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Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy. | | | | |  | | By Kate Davidson | 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. Sen. Joe Manchin is once again balking at a big climate, health care and tax bill over concerns that inflation remains much too high. But such a measure may be the easiest path for Congress to actually help the Federal Reserve bring inflation down. The West Virginia Democrat says he wants to see another month of inflation numbers before considering legislation that might increase taxes on some higher-income Americans and plow hundreds of billions of dollars into climate change and energy proposals. That followed the news that consumer prices rose a scorching 9.1 percent in June over the previous year. A slimmed down bill — For now, Manchin says he’s willing to support a deal to lower the costs of health care premiums and prescription drugs, policy changes that could help ease inflation, analysts at the Committee for a Responsible Federal Budget have said. A broader plan that tackles more of the Democratic economic agenda will have to wait until September if Democrats want to salvage it, Manchin said. “Can’t we wait to make sure that we do nothing to add to that?” he said of the latest inflation readings. But a bigger deficit-reduction package (Manchin and Majority Leader Chuck Schumer were in talks over a plan that would reduce red ink by $500 billion) would help take more heat out of the economy by reducing aggregate demand, giving the Fed a hand at a time when it needs all the help it can get, said Jason Furman, who was chair of the Council of Economic Advisers during the Obama administration.
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Sen. Joe Manchin has said he wants to see more inflation data before supporting a larger tax and spending bill. | Kevin Dietsch/Getty Images | Fed first — There’s a reason why the Fed tends to make most of the adjustments in the economy: Its officials meet every six weeks, allowing them to tweak policy as necessary in response to incoming data or changing forecasts. Congress just can’t pivot that quickly. “But when something is so large and has so much potential persistence to it, I would make an exception to that rule,” Furman said last week. “This should be an all-hands on deck moment for controlling inflation.” Deficit reduction isn’t normally thought of as an inflation-fighting tool but could be more potent right now because “it would go with the grain of what the Fed was doing,” Furman added, a bit like how easy monetary policy last year gave an extra boost to fiscal policy measures aimed at healing the economy. Still worried? — Higher inflation won’t worsen the plan’s fiscal impact, analysts from the Committee for a Responsible Federal Budget said last week, in a blog post tackling some criticisms of the reported plan. Yes, inflation has come in much higher than the Congressional Budget Office assumed in its latest projections in July. That means spending in the plan will cost more — but it also means tax increases will bring in more projected revenue, analysts said. And they argued that tax increases won’t cause a recession, but may help avoid one. “By containing excess demand, boosting supply, and directly lowering prices, fiscal policy can assist the Fed in reducing inflation with fewer interest rates hikes,” they said. “This in turn would reduce the risk of financial market turmoil or recession. IT’S MONDAY — We're fully in the dog days of summer. Stay cool out there. But send your hottest tips and story ideas to us at kdavidson@politico.com and aweaver@politico.com or @katedavidson and @aubreeeweaver.
| | | Brookings Institution municipal finance conference Monday through Wednesday … Housing starts and building permits data released Tuesday … SEC enforcement director Gurbir Grewal testifies before a House Financial Services subcommittee Tuesday … Senate Banking hearing on racism and discrimination in banking Tuesday … Senate Banking hearing on homelessness Tuesday … Fed Vice Chair Lael Brainard speaks at Minneapolis Fed conference on the Community Reinvestment Act Tuesday … Existing home sales data released Wednesday … FHFA Director Sandra Thompson testifies before House Financial Services Wednesday … Senate Finance hearing on tax incentives in affordable housing Wednesday … House Budget hearing on investments in early childhood Wednesday … Senate Banking hearing on the state of housing Thursday. MANCHIN BALKS AT GLOBAL TAX DEAL — Our Brian Faler: “Sen. Joe Manchin on Friday rejected the idea of imposing a 15 percent global minimum tax on U.S. companies, blowing a big hole in the Biden administration’s campaign to remake the international tax system. Speaking with West Virginia radio host Hoppy Kercheval, Manchin (D-W.Va.) said he doesn’t support the administration’s plan because other countries have yet to adopt the tax, and he doesn’t want to put American companies at a competitive disadvantage.” IT’S THE PANDEMIC, STUPID — NYT’s Peter S. Goodman: “This past week brought home the magnitude of the overlapping crises assailing the global economy, intensifying fears of recession, job losses, hunger and a plunge on stock markets. At the root of this torment is a force so elemental that it has almost ceased to warrant mention — the pandemic. That force is far from spent, confronting policymakers with grave uncertainty.” SUPPLY CHAINS EASING — Bloomberg’s Brendan Murray: “[S]upply strains, while still afflicting many consumers and businesses, are becoming more mundane than menacing like they were six months ago, especially in the U.S. Snarls have eased back from their pandemic peaks and some are already adding less inflationary pressure.”
| | | FED OFFICIALS LEAN AGAINST FULL PERCENTAGE POINT HIKE — WSJ’s Nick Timiraos: “Federal Reserve officials have signaled they are likely to raise interest rates by 0.75 percentage point later this month, for the second straight meeting, as part of an aggressive effort to combat high inflation. Policymakers left the door open to a larger, full-percentage-point increase at the July 26-27 gathering. But some of them simultaneously poured cold water on the idea in recent interviews and public comments ahead of their premeeting quiet period, which began Saturday.” AS FED TIGHTENS, ECONOMISTS WORRY IT WILL GO TOO FAR — WSJ’s Gwynn Guilford and Anthony DeBarros: “Economists increasingly expect the Federal Reserve, in its efforts to push down inflation, to raise rates enough to trigger a recession, with many worrying the central bank will go too far. Economists surveyed by The Wall Street Journal now put the chance of a recession sometime in the next 12 months at 49% in July, on average, up from 44% a month ago and just 18% in January.” FOLLOW THE FED — FT’s Valentina Romei and Tommy Stubbington: “A string of big rate rises by the Federal Reserve has put pressure on central banks around the world to follow suit to counter soaring inflation and the strong dollar. A Financial Times analysis found that central banks are now, more than at any other time this century, opting for large rate rises of 50 basis points or more, laying bare the challenges of tackling price pressures and higher US rates.”
| | | ECONOMIC WAR OF ATTRITION TAKES TOLL ON RUSSIA, WEST — The economic war between Russia and the West is becoming a test of who can endure the most strife , writes WSJ’s Josh Mitchell. “So far, Russia appears to be suffering more, analysts say, with its economy set to contract sharply this year, the cost of living soaring and hundreds of businesses, from McDonald’s Corp. to French car maker Renault SA, fleeing. But the U.S. and Europe are also incurring severe costs, mainly through higher energy prices that are likely to rise this winter, analysts say.” FINK: WORRY ABOUT FOOD MORE THAN GAS — FT’s Brooke Masters and Andrew Edgecliffe-Johnson: “The dramatic spikes in oil and mineral prices after Russia’s invasion of Ukraine have distracted investors from the long-lasting and more dangerous impact of food inflation, BlackRock founder Larry Fink has warned. ‘The one thing I worry about that we don’t talk enough about is food,’ he told the Financial Times. ‘This isn’t just an inflation concern. There are also geopolitical concerns that result from this.’”
| | | Josh Britton is joining the American Bankers Association to handle media relations for legislative and regulatory issues. He previously was communications director at the Ethics and Public Policy Center. (h/t Playbook)
| | | The International Monetary Fund will cut its global economic growth outlook “substantially” in its next update, as finance chiefs grapple with a shrinking list of options to address the worsening risks. — Bloomberg’s Yudith Ho and Michelle Jamrisko The value of the U.S. dollar is the strongest it has been in a generation, devaluing currencies around the world and unsettling the outlook for the global economy as it upends everything from the cost of a vacation abroad to the profitability of multinational companies. — NYT’s Karl Russell, Joe Rennison and Jason Karaian The Afghan government’s ability to manage the economy has largely broken down. The inexperienced Taliban leadership, which overthrew the republic when U.S.-led troops left the country, is isolated and under sanctions, and knows little about running a state. — WSJ’s Margherita Stancati A new ETF-for-everything era may have just begun on Wall Street , swelling an industry that already boasts nearly 3,000 products and $6.2 trillion in assets. — Bloomberg's Katherine Greifeld and Elaine Chen | | | | Follow us on Twitter | | | | Follow us | | | | |  |
