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Presented by Grayscale: Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy. | | | | |  | | By Kate Davidson and Aubree Eliza Weaver | | | 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. Recession chatter is heating up — Even Cardi B wants to know: “When y’all think they going to announce that we going into a recession?” she wrote on Twitter. Cardi, if you’re reading this, the answer is most definitely, “Not yet!” It’s true that we often don’t find out we’re in a recession until many months after one has already started. The National Bureau of Economic Research, a nonprofit academic network and the arbiter of U.S. recessions, can take from six months to nearly two years to identify a business cycle peak — that is, the end of an economic expansion and beginning of a downturn. Sometimes it’s painfully obvious: The onset of the pandemic triggered mass layoffs and business closures in March 2020 that had clearly plunged the U.S. into a deep recession. (The NBER called it in June 2020, a much faster turnaround than usual.) So how do we know we’re not in one right now? The economy is still adding jobs. Lots and lots of jobs. We can see that in the monthly employment data, though those gains are starting to slow. But there’s another employment metric that’s particularly helpful for figuring if we’re in a recession right now. The Sahm Rule , developed in 2019 by former Federal Reserve economist Claudia Sahm, measures changes in the unemployment rate. The rule is simple: If the three-month average jobless rate rises by a half-percentage point or more from its low point over the previous year, the U.S. is in a recession. The formula would have accurately called every recession since 1970 within two to four months of when it started. So what’s the Sahm Rule telling us right now? The indicator has been trending up since late last year, but is still negative, reflecting a jobless rate that continues to improve. “The reason we care about recessions, the reason we fight them, is because millions of people lose their jobs,” Sahm told MM. “And right now what we have happening is the reverse of that.” Sour sentiment — Sahm acknowledged that the burden of inflation is real and heavy for many households, and is driving down consumers’ attitudes about the economic outlook. One recent poll found most voters thought we were already in a recession, including 42 percent of Democrats, 57 percent of independents and 72 percent of Republicans. But it’s important to look at what consumers are doing, not just what they’re saying, Sahm said. And they are still spending a great deal of money. Even after accounting for inflation, consumer spending rose 2.8 percent in April from a year earlier. “It’s starting to slow a little bit, but it’s slowing to a little bit above average,” Sahm said.
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Consumer spending is slowing somewhat, but still powering the U.S. economy. | Spencer Platt/Getty Images | Consumer spending accounts for about 70 percent of the economy. If households pull back on spending, especially higher income households, that could prompt businesses to pull back as well by freezing hiring or eventually laying off workers. But the data suggest that isn’t happening yet. What about GDP? An oft-cited rule of thumb is that two quarters of negative gross domestic product, the broadest measure of economic output, means the U.S. is in recession. But there’s nothing official or automatic about that — the NBER’s Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” First-quarter GDP shrank, raising worries about a potential downturn. But that was driven by factors that have more to do with strong demand, including a bigger increase in imports than exports and a slowdown in inventory building. What happens next? To be clear, these metrics don’t tell us whether or when the U.S. might enter a recession in the future. And there are plenty of reasons for investors, business executives, economists and regular people to be anxious. New forecasts out this morning from the Organization for Economic Cooperation and Development project a sharp deceleration in global growth, from 5.8 percent last year to 3 percent in 2022 and 2.8 percent in 2023. That’s down from its December forecast, when it projected the global economy would grow 4.5 percent this year and 3.2 percent in 2023. In the U.S., the OECD sees growth slowing to 2.5 percent this year and 1.2 percent next year, but not shrinking. That follows a similarly grim outlook Tuesday from the World Bank. “For many countries, recession will be hard to avoid,” World Bank President David Malpass said in a statement. It could happen suddenly, Sahm said, but for now, it’s very, very unlikely that we’re already in one. IT’S WEDNESDAY — Is today the day Democrats advance a Fed vice chair for supervision nominee out of committee? My Magic 8 Ball says, "Signs point to yes." Have a tip or a story idea? Please send it our way: kdavidson@politico.com or @katedavidson, and aweaver@politico.com or @aubreeeweaver.
| | | | A message from Grayscale: With an eight-year track record of working proactively and collaboratively with the SEC, Grayscale is committed to serving its investors. Grayscale’s proposal to convert Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF is a chance to make history, while enhancing the fairness and accessibility of the market, so investors can decide what product works best for them. Learn more. | | | | | | CFTC Chair Rostin Behnam participates in a virtual discussion with Sens. Kirsten Gillibrand (D-N.Y.) and Cynthia Lummis (R-Wyo.) on cryptocurrency regulation hosted by Washington Post Live at 9 a.m. … Treasury Secretary Janet Yellen testifies on the president’s budget before House Ways and Means at 10 a.m. … Senate Banking votes on Fed vice chair nominee Michael Barr and SEC nominees Jaime Lizarraga and Mark Uyeda at 2:30 p.m. … Sen. Pat Toomey (R-Pa.) participates in a discussion at the Cato Institute on the updated case for free trade at 11 a.m. YELLEN: U.S. WORKING WITH ALLIES TO CURB RUSSIA’S OIL REVENUE — Our Victoria Guida: “Treasury Secretary Janet Yellen on Tuesday said the U.S. is conducting ‘extremely active’ negotiations with European countries to find a way to limit the amount of money flowing to Russia in payments for oil. “Yellen, acknowledging that ‘it’s virtually impossible’ for the U.S. to insulate itself from global oil shocks, told the Senate Finance Committee that it was a desirable strategy to implement a cap on prices for Russian oil. She said the U.S. and its allies were still working through the best approach.” — Yellen, who had previously raised the possibility of bypassing Congress in enacting a key part of an international tax agreement, also said Tuesday that it would require lawmakers’ approval, our Brian Faler reported. BROWN CALLS FOR REVIEW OF FINANCIAL FIRMS PROFITING OFF CONSUMER DATA — Also from Victoria: “Senate Banking Chair Sherrod Brown (D-Ohio) on Tuesday urged regulators to look into whether the collection and sale of consumer data could pose a risk to the safety of the country's financial system. “The letter, provided to POLITICO, calls for a review of a broad universe of financial activity, warning, for example, that people’s spending habits could be used to target them for ransomware.” MM sidebar: We hear Brown has asked a number of large and regional bank CEOs to testify before the committee for its annual Wall Street oversight hearing. (The committee was initially eyeing July hearing dates, but that has slipped to September for scheduling reasons, we’re told.) This will surely be a big focus. SEC’S TRADING SHAKEUP EXPECTED TO FACE HEAVY OPPOSITION — WSJ’s Alexander Osipovich: “The Securities and Exchange Commission’s expected changes to U.S. stock-trading rules are likely to prompt fierce opposition from the brokerages and electronic market-making firms that handle small investors’ orders, analysts and traders say. “The agency is preparing to propose major changes to the stock market’s plumbing as soon as this fall, The Wall Street Journal reported Monday. SEC Chairman Gary Gensler is expected to outline some of the SEC’s plans Wednesday in a speech. The changes grew out of the frenzied trading in GameStop Corp. and other meme stocks in early 2021, which resulted in heavy scrutiny of the handling of individual investors’ trades.” U.S. BARS INVESTORS FROM BUYING RUSSIAN DEBT, STOCKS ON SECONDARY MARKET — Reuters’ Daphne Psaledakis and Marc Jones: “The U.S. Treasury Department has banned U.S. money managers from buying any Russian debt or stocks in secondary markets, on top of its existing ban on new-issue purchases, in its latest sanctions on Moscow over its invasion of Ukraine. Despite Washington's sweeping sanctions in recent months, Americans were still allowed to trade hundreds of billions of dollars worth of assets already in circulation on secondary markets.” A CALL FOR HIGHER MONTHLY CARD PAYMENTS — A new report published Tuesday by the Brookings Institution argues that mandating higher minimum monthly credit card payments could help borrowers overcome common behavioral and cognitive biases that prolong indebtedness. From authors Jennifer Tescher and Corey Stone of the Financial Health Network: “Today, many borrowers significantly underestimate how long it will take them to pay off their debt if they only pay the minimum, while disclosures that merely illustrate the savings from making larger payments have had little effect.” TWEET OF THE DAY — CFPB Director Rohit Chopra met with executives at the Consumer Bankers Association headquarters Tuesday. “Important discussion with our Board about the most pressing issues facing our industry,” said CBA president Richard Hunt, who tweeted photos. (Among those pictured: Capital One’s John Durrant, Eastern Bank’s Quincy Miller, KeyCorp’s Victor Alexander, PNC’s Todd Barnhart and Atlantic Union’s Maria Tedesco.)
| | | | A message from Grayscale:   | | | | | | CRYPTO DAZE — Sens. Cynthia Lummis and Kirsten Gillibrand (D-N.Y.) released their long-awaited cryptocurrency bill on Tuesday and the reviews are pretty much exactly what you’d expect. Lummis, a Bitcoin-owning junior Republican from industry-friendly Wyoming, has positioned herself as Washington’s top authority on digital assets and the industry’s response to her signature, bipartisan legislation was in keeping with that reputation. Leaders from Andreessen Horowitz, Coinbase, the Crypto Council for Innovation praised the measure as an important first step in crypto receiving Congress's imprimatur. "There's room for improvement, but we're lucky to have great allies in Senators Lummis & Gillibrand,” said Blockchain Association Executive Vice President and head of policy Jake Chervinsky in a series of tweets that spotlighted how it addressed several longterm policy goals. "They want to get this right & they're looking for feedback from all of us to make it happen." Given the bill’s breadth, and the degree to which it would shake up oversight of highly volatile crypto markets, consumer watchdog groups flagged sections that would elevate the Commodity Futures Trading Commission's jurisdiction over digital assets over that of the much larger Securities and Exchange Commission. While certain sections were praised as marked improvements over earlier drafts, “there are too many things in this bill that are nonstarters for us,” said Mark Hays, a senior policy analyst at Americans for Financial Reform. “It’s little more than a giveaway to industry.” CENTRAL BANK DIGITAL MONEY RISKS BEING AN ‘EXPENSIVE FAILURE’ — Bloomberg’s Carolynn Look: “Central-bank-issued digital currencies run the risk of turning into a costly waste of time , according to the Center for European Reform. Europe — one of the most advanced economies considering the initiative — should instead use regulation to make payments cheaper and more competitive, the London-based think-tank said Tuesday in a report. It warned that the cost benefits and privacy incentives of a so-called CBDC are unlikely to be sufficient to entice consumers to use it.”
| | | | DON'T MISS DIGITAL FUTURE DAILY - OUR TECHNOLOGY NEWSLETTER, RE-IMAGINED: Technology is always evolving, and our new tech-obsessed newsletter is too! Digital Future Daily unlocks the most important stories determining the future of technology, from Washington to Silicon Valley and innovation power centers around the world. Readers get an in-depth look at how the next wave of tech will reshape civic and political life, including activism, fundraising, lobbying and legislating. Go inside the minds of the biggest tech players, policymakers and regulators to learn how their decisions affect our lives. Don't miss out, subscribe today. | | | | | | | | Amy Bonitatibus has been named chief communications and brand officer at Wells Fargo, effective Sept. 12. Bonitatibus joins Wells from JPMorgan Chase, where she served as chief communications officer. Before joining the company in 2012, she was a senior director at Fannie Mae, and began her career as a deputy press secretary for then-Sen. Hillary Clinton (D-N.Y.). Anne Balcer is joining the Independent Community Bankers of America as its new head of government relations, succeeding Karen Thomas, who will retire in July. Balcer was previously executive vice president, general counsel and internal auditor for Forbright Bank in Chevy Chase, Md.
| | | Companies are hanging onto the London interbank offered rate for existing loans and derivatives despite a push from regulators to abandon the troubled interest-rate benchmark, whose demise is about a year away. — WSJ’s Mark Maurer As corporate leaders increase their grim pronouncements about the future, there are still market economists who see stocks heading higher in the second half of this year and who say the U.S. could sidestep a recession. — Bloomberg’s Isabelle Lee Hedge funds posted negative performance in May, accentuating their losses this year to almost 3 percent, as investors positioned for a potential recession, a report by hedge fund data provider HFR showed on Tuesday. — Reuters
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