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Presented by Ripple: Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy. | | | | | |  | | By Kate Davidson and Aubree Eliza Weaver | Presented by Ripple | Editor’s Note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s 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. | | | Wednesday’s surprising consumer price data, which came in much higher than economists expected, provided the latest reminder that the U.S. continues to see higher and more persistent inflation than White House and Federal Reserve officials have expected. And while they may turn out to be right — most economists believe price pressures will abate in 2022, though maybe not until the second half of the year — each report is a reminder that, so far, their predictions haven’t panned out. Treasury Secretary Janet Yellen in June said she thought inflation for the year would end up “maybe around 3 percent.” One month later, the Office of Management and Budget projected consumer prices would rise 4.8 percent in the fourth quarter compared with a year earlier. While that was a conservative estimate at the time, it implied that White House economists expected inflation to quickly decelerate through the rest of the year. That hasn’t happened. The administration has also pointed out that price pressures were driven largely by sectors related to the pandemic reopening, such as airlines and hotels, or by supply-chain issues, such as the semiconductor shortage that has driven up auto prices. Those factors have eased in recent months, but inflation has broadened to other sectors, including housing. Meanwhile, Fed Chair Jerome Powell in an August speech downplayed the risks, saying he saw little evidence that inflation was rising beyond a “relatively narrow group of goods and services that have been directly affected by the pandemic and the reopening of the economy.” In September, Fed officials’ median forecast for inflation this year — measured by the personal consumption expenditures index — was 4.2 percent. To hit that number, inflation would have to run well below their 2 percent target through the rest of the year, which Powell all but acknowledged last week is not going to happen. — Why does it matter? “The Fed and the administration’s underestimation of inflation is really putting them in a tough spot because it makes it look like they don’t understand it,” Adam Ozimek, chief economist at Upwork, tells my colleague Victoria Guida. That’s especially problematic now, when administration officials are trying to assure voters — and one Democratic senator from West Virginia — that their climate and social spending bill would not exacerbate price pressures next year. It has also fueled Republican criticisms that the administration overdid it with its pandemic relief bill this year and shouldn’t be allowed to pump more money into the economy. — The reality: The spending plan would be spread out over a decade, and amount to only a small share of economic output on average. It would also be largely, if not entirely, offset by tax hikes or other revenue increases, which should keep inflation in check. Nevertheless, Sen. Joe Manchin (D.-W.Va.) took to Twitter shortly after the data was released to warn, “By all accounts, the threat posed by record inflation to the American people is not ‘transitory’ and is instead getting worse.” (MM sidebar: It is not record inflation, though at 6.2 percent over the past 12 months in October, it was the highest in three decades. It has also been accompanied by very strong job growth.) Every uncomfortable inflation report also raises the stakes for the next Fed chair nominee, and could complicate the confirmation process, as lawmakers on each side try to suss out how and when the chair — whether Powell or Governor Lael Brainard — may raise interest rates. | | A message from Ripple: Ambiguity surrounding cryptocurrency has some wondering “is crypto even real?” Yes, very real. Real for the businesses unlocking powerful efficiencies with it. Real for the banks leveraging its transparency. Real for the globe with its sustainability advances. Real for consumers with its innovations. Ripple, a US-headquartered company, enables financial institutions in 55+ countries to send money faster, with lower fees, and greater transparency. It uses the cryptocurrency XRP because it’s fast, efficient and carbon-neutral. | | | — CEOs are nervous: Our Ben White reports corporate executives across the U.S. are obsessing over inflation — and some think the White House isn’t grasping the extent of the problem. — Rent is the next inflation headache: From our Katy O’Donnell and Victoria Guida: “Housing costs just posted one of their largest monthly gains in decades, and many economists expect them to loom large in inflation figures over the next year heading into the 2022 midterm elections.” IT’S THURSDAY — Thanks to our predecessor, the esteemed Ben White, for the kind Twitter shout-out on Wednesday urging you all to direct your pitches our way from now on. We’re eager for your tips, feedback, etc.: kdavidson@politico.com, aweaver@politico.com, or on Twitter @katedavidson. | | | | DON’T MISS CONGRESS MINUTES: Need to follow the action on Capitol Hill blow-by-blow? Check out Minutes, POLITICO’s new platform that delivers the latest exclusives, twists and much more in real time. Get it on your desktop or download the POLITICO mobile app for iOS or Android. CHECK OUT CONGRESS MINUTES HERE. | | | | | | | | It’s Veterans Day — all clear on the calendar front! GLASGOW CLIMATE TALKS TAKE AIM AT FINANCE — From our Zack Colman and Karl Mathiesen in Glasgow: “The countries gathered at the U.N. climate conference are considering a proposal designed to pressure rich countries to reshape the international development banks' system for doling out financial packages to help developing nations better face the devastation that climate change will bring.” SENATE DEMS INVESTIGATE ZILLOW HOME SALES — From Katy O’Donnell: Senate Banking Chair Sherrod Brown (D-Ohio) is pushing Zillow CEO Rich Barton for details on the company's plans to sell thousands of homes to big Wall Street investors as it shutters a money-losing house-flipping business. REGULATORS REVIVE ENFORCEMENT THREAT FOR MORTGAGE SERVICERS — From Katy again: “The CFPB and four other federal financial regulators on Wednesday restored mortgage servicing restrictions they relaxed during the pandemic. The agencies in April 2020 said they would hold off from enforcement actions against mortgage servicers for failing to comply with consumer communication rules, as the firms faced potential staffing challenges and the government rushed to deliver housing relief during an economic crisis.” SENATE DEMOCRATS URGE CFPB ACTION ON CREDIT REPORTING -- A group of Senate Democrats, including Banking Committee Chair Sherrod Brown (D.-Ohio), sent a letter to CFPB Director Rohit Chopra Wednesday asking him to use the bureau’s authority to overhaul the credit reporting industry, including improving the accuracy of reports and streamlining the dispute resolution process. IRS INFLATION ADJUSTMENTS SURGE FOR 2022 — From our Bernie Becker: “Thresholds for tax brackets and the standard deduction will jump more in 2022 than in recent years because of higher inflation this year. The IRS announced Wednesday that the standard deduction for married couples next year will climb to $25,900, an increase of $800 from 2021. By contrast, the standard deduction increased $300 for this year.” INFLATION ROUNDUP — —Consumer prices surged at the fastest pace in more than three decades — NYT’s Jeanna Smialek: “Overall prices rose by 6.2 percent over the past 12 months, the fastest pace since 1990, and inflation began to accelerate again on a monthly basis. Prices rose across the board in October, at deli counters and restaurants and car dealerships.” —That makes the Fed more likely to raise rates next year — WSJ’s Nick Timiraos: “The latest rise in inflation helps to explain why investors are increasingly asking not whether the Federal Reserve will raise interest rates next year but rather how much and how quickly it may do so. … The figures highlight why Fed officials have been backing away from characterizing recent price pressures as ‘transitory.’” —It also sparked a climb in short-term Treasury yields — WSJ’s Hardika Singh: “Yields on shorter-term U.S. government bonds rose after data showed inflation reached a 30-year high in October, reflecting investors’ expectations that the Federal Reserve will have to raise interest rates more quickly to combat surging consumer prices.” —And Biden says his agenda will curb inflation — Bloomberg’s Josh Wingrove: “President Joe Biden said his soon-to-be-signed infrastructure legislation is part of a plan to return the U.S. economy to normal, including by curbing inflation, as he promoted the measure at the Port of Baltimore. ‘Everything from a gallon of gas to a loaf of bread costs more,’ Biden said in remarks at the port, describing a ‘crisis facing the American people.’” — But his agenda wasn’t designed for shortages and inflation — WSJ’s Greg Ip: “... President Biden’s approval ratings are underwater and Democrats just lost the governor’s race in blue-trending Virginia. Some of this reflects a polarized electorate less swayed by objective evidence of how the economy is doing and more by hot-button social and cultural issues. But it’s also because of an unusual economy whose problem isn’t lack of jobs but shortages, inflation and daily disruptions wrought by Covid-19. Mr. Biden’s agenda wasn’t designed to address that sort of problem, and in some ways may have made it worse.” — Former Treasury Secretary Larry Summers, who has consistently vexed progressives and the White House with his inflation warnings, tells our Ben White things are playing out much as he foresaw: “The idea that some inflation was transitory was and is right. The underlying idea that this means underlying inflation will of its own accord revert to the 2 percent target looked wrong to me nine months ago and looks more and more unlikely each month.” WHAT WE’RE LISTENING TO — Yellen chatting with Kai Ryssdal on Marketplace about the reconciliation bill: “Over the medium term, this is anti-inflationary, it boosts the economy’s ability to provide goods and services, coupled with the infrastructure package that’s now been passed by both houses. It will add to infrastructure and boost economic growth through these very productive investments.” | | | |   | | | | | | Jeffrey Rapp is now senior adviser in the office of financial markets at the Treasury Department, our colleague Daniel Lippman reports. Rapp was most recently an adviser for nominations in the White House and is also an alum of Democratic Reps. Stephanie Murphy and Sander Levin as well as the Obama White House. Rapp left his White House position in early October. | | | | BECOME A GLOBAL INSIDER: The world is more connected than ever. It has never been more essential to identify, unpack and analyze important news, trends and decisions shaping our future — and we’ve got you covered! Every Monday, Wednesday and Friday, Global Insider author Ryan Heath navigates the global news maze and connects you to power players and events changing our world. Don’t miss out on this influential global community. Subscribe now. | | | | | | | | SEC HALTS WYOMING-BASED CRYPTO FIRM’S TOKENS — Reuters’ Chris Prentice: “The U.S. securities regulator on Wednesday halted registration for two digital tokens offered by Wyoming-based American Cryptofed DAO LLC, accusing the company of providing misleading information to investors in regulatory filings. The U.S. Securities and Exchange Commission (SEC) said in a statement that American Cryptofed ‘filed a materially deficient and misleading’ form when it sought to register the tokens, known as ‘Ducat’ and ‘Locke,’ as equity securities.” TREASURY ISSUES GUIDANCE FOR $10B SMALL BUSINESS CREDIT PROGRAM — Reuters’ David Lawder: “The U.S. Treasury Department on Wednesday released new implementation guidance for the $10 billion State Small Business Credit Initiative Program, designed to allow firms in disadvantaged communities to access capital. The program, approved under coronavirus relief legislation passed in March, aims to catalyze $10 of private investment for every $1 of federal funding.” JOBLESS CLAIMS DROP TO NEW PANDEMIC LOW — AP’s Paul Wiseman: “The number of Americans applying for unemployment benefits fell to a new pandemic low 267,000 last week as the job market recovers from last year’s sharp coronavirus downturn. Jobless claims fell by 4,000 last week, the Labor Department reported Wednesday. The four-week average of claims, which smooths out weekly ups and downs, dropped by nearly 7,300 to 278,000, also a pandemic low.”
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