Yellen’s sticks and carrots

From: POLITICO's Morning Money - Thursday Apr 14,2022 12:01 pm

Apr 14, 2022

By Victoria Guida and Aubree Eliza Weaver

Presented by Sallie Mae®

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QUICK FIX

Yellen goes big — Treasury Secretary Janet Yellen on Wednesday gave a sweeping speech on the international order that called out countries that “are currently sitting on the fence” on Russia’s invasion of Ukraine, “perhaps seeing an opportunity to gain by preserving their relationship with Russia and backfilling the void left by others.” She also had warnings for China. The message was, basically, that there could be consequences.

Josh Lipsky, director of the Atlantic Council’s GeoEconomics Center, said he saw Yellen’s remarks as a signal about what could be achieved through cooperation among the U.S., the EU, Japan and other allies. You’ve seen the sticks we have through our sanctions on Russia, but remember there are carrots as well, he said she seemed to be saying.

“In the immediate crisis, they did something that people thought could not be done together,” Lipsky said. But what if that same energy were channeled into proactive goals?

So, what’s the carrot? Economic integration and a favored position under newly restructured supply chains. “Our objective should be to achieve free but secure trade,” Yellen said. “We cannot allow countries to use their market position in key raw materials, technologies or products to have the power to disrupt our economy or exercise unwanted geopolitical leverage.”

“Let’s build on and deepen economic integration and the efficiencies it brings—on terms that work better for American workers,” she added. “And let’s do it with the countries we know we can count on. Favoring the ‘friend-shoring’ of supply chains to a large number of trusted countries, so we can continue to securely extend market access, will lower the risks to our economy, as well as to our trusted trade partners.”

(Other goals she mentioned include reform of the International Monetary Fund and a transition to cleaner energy.)

To China, there was definitely a threat. “The world’s attitude towards China and its willingness to embrace further economic integration may well be affected by China’s reaction to our call for resolute action on Russia,” Yellen said. But it’s not clear what that might actually mean.

“The speech will have no effect, because it’s deliberately meaningless posturing,” said Derek Scissors, senior fellow at the American Enterprise Institute. “What exactly will the U.S. do if China doesn’t cooperate to our satisfaction? When Secretary Yellen speaks publicly about that, it will matter.”

Meanwhile, Yellen also spoke in a Q&A in her speech about prospects for global growth. From your MM host: “Treasury Secretary Janet Yellen, who has spent the last year touting low unemployment and rapid growth, delivered a different message on Wednesday: New risks will test the strength of the U.S. and global economies.

“Yellen said that with prices spiking around the world, especially of key commodities like oil and wheat, she’s worried about the possibility of a recession in Europe, which is most vulnerable to the fallout from Russia's war on Ukraine. She also said the Federal Reserve would need a combination of ‘skill’ and ‘good luck’ to rein in inflation without killing a booming job market.”

HAPPY THURSDAY — We’re almost there. Keep sending tips to me at vguida@politico.com or @vtg2, and to Aubree Eliza Weaver at aweaver@politico.com or @AubreeEWeaver.

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Driving the Day

THIS CHEESEBURGER EXPLAINS YOUR GROCERY BILL — Our Ximena Bustillo and Steven Overly: “To understand what’s driving the nation’s largest increase in food prices in 40 years, just take a close look at your all-American cheeseburger. Whether it’s a humble bun and patty, or piled high with fixings, the rising cost of each ingredient is the product of a range of economic forces and geopolitical conditions that are disrupting how our food gets from the farm to our tables. They include interrupted supply chains, dire labor shortages, climate disasters and, most recently, the war in Ukraine.

“The March Consumer Price Index report showed that the prices for food both consumed at home and away from the home (i.e. at restaurants) saw the largest 12-month increases since 1981. Those rising prices are inflicting pain across the board: from farmers paying higher production costs; to families buying groceries; to the Biden administration, which has seen its popularity sink as inflation hits historic highs.”

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FIRST LOOK: ACTIVISTS TARGETING BANKS ON CLIMATE CHANGE — Our Lorraine Woellert: “Proxy season is in full swing, and this year there’s a new gang in town: Consumers. Environmental activists are rounding up rank-and-file credit-card customers and checking account owners to throw their psychological weight behind investor initiatives targeting bank action on climate change.

“More than 10,000 people have signed letters to BlackRock Inc., Vanguard Group Inc. and other big asset managers who hold shares in Wells Fargo & Co., Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp. The letters urge the investing giants to vote their shares in favor of proposals that would require big banks to report the greenhouse gas footprint of their lending activities.

“The investor letters, which went out today [Thursday], follow April 5 letters to CEOs at Wells Fargo, Citi, JPMorgan and Bank of America. More than 38,000 bank customers signed those letters, which urged execs to end lending, underwriting and insurance on fossil fuel operations. The campaign, Customers for Climate Justice, is being organized by Stop the Money Pipeline.

“So what? Customers don’t really have a say at annual shareholder meetings, which is where the investor action takes place. But corporate executives across the board have said for some time now that when it comes to climate change and other environmental, social and governance issues, the real heat is coming from their clients and their employees, not necessarily activist investor groups.

“That’s the power the campaign is trying to tap, said Sarah Lasoff, campaign manager for Customers for Climate Justice. ‘Customers have special leverage to advocate for climate justice at their financial institution,’ Lasoff said. ‘Not only are we getting signatures on these letters and sending letters to CEOs, we’re also organizing customers to meet with branch managers and regional managers.’”

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Fly Around

FORMER TRUMP OFFICIAL MULVANEY SIGNS ON WITH CRYPTO FIRM — Our Sam Sutton: “The crypto world has picked up another Washington insider to help shape its U.S. policy agenda. Mick Mulvaney, a former Republican congressman and top adviser to former President Donald Trump, on Wednesday announced he’d joined Astra Protocol to advise the crypto compliance company on its U.S. strategy.

“‘I was looking for something that was real,’ Mulvaney said in an interview, adding that he was reluctant to sign on with a ‘fly-by-night’ startup that’s issuing a new digital asset. ‘I was interested in something that was more related to the infrastructure of blockchain and crypto.’”

TOOMEY, SCOTT PRESS FDIC ON ALLEGED DISCRIMINATION — From your MM host: “Two senior Republicans on the Senate Banking Committee are pressing the Federal Deposit Insurance Corp. to turn over documents about employee complaints against senior officials at the agency between 2004 and 2018.

“In a letter to acting FDIC Chair Martin Gruenberg, Sens. Pat Toomey (R-Pa.) and Tim Scott (R-S.C.) said a group of African American employees had written to then-Chairman Jelena McWilliams in September 2018, shortly after she took office. They expressed ‘their concerns about the FDIC’s culture over the prior fourteen years,’ according to the senators.”

MM sidebar: Your host does not have a copy of the original 2018 letter but hears that it was sent anonymously.

STOCKS END HIGHER — AP’s Damian J. Troise: “Stocks closed higher on Wall Street Wednesday as investors reviewed the latest round of corporate earnings and an upbeat report from Delta Air Lines that bodes well for the travel industry. The S&P 500 rose 1.1 percent, the Dow Jones Industrial Average rose 1 percent and the Nasdaq rose 2 percent. Travel-related companies had some of the biggest gains. The S&P 500 is coming off three straight losses brought on by persistent worries about inflation and how the Federal Reserve will respond to it.”

A message from Sallie Mae®:

IF THE ECONOMY STAYS AFLOAT, JPMORGAN WILL SAIL THROUGH — WSJ’s Telis Demos: “The business of global banking can get very complicated, but sometimes it is also pretty simple: A good economy will be good for banks. JPMorgan Chase’s net interest income — a basic measure of the interest the bank earns, less the interest it pays for funding — was up 8 percent from a year earlier, the bank said in its first-quarter earnings report on Wednesday. That number should continue to rise as interest rates do, but for now the bank declined to update its earlier forecast for 2022 net interest income, excluding the more volatile trading unit’s contribution, to be $53 billion-plus.”

But Dimon was downbeat amid profit drops — Reuters’ Noor Zainab Hussain and David Henry: “JPMorgan Chase & Co's Chief Executive Jamie Dimon warned of economic uncertainties arising from Russia's invasion of Ukraine and soaring inflation, after first-quarter profits at the largest U.S. bank slumped 42 percent.

“JPMorgan had reported record profit during the first quarter last year, benefiting from a dealmaking boom after the Federal Reserve pumped liquidity into capital markets to mitigate the economic impact of the COVID-19 pandemic. This year, however, investment banking revenues declined as companies delayed takeovers and stock market listings amid a surge of volatility in equity markets. The bank also set aside $902 million to cover potential loan losses.”

CIRCLE WILL APPLY FOR CRYPTO BANK CHARTER IN ‘NEAR FUTURE’ — Bloomberg’s Hannah Miller: “The crypto payments startup Circle Internet Financial said it’s closer to submitting an application to operate as a bank in the U.S., pushing forward with a months-old plan even as regulators make it more difficult for crypto companies to secure this kind of license. Circle, the issuer of the second-largest stablecoin, disclosed its intention to become a crypto bank in August and has held ongoing discussions with regulators since then, Chief Executive Officer Jeremy Allaire said in an interview. He declined to say when the company would submit the application, saying only that it would be ‘hopefully in the near future.’”

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