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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 Victoria Guida 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. Programming note: We’ll be off this Monday for Juneteenth but will be back in your inboxes on Tuesday.
| | | The Fed’s job on jobs — Federal Reserve Chair Jerome Powell has often mentioned that there are roughly two job openings for every available worker as evidence that demand for labor is higher than it should be. At his press conference Wednesday, though, he also said “wages are not principally responsible for the inflation that we’re seeing.” So, why does the Fed care if the labor market is too hot if it’s not a big piece of the central bank’s inflation headache? LinkedIn’s Guy Berger writes MM: “They’re probably worried that even if it’s not contributing yet, that might change (and therefore increase inflation risks).” Further, he noted, reducing demand in the labor market might still help with the central bank’s fight against price spikes, adding: “For what it’s worth, some workers might think this is pretty unfair!” It’s possible, Berger says, to have joblessness rise while still ending with a low unemployment rate by historical standards, such as slightly above 4 percent. “It might not be fun to get to that point.” Adam Ozimek, chief economist at public policy think tank Economic Innovation Group, told MM that the Fed seems “to want to have it both ways.” “Wages aren’t contributing to inflation notably, but labor demand needs to decrease,” he said. “One way to square the circle is that there are still relative labor shortages, but employers are responding with lots of unfilled openings rather than raising wages to market-clearing levels.” The Fed is trying to reduce demand for workers but also hoping to see more people re-enter the workforce, he said. Higher rates can achieve the former, but could slow increases in labor force participation. The upshot? The labor market is likely to be collateral damage in the fight against inflation, even though it’s still not the big driver of inflation (maybe the Phillips curve really is dead). Powell in his press conference said he hoped the Fed’s efforts would ultimately lead to pay raises for workers that outpace inflation. But it will be tough for them to ensure they’re taking a bigger bite out of inflation than wage growth. “We don’t seek to put people out of work,” Powell said Wednesday. “We never think too many people are working and fewer people need to have jobs, but we also think that you really cannot have the kind of labor market we want without price stability. And we have to go back and establish price stability so we can have that kind of labor market, and that’s a labor market where workers are getting wage increases.” IT’S FRIDAY! — Celebrate accordingly. Kate Davidson is back on Tuesday. (Monday is the Juneteenth holiday). Send tips to kdavidson@politico.com or @KateDavidson, or aweaver@politico.com or@aubreeeweaver. And reach me at vguida@politico.com. JOIN MM’S OWN Kate Davidson on Tuesday, June 28, on POLITICO Live for a Women Rule conversation on what’s ahead for the U.S. economy and how it will impact women’s livelihoods and economic well-being. Confirmed speakers include Dana M. Peterson, chief economist, The Conference Board, and Tené Dolphin, executive director, National Women's Business Council. Register here to watch live, and email me any questions you want me to ask the panel.
| | | | 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. | | | | | | CEOs SOUR ON POWELL OVER INFLATION FIGHT — Our Ben White: “Corporate leaders are in a sullen mood, with surveys showing that spiking inflation, the specter of nosediving sales and the threat of recession are driving down CEO confidence. “While much of that anger has been directed at President Joe Biden for citing corporate greed as a trigger for inflation, there’s now another target for their frustration: Federal Reserve Chair Jerome Powell.” U.S. ECONOMIC GROWTH SHOWS SIGNS OF SLIPPING — WSJ’s Josh Mitchell and Bryan Mena: “The U.S. economy is starting to slow under the combined weight of soaring inflation and climbing interest rates—including the highest mortgage rates since 2008. Recent reports show sharp declines in key sectors, raising the prospects of a stalled economic recovery and possibly a recession. Home construction across the U.S. fell sharply in May, the Commerce Department said Thursday. Factories in the mid-Atlantic region reduced activity for the first time in two years this month, the Federal Reserve Bank of Philadelphia said. And Americans broadly cut spending at retailers for the first time this year in May, the Commerce Department said earlier this week.” INTEREST RATES RISE AROUND THE WORLD — NYT’s Karl Russell and Jeanna Smialek: “Nearly four dozen countries have raised interest rates in the last six months, as central banks in the United States, England, India and other nations push borrowing costs higher in a bid to contain the most rapid inflation in decades. The Federal Reserve on Wednesday drove up its benchmark policy rate — its third increase this year and its biggest since 1994. Within hours of the Fed’s move, Brazil, Saudi Arabia and others announced rate changes. Switzerland and Britain followed suit on Thursday morning. So far in 2022, at least 45 countries have lifted rates, data from FactSet shows, with more moves to come.” MORTGAGE SURGE SLAMS BRAKES ON RED-HOT HOUSING MARKET — Bloomberg’s John Gittelsohn and Paulina Cachero: “Borrowing costs are swiftly approaching a potential tipping point for housing and the broader economy — an indicator of whether the Federal Reserve’s efforts to cool inflation will end with a soft or a hard landing… “For now, 30-year mortgage rates that have more than doubled from January 2021’s record low are deepening an affordability crisis that’s been building throughout the pandemic as home prices soared. Costlier loans are slowing property sales and pushing ownership out of reach for first-time buyers — a slip in demand that’s spurring layoffs at lenders and brokerages.”
| | | | 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. | | | | | TREASURY REAPS WINDFALL EVEN WITHOUT TAX INCREASES — Our Brian Faler: “Individual income tax receipts are set to reach an all-time high. A special tax targeting companies that hide money in overseas tax havens is bringing in more cash than anticipated. Even companies’ supply chain problems are helping the Treasury. “Though Democrats’ bid to hike taxes by $1 trillion has gone nowhere, the government is suddenly expected to reap that and much more in a windfall of tax payments that is surprising forecasters.” CRYPTO LENDING FIRMS LIKELY TO SEE GREATER REGULATION AFTER CELSIUS TROUBLES — Reuters’ Hannah Lang and Katanga Johnson: “Liquidity troubles at crypto lending platform Celsius Network, which have left its 1.7 million customers unable to redeem their assets, will increase U.S. regulatory pressure on the sector, which was already on the defensive amid other crises this year. The industry has been battling scrutiny over concerns that digital assets are being used to evade sanctions on Russia and the May collapse of cryptocurrency TerraUSD, which sent the market plunging and raised systemic risk worries. “New Jersey-based Celsius’s move this week to freeze withdrawals, citing ‘extreme’ market conditions, has spotlighted other problems with the crypto sector: weak investor safeguards. Securities regulators in Alabama, Kentucky, New Jersey, Texas and Washington have opened an investigation into the Celsius decision, the director of enforcement for the Texas State Securities Board told Reuters on Thursday.”
| | | | A message from Grayscale:   | | | | | | Jaime Lizárraga, an aide to House Speaker Nancy Pelosi, and Mark Uyeda, a career Securities and Exchange Commission attorney, were both confirmed by the Senate in a voice vote Thursday. Michelle Mesack has been named head of U.S. government relations at JPMorgan Chase, overseeing the bank’s activities with the White House, Congress and federal policymakers, as well in state and local governments. Mesack previously served as JPMorgan’s head of federal government relations, focusing solely on Washington. Prior to joining the bank in January 2018, she was a senior counsel to Senate Banking Committee Chair Mike Crapo (R-Idaho), and previously worked at the Investment Company Institute and K&L Gates.
| | | | A message from Grayscale: As other countries approve spot Bitcoin ETFs, America is falling behind. With its proposal to convert Grayscale Bitcoin Trust (GBTC) to a spot Bitcoin ETF, Grayscale has a proven solution. GBTC is the world’s largest Bitcoin investment vehicle, and there is no other product on the market with the size* or operational track record that is better suited to make this transition. Spot Bitcoin ETFs could promote financial accessibility and safety, giving more people access to an increasingly digital global economy which could allow investors to benefit more fully from their investment. America is ready for a spot Bitcoin ETF, and Grayscale Bitcoin Trust was made for the job. Literally. Learn more.
*based on AUM as of June 2022 | | | | | | Kansas City Fed President Esther George responded Thursday to a letter from Sen. Pat Toomey (R-Pa.), who had demanded answers on why the regional branch had revoked a Fed bank account for Colorado fintech Reserve Trust. MM readers may remember that Sarah Bloom Raskin, whose nomination to the Fed was rejected earlier this year, served on Reserve Trust’s board from 2017 to 2019, and Republicans questioned whether she had anything to do with the firm getting access to the Fed’s payment rails, a privilege usually reserved for depository institutions. George’s letter is unlikely to satisfy Toomey. “I share your belief in the importance of fairness and transparency in the Federal Reserve’s approach to master account applications.These principles must also be applied to the expectation of confidentiality of information that private citizens and companies provide to us, as well as highly sensitive confidential supervisory information belonging to the Federal Reserve Bank of Kansas City and its regulatory counterparts. In that regard, I am not able to provide the documents you’ve requested.” She added that the KC Fed “did not depart from a deliberative and thorough analysis of associated facts and risks in conjunction with other regulators” and that the regional bank “acted appropriately and ethically.” MM sidebar: This will intensify pressure on the Fed to finalize a more transparent and standardized process for approving accounts. The central bank is already being sued for not providing a master account to Wyoming crypto bank Custodia. FEMA FLOOD PROGRAM COULD VIOLATE CIVIL RIGHTS LAW — Our E&E News colleague Thomas Frank: “Federal programs that have elevated thousands of U.S. homes above floodwaters may violate civil rights law by shutting out many homeowners who are Black or Hispanic or who have low incomes. “The Stafford Act, a 1988 federal law that authorizes the president to send state and local governments aid following disasters, requires that federal funds be spent equitably.” STOCKS TUMBLE ON ECONOMY FEARS — AP’s Stan Choe: “Stocks slumped again on Wall Street Thursday, erasing another 3.3% from the S&P 500 and bringing the index 23.6% below the peak it reached in January. The renewed selling came a day after a brief reprieve for markets when the Federal Reserve delivered a huge interest rate increase in its effort to fight back inflation. Markets are worried that the Fed and other central banks may stumble along the narrow path of hiking interest rates enough to slow high inflation but not so much that they cause a recession. The Dow fell 2.4% and the Nasdaq gave back 4.1 percent. Treasury yields fell.” INVESTORS BET ONE OF THE BIGGEST TRADES ON WALL STREET WILL UNWIND — WSJ’s Anna Hirtenstein and Julie Steinberg: “The rapid fall in the Japanese yen has been at the center of one of the biggest bets on Wall Street this year. Now a group of contrarian investors is pushing in the other direction, expecting a major reversal. The yen has weakened over 16 percent against the dollar this year, reaching a 20-year low on Wednesday. “Driving the currency lower: While major central banks around the world have aggressively raised interest rates to fight inflation, the Bank of Japan has stood still. Investors are betting rising inflation will force its hand. A weak yen is expected to push up prices domestically for the energy-importing country and pile pressure on consumers and policy makers.” FED POLICYMAKERS SEE NEAR-RECORD UNCERTAINTY — Reuters’ Ann Saphir and Lindsay Dunsmuir: “Federal Reserve policymakers are less confident than at any time since the height of the pandemic about what will happen with the economy, data published alongside their forecasts and the Fed's hefty three-quarters-of-a-point rate hike this week show. The last time they were this worried they could be underestimating the coming deterioration in the labor market was in the depths of the Great Recession. But they are even more worried they are overestimating a hoped-for decline in inflation, documents charting confidence and risks seen in their forecasts show.” SEC SEEKS DATA FROM INDEX PROVIDERS OVER ROLE IN INVESTMENT DECISIONS — Reuters: “The U.S. Securities and Exchange Commission (SEC) on Wednesday requested information on the activities of financial information providers amid growing concerns over their influence on investment decisions, despite not being fully regulated. Critics have expressed concerns that information providers, particularly index companies such as S&P Global, MSCI and FTSE Russell which assist in trillions of dollars of investment decisions globally, have acted as unregulated investment advisors.” MARKET MADNESS SETS UP ANOTHER STRONG QUARTER FOR BANK TRADING DESKS — WSJ’s David Benoit: “Wild markets are the gift that keeps on giving for Wall Street banks’ trading operations. First it was the pandemic, which sent stocks down sharply in early 2020. A massive infusion of government cash arrested the decline and fueled a swift recovery. Everything went up. Meme stocks, a boom in public offerings and the crypto craze followed. Now, inflation and recession fears are sending everything back down again.”
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