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Presented by EMMA Labs from the Municipal Securities Rulemaking Board: 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 EMMA Labs from the Municipal Securities Rulemaking Board | 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. While all eyes were on the latest inflation data, some remarkable news from the Treasury Department passed under the radar last week: The U.S. took in more money in January than it spent. That’s right — the federal government ran a budget surplus last month for the first time since before the pandemic. It’s just another reflection of an economy that is firing on all cylinders , and improving the fiscal picture at the same time. It may also signal a turning point that White House officials have flagged since last summer, as fiscal policy shifts from bolstering economic growth to holding it back, White House economist Jared Bernstein said Friday. Month-to-month federal revenue and spending can be volatile — tax receipts always go up in the spring when people file their taxes, for example — so it helps to look at the trend over a 12-month period. Federal revenue for the 12 months that ended in January was up 27.6 percent from the year before, as rising wages, low unemployment and robust economic activity push up individual and business tax receipts. Government spending for the 12 months that ended in January was still about 45 percent higher than it was in the year before the pandemic. But compared with the same period a year earlier, spending fell 3.4 percent — the first time 12-month outlays have declined since May 2014 — as the government spent less on pandemic aid and safety net programs, such as jobless benefits.
| | | | 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. | | | | | Where does that leave deficits? Those have also been steadily improving on an annual basis. For the 12 months that ended in January, the deficit shrank 34 percent from the same period year earlier, continuing a decline that began in June. As a share of GDP, the 12-month deficit totaled 9.6 percent, still high by historical standards, but nearly half of what it was when it peaked at 18.6 percent in March 2021 and the lowest it’s been since March 2020. And while cumulative deficits over the past two years have added loads to the government’s bottom line — federal debt held by the public totals roughly $23 trillion, up from $17 trillion before the pandemic — the surge in economic growth has helped improve the overall debt picture. Debt as a share of GDP has actually declined, from 100.8 percent in December 2020, to 96.5 percent at the end of last year — lower than the Congressional Budget Office projected it would be at any point over the next decade. What does that mean for the economy? White House officials — as well as Federal Reserve Chair Jerome Powell and Governor Lael Brainard — have said waning fiscal support this year could act as a potential brake on the economy and help cool inflation pressures. “Always important to not overinterpret [one] new data point,” Bernstein said on Twitter, pointing to a WSJ story on the latest Treasury data. But “this may be an early sign of a shift we've long discussed” he added. Republicans and some moderate Democrats, including Sen. Joe Manchin, have pointed to elevated deficits and debt, and the potential for them to fuel higher inflation, as a reason not to support the president’s social spending agenda. But it’s not clear that improving deficits alone would sway the West Virginia Democrat — he has called for any additional spending to not only be paid for but to reduce deficits, and last week he said the Federal Reserve needs to “stop pussyfooting around” and “tackle inflation head-on.” There’s one giant elephant in the room — interest rates. Net Interest payments on the federal debt last year totaled 1.5 percent as a share of GDP, below the historical average over the past 20 years and well within a range economists have suggested is fiscally sustainable. Now, as the Fed seeks to rein in surging inflation, short-term interest rates are poised to rise dramatically. While rising prices can help the fiscal picture by inflating away the debt, higher rates could also push up the government’s interest costs this year — and it would only take a small adjustment to make a big difference, potentially on the order of billions of dollars a month. It’s a talking point Republicans will surely seize on later this year, as they hammer Democrats over spending, debt and inflation. IT’S MONDAY — Congrats to L.A. Rams fans on your team’s Super Bowl win. Such a heart-breaking loss for the Bengals. For the rest of you: Did you click on the Coinbase QR code ad? Got tips or takes to share? Email us at kdavidson@politico.com or aweaver@politico.com , or find us on Twitter @katedavidson and @aubreeeweaver.
| | A message from EMMA Labs from the Municipal Securities Rulemaking Board: EMMA Labs is the Municipal Securities Rulemaking Board’s new innovation sandbox – where we work together with market participants and the FinTech community to create the future of municipal bond market transparency. Learn more about the MSRB’s EMMA Labs platform. | | | | | | Brookings Institution virtual discussion with New York Financial Services Superintendent Adrienne Harris Monday … Senate Banking Committee votes on Fed nominees Powell, Brainard, Sarah Bloom Raskin, Lisa Cook and Philip Jefferson to the Federal Reserve board Tuesday … Senate Banking hearing on the Biden administration’s stablecoin report Tuesday … Women in Housing Finance discussion with former FDIC Chair Sheila Bair Tuesday … January retail sales data and Fed minutes released Wednesday … House Financial Services hearing on federal support for minority depository institutions and community development financial institutions Wednesday … Senate Finance hearing on IRS customer service challenges Thursday … Senate Banking hearing on the state of the American economy with testimony from the Council of Economic Advisers members Thursday … House Financial Services hearing on the role of the IMF in a changing global landscape Thursday. BIDEN WARNS PUTIN OF ‘SWIFT AND SEVERE COSTS’ IF RUSSIA INVADES UKRAINE — Our Myah Ward and Paul McLeary: “President Joe Biden and Russian President Vladimir Putin spoke Saturday morning as fears of a Russian invasion of Ukraine intensify, with the U.S. warning Americans that “it’s past time to leave” a potential war zone. “‘President Biden was clear that, if Russia undertakes a further invasion of Ukraine, the United States together with our Allies and partners will respond decisively and impose swift and severe costs on Russia,’ the White House readout of the call said.” —Asked about the potential conflict on CBS’s Face the Nation Sunday, San Francisco Fed President Mary Daly said any kind of geopolitical risk creates uncertainty for businesses and consumers. “Americans are already facing quite a bit of uncertainty. uncertainty about when COVID is ever going to leave our shores. Uncertainty about how the economy is going,” she said. “So, this is just another factor and uncertainty we know affects consumer sentiment and ultimately affects consumer demand.” SEC OFFICIAL: CRYPTO POSES GROWING FINANCIAL STABILITY RISK — Our Matei Rosca in Paris: “Exposure of regulated financial institutions to cryptocurrency trading, as well as related activities such as lending and collateralization, are driving up financial stability risks, senior U.S. regulator told POLITICO’s Finance Summit [Saturday]. SPOUSES, TAXES AND CRYPTO: UNANSWERED QUESTIONS FOR CONGRESS’S STOCK TRADING BAN — A push to ban lawmakers from trading stocks is running into a thicket of technical questions that threaten to derail the effort, compounding the looming political pitfalls. Our Katy O’Donnell walks through the key questions lawmakers will have to answer, including how the ban would actually be enforced, what the potential tax implications would be and which transactions would be covered. INFLATION WAS HOTTEST IN ATLANTA, MIDWEST IN 2021 — WSJ’s Bryan Mena and Harriet Torry: “Consumer prices rose faster last year in large U.S. metropolitan areas seeing an influx of new residents than in the nation overall, while inflation was milder in large coastal cities with less population growth. The Atlanta-Sandy Springs-Roswell area saw the highest inflation among metropolitan areas with more than 2.5 million people — 9.8 percent for the 12 months through December, according to the Labor Department. Phoenix, St. Louis and Tampa also saw annual inflation rates higher than the 7 percent national rate in December.”
| | | |   | | | | | | TESTER SAYS HE’S SCRUTINIZING RASKIN NOMINATION — Roll Call’s Caitlin Reilly: “Sen. Jon Tester, a key Democrat on the Senate Banking Committee, said he’s taking a closer look at Sarah Bloom Raskin’s involvement in a financial technology company that gained direct access to the Federal Reserve’s payment system as he weighs whether to support her nomination for the Fed board.” FED STAFF REPORTER SECURITIES TRADES — WSJ’s Michael S. Derby: “Two senior Federal Reserve staffers reported a series of financial market trades in early 2020, as the central bank swung into action with a historic stimulus effort aimed at supporting the economy through the coronavirus pandemic. Economists John Stevens and Diana Hancock, both currently senior associate directors in the Fed’s research and statistics division, reported in official financial disclosure forms a series of trades in February and March 2020, according to financial disclosure forms reviewed by The Wall Street Journal.” DALY: BEING TOO AGGRESSIVE ON RATE HIKES COULD BE DESTABILIZING — Reuters: “Being too ‘abrupt and aggressive’ with interest rate increases could be counter-productive to the Federal Reserve's goals, San Francisco Federal Reserve Bank President Mary Daly said on Sunday, signaling she is not yet prepared to come out of the gate with a half-percentage-point interest rate hike next month.” WHIPLASHED TREASURY HOLDERS EYE LONG BONDS FOR NEXT FED SIGNALS — Bloomberg’s Michael Mackenzie and Liz McCormick: “Strong market shocks are usually followed by tremors — and the ones that rattled the Treasury market over the past week will likely be no exception. Bond investors were hammered Thursday when inflation accelerated more than expected to another four-decade high, leaving Wall Street traders swiftly ratcheting up bets the Federal Reserve will begin an aggressive series of interest-rate hikes starting next month.”
| | | | STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president’s ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today. | | | | | | | | Is the U.S. on course for another wage-price spiral? Not necessarily. —WSJ’s Jon Hilsenrath Oil’s surge toward $100 a barrel for the first time since 2014 is threatening to deal a double-blow to the world economy by further denting growth prospects and driving up inflation. —Bloomberg’s Enda Curran and Rich Miller Toronto-Dominion Bank has frozen two personal bank accounts into which $1.1 million had been deposited to support protesters fighting the Canadian government's pandemic measures, a bank spokesperson said on Saturday. —Reuters’ Nichola Saminather The arrests of Ilya Lichtenstein and Heather Morgan left the world of cryptocurrency incredulous: Could this goofy young couple have been Bitcoin’s Bonnie and Clyde? —NYT’s Ali Watkins and Benjamin Weiser
| | A message from EMMA Labs from the Municipal Securities Rulemaking Board: One of the first Active Lab protypes being put to the test on EMMA Labs is a keyword search engine to unlock information contained in millions of regulatory disclosure flings submitted in PDF document form on the EMMA website by state and local governments and other issuers of municipal bonds. This enhanced search prototype identified more than 50,000 COVID-19 related municipal bond disclosures by state and local governments.
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