close D.C. observer emails: “I recently heard even more palace intrigue: That Yellen might want to move back to the Fed, which would vacate Treasury for [Lael] Brainard. This is a pure rumor … But it would be an interesting twist!”

Standard Chartered’s Steven Englander on the Jackson Hole speech: “Powell is likely to cautiously affirm recent indications by Fed officials that a tapering announcement is likely at the November FOMC meeting.

“We emphasise ‘cautious’ because Powell will likely stress that tapering is contingent on economic outcomes meeting expectations. If there is deviation from this baseline, a December announcement seems more likely than September. One delay risk is that the politics of raising the debt ceiling could well peak around the November FOMC meeting, temporarily derailing the tapering announcement.”

GOOD THURSDAY MORNING — Email me on bwhite@politico.com and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on aweaver@politico.com and follow her on Twitter @AubreeEWeaver.

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Driving the day

DEMS ROLL OUT CORPORATE TAX HIKE PLANS — Our Brian Faler: “A trio of Senate Democrats … unveiled new details about their plan to hike taxes on corporations’ foreign profits, a proposal they hope to include in lawmakers’ upcoming reconciliation package.

“The draft legislation from Sens. Ron Wyden (Ore.), Mark Warner (Va.) and Sherrod Brown (Ohio) delves deep into the mechanics of how they’d rework the international tax system, including remaking a controversial tax known as GILTI. They’d stiffen the levy by having companies calculate it for each country in which they operate, instead of allowing them to average their tax bills across jurisdictions. That would tend to increase their taxes.”

FIRST LOOK — Per new Peter G. Peterson Foundation polling out this a.m.: “As a $3.5 trillion budget blueprint advances in Congress, 9 out of 10 voters across party lines want leaders to make good on their promise to fully pay for the legislative package, according to a new poll … Strong majorities of Democrats and Republicans also agree that lawmakers should not pass legislation that increases the national debt.”

RENTAL AID HOLDUP THREATENS EVICTION CATASTROPHE — Our Katy O'Donnell: “The Treasury Department said … that state and local governments had disbursed just over 10 percent of federal rental assistance funds as of the end of July, indicating that millions could be at risk of losing their homes once eviction protections end.

“The Treasury data showed that bottlenecks continued to plague the $46.5 billion program that Congress first authorized in December to help keep tenants housed and landlords on solid financial footing amid a nationwide eviction moratorium. The latest version of the ban is set to expire Oct. 3 and could be blocked in the coming days as the Supreme Court considers a legal challenge from real estate groups and property owners.”

Markets

MODEST GAINS PRODUCE MORE RECORD HIGHS FOR S&P 500, NASDAQ — AP’s Alex Veiga: “Stocks on Wall Street closed with modest gains Wednesday, driving the S&P 500 and Nasdaq to all-time highs for the second day in a row. Financial and energy companies led the way higher among stocks in the S&P 500. The benchmark index rose 0.2 percent, marking its fifth straight gain.

A rise in bond yields, which allows lenders to charge higher interest rates on loans, helped push bank stocks higher. Health care and technology companies were among the laggards.”

AFTER SUMMER OF STOCK MARKET HIGHS, SIGNS OF UNEASE EMERGE — Reuters’ Saikat Chatterjee: “Stock markets are heading into September near record highs but the fast-spreading Delta coronavirus variant is making some investors reassess how so-called reflation trades could perform in coming months.

"A raft of indicators from consumer surveys to derivatives suggest that without fresh catalysts markets could be in for a pause or even a reversal over the autumn months. Speculators have also been piling into the dollar, with positioning at its highest in a year.”

COMPANIES STRIKE WHILE THE STOCK MARKET IS HOT — WSJ’s Gunjan Banerji: “U.S. companies are rushing to cash in on soaring stock prices. It isn’t just the white-hot market for initial public offerings.

"Companies are returning to the public markets to issue shares and raise cash from investors at the same time that existing shareholders are tapping the public market to unload their stockholdings at a record clip. Companies including Zoom Video Communications Inc. and Norwegian Cruise Line Holdings Ltd. have sold billions of dollars of shares this year.”

Fly Around

BIDEN, NEEDING A WIN, ENTERS A SPRINT FOR HIS ECONOMIC AGENDA — NYT’s Jim Tankersley and Emily Cochrane: “President Biden, his aides and his allies in Congress face a September sprint to secure a legislative victory that could define his early presidency.

“Democrats are racing the clock after party leaders in the House struck a deal this week to advance the two-track approach that Mr. Biden hopes will deliver a $4 trillion overhaul of the federal government’s role in the economy.

"That agreement sets up a potentially perilous vote on one part of the agenda by Sept. 27: a bipartisan deal on roads, broadband, water pipes and other physical infrastructure. It also spurred House and Senate leaders to intensify efforts to complete a larger, Democrats-only bill to fight climate change, expand educational access and invest heavily in workers and families, inside that same window.”

FEDS REPORT MOST RENTAL ASSISTANCE STILL HAS NOT GONE OUT — AP’s Michael Casey: “States and localities have only distributed 11 percent of the tens of billions of dollars in federal rental assistance, the Treasury Department said Wednesday, the latest sign the program is struggling to reach the millions of tenants at risk of eviction. The latest data shows that the pace of distribution increased in July over June and that nearly a million households have been helped. …

“Lawmakers approved $46.5 billion in rental assistance earlier this year and most states are distributing the first tranche of $25 billion. According to the Treasury Department, $5.1 billion in Emergency Rental Assistance has been distributed by states and localities through July, up from $3 billion at the end of June and only $1.5 billion by May 31.”

MORTGAGE APPLICATIONS RISE AS RATES EDGE DOWN — Reuters’ Evan Sully: “Mortgage applications increased last week, as purchasing applications posted their largest increase since early July while mortgage rates edged down.

“The Mortgage Bankers Association (MBA) said on Wednesday its average contract interest rate for traditional 30-year mortgages declined to 3.03 percent from 3.06 percent in the week ending Aug. 20. The seasonally adjusted market composite index tracking mortgage applications rose 1.6 percent from a week earlier, reflecting a 0.9 percent increase in applications to refinance existing loans.”

FOR FED TAPER, FORGET WHEN IT STARTS. IT’S THE END THAT MATTERS. — Bloomberg’s Liz McCormick: “These days, all the talk in financial markets is about when the Federal Reserve will start paring its debt purchases. What’s more important, for everything from stocks to bonds to currencies, is when they will end.

“There have been few major moves ahead of the Kansas City Federal Reserve Bank’s virtual Jackson Hole symposium, where Chair Jerome Powell on Friday may provide insight into how and when officials will start pulling back its bond market support. That will set the timetable for how soon the Fed will raise interest rates.”

SEC’S GENSLER TAPS WALL STREET CRITIC AS SENIOR ADVISER — WSJ’s Paul Kiernan: “Securities and Exchange Commission Chairman Gary Gensler named an outspoken investor-protection advocate to his inner circle of advisers Wednesday, the latest sign he is gearing up to take a more adversarial approach toward Wall Street.

“Mr. Gensler appointed Barbara Roper, longtime director of investor protection at the Consumer Federation of America, to serve as a senior adviser focused on policy issues, broker-dealer oversight, investment-adviser oversight and examinations.”

BANKS ARE BINGEING ON BONDS, BUT NOT BECAUSE THEY WANT TO — NYT’s Matt Phillips: “The economy is growing. Businesses are hiring. Stocks are marching ever higher. And banks are sitting on big piles of cash. If only they had a better place to put it. Lingering supply chain problems and anxiety over the potential for the Delta variant of the coronavirus to upend the economy again have pared back borrowing by businesses.

"And consumers flush with cash thanks to government stimulus efforts aren’t borrowing heavily, either. So banks have largely been left to invest in one of the least lucrative assets around: government debt.”

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