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Presented by Altria: Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy. | | | | |  | | By Victoria Guida | | | 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 . It’s gonna be a wild week, or what our friends at POLITICO Nightly described as a “Category 5 storm of economic news.” A supersized interest rate hike from the Federal Reserve on Wednesday (the expectation is for another three-quarter of a percentage point increase) will come amid a flurry of closely watched data releases: consumer confidence, second-quarter GDP, the June reading of the personal consumption expenditure index and quarterly employment compensation numbers. Still, be skeptical about that data. It isn’t as accurate in real time as the Fed would like. From your guest MM host : “Federal Reserve chief Jerome Powell has vowed to follow the data in deciding how high to crank up interest rates to crush the worst inflation surge in four decades. But Powell and other Fed policymakers are making that crucial decision based on data that lately has been so confusing and contradictory that it's hard for them to know where the economy actually stands. “Economic growth is projected by some analysts to have been negative in the second quarter of the year, but hiring is strong and the jobless rate sits near historic lows. Consumers say they’re unhappy about the economy but are still spending even amid the aggressive price spikes. Supply chains are improving, but manufacturing output is slowing. And Covid cases are skyrocketing again even as America fully reopens for business.” Every data release is getting heightened attention. But nobody’s quite sure what’s going on. Routine adjustments based on seasonal factors are now much more difficult, as forecasters try to parse which data indicates the economy is slowing, what’s merely a blip and what indicates more structural transformations in society. Take GDP: “After a strong labor report earlier this month, Atlanta Fed President Raphael Bostic said on CNBC that the economy still appears to be strong — despite real-time forecasts published by his own regional Fed branch that suggest GDP growth was negative in the second quarter. If that forecast is backed up by formal government estimates on July 28, following a similar decline in the first quarter, it would meet one technical definition for a recession. “Still, GDP numbers often undergo heavy revisions even years later as more precise data is finalized, such as tax return information from the Internal Revenue Service and annual manufacturing surveys. And many of the factors contributing to shrinking GDP in recent months are technical in nature — companies stocked up goods for their back rooms and so aren’t adding as much to that inventory, or the dollar has strengthened, making imports cheaper and feeding the trade deficit. Fed Governor Christopher Waller in a recent speech said he’s not putting too much stock in GDP numbers yet.” Powell has said repeatedly that the economy is strong, signaling that Fed officials seem to be putting more stock in employment data than GDP data. But it’s going to be a rough road; The Fed is “putting together a puzzle where the pieces were miscut and they just plain don’t fit together,” said David Wilcox, who led the central bank’s research division from 2011 to 2018. “Where is the economy today, and what direction is it headed? All of our measures, no matter how richly assembled, provide only an imperfect and somewhat out-of-date perspective on those key questions.” HAPPY MONDAY — Kate will be back tomorrow. Send tips to her at kdavidson@politico.com . And don’t be a stranger; you can reach me at vguida@politico.com .
| | A message from Altria: Moving beyond smoking. Altria’s companies are leading the way in moving adult smokers away from cigarettes – by taking action to transition millions toward less harmful choices. We are investing in a diverse mix of businesses to broaden options beyond traditional, combustible cigarettes. See how we’re moving. | | | | | | Latest consumer confidence numbers from the Conference Board at 10 a.m. Tuesday … Fed announces its next rate move at 2 p.m. Wednesday followed by Powell’s press conference … Census Bureau releases initial estimate of second-quarter GDP at 8:30 a.m. Thursday … Labor Department’s latest Employment Cost Index release at 8:30 a.m. Friday … University of Michigan consumer sentiment survey released at 10 a.m. Friday House Financial Services Committee markup at 10 a.m. Wednesday … Senate Banking hearing on crypto scams with witnesses from NASAA and FINRA at 10 a.m. Thursday … Financial Stability Oversight Council open meeting on climate risks at 11:20 a.m. Thursday STABLECOIN LEGISLATION WATCH — Update from our Sam Sutton: As of Sunday afternoon, House Financial Services Chair Maxine Waters (D-Calif.) and ranking Republican Patrick McHenry (R-N.C.) were still fine-tuning a bipartisan stablecoin bill that’s expected to get marked up by the committee on Wednesday. The leaders are said to be in agreement on key aspects of the bill, which would give the Fed oversight of nonbank stablecoin issuers and formalize reserve requirements for the popular digital assets, whose value is often pegged to fiat currencies like the dollar and are widely used to facilitate trades for crypto assets like Bitcoin and Ether. However, some Democrats want to require software developers behind self-hosted digital wallets to adhere to know-your-customer and anti-money laundering rules. “I look forward to reviewing the text of the legislation and ultimately hope that we can make sure that every stablecoin issuer and stablecoin wallet is subject to the same know-your-customer and anti-money laundering standards as banks and broker-dealers,” Rep. Brad Sherman (D-Calif.), who leads a Subcommittee on Investor Protection, Entrepreneurship and Capital Markets, told POLITICO. Self-hosted digital wallets allow traders to hold digital assets without going through crypto exchanges or financial institutions that are subject to anti-money laundering rules. Republicans and crypto businesses have blasted Treasury’s previous efforts to rein in those services.
| | | | 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 . | | | | | Meanwhile, watchdog groups and banking lobbyists are starting to ring the alarm over provisions that surfaced in media reports over the last week. The Independent Community Bankers of America fired off a letter to Waters and McHenry on Friday urging them to hit pause, arguing that the framework doesn’t adequately address systemic risks that stablecoins could eventually pose. While the bill would require stablecoin issuers to maintain fully backed reserves in high-quality liquid assets, which would ostensibly assure that customers would always be able to redeem their tokens for dollars, “the devil’s in the details,” said Todd Phillips, a former FDIC staffer now at the Center for American Progress. “Maybe this is just a more highly regulated money market fund, but it still has the same run risk,” he said. “There’s just a lot that is unclear to me.” Spokespeople for Waters and McHenry did not respond to requests for comment. JUST IN: NABE SURVEY SUGGESTS ECONOMY IS SLOWING — A new survey of industry representatives from the National Association for Business Economics shows that, compared to April, fewer companies are seeing rising sales, rising profit margins and rising wages (though that latter number is still 55 percent, down from a record-high 70 percent). Lots of companies have been adding workers, but it might not stay that way: “The share of respondents reporting rising employment at their firms (38%) is at a four-year high. Looking ahead, however, respondents are less optimistic than they were in the April survey.”
| | | | INTRODUCING POWER SWITCH: The energy landscape is profoundly transforming. Power Switch is a daily newsletter that unlocks the most important stories driving the energy sector and the political forces shaping critical decisions about your energy future, from production to storage, distribution to consumption. Don’t miss out on Power Switch, your guide to the politics of energy transformation in America and around the world. SUBSCRIBE TODAY . | | | | | YELLEN DOESN’T SEE RECESSION YET — Reuters’ Joel Schectman and David Lawder: “U.S. Treasury Secretary Janet Yellen said on Sunday that U.S. economic growth is slowing and acknowledged there was the risk of a recession, but she said a downturn was not inevitable. “Yellen, speaking on NBC's ‘Meet the Press,’ said strong U.S. hiring numbers and consumer spending showed the U.S. economy is not currently in recession. … ‘This is not an economy that is in recession,’ said Yellen, who previously chaired the Federal Reserve. ‘But we’re in a period of transition in which growth is slowing and that’s necessary and appropriate.’” WHAT A STRONG DOLLAR MEANS FOR THE WORLD — WSJ’s Nate Rattner and Aziz Sunderji: “The U.S. dollar is stronger than it has been in decades and the effects of its rapid rise are reverberating across the globe. The WSJ Dollar Index, which measures the greenback against a basket of 16 currencies, rose 8.7% through June to notch its best first half since 2010. It is up another 1.4% this month through Thursday. “While currencies in emerging markets typically feel pressure when investors flock to a strong dollar, those of developed countries also have fallen. The euro slid below parity with the dollar last week, hitting its weakest level since 2002.” WORLD’S KEY WORKERS THREATEN TO HIT ECONOMY WHERE IT HURTS — Bloomberg’s Augusta Saraiva and Bryce Baschuk: “The pandemic has put unprecedented strain on global supply chains -– and also on the workers who’ve kept those systems running under tough conditions. It looks like many of them have had enough. “A surge in strikes and other labor protests is threatening industries all over the world, and especially the ones that involve moving goods, people and energy around. From railway and port workers in the US to natural-gas fields in Australia and truck drivers in Peru, employees are demanding a better deal as inflation eats into their wages.”
| | | | A message from Altria:   | | | | | | CHINA PLANS STRATEGY TO AVOID U.S. DELISTINGS — FT’s Tabby Kinder, Cheng Leng, Ryan McMorrow and Sun Yu: “China is preparing a system to sort US-listed Chinese companies into groups based on the sensitivity of the data they hold, in a potential concession by Beijing to try to stop American regulators from delisting hundreds of groups. “The system is designed to bring some Chinese companies into compliance with US rules that require public companies to allow regulators to inspect their audit files, according to four people with knowledge of the situation.” BIDEN’S NEW ECONOMIC SCORECARD: GAS PRICES — NYT’s Jim Tankersley: “After topping $5 a gallon in June, the price of gasoline has fallen for more than a month. The Biden administration wants to tell you about it. Again and again. “President Biden and his top aides are in an all-out campaign to trumpet what is, as of Friday, 38 consecutive days of declines in the AAA average gas price nationwide. The president mentioned that streak in a news conference in Saudi Arabia and at the start of a speech on abortion rights. Aides have repeatedly trotted out charts showing the downward trajectory in news briefings and chastised reporters for not devoting more time to the subject.” RICH AMERICANS KEEP BORROWING — WSJ’s Rachel Louise Ensign: “Wealthy people ramped up borrowing in the first half of the year despite rising rates and a stock-market rout that hit the value of their portfolios. “The wealth-management units at Morgan Stanley and Bank of America Corp. BAC posted double-digit loan growth in the second quarter. The increase came from well-heeled clients taking out mortgages and loans backed by assets like stock-and-bond portfolios, executives said.” WE NEED TO KEEP BUILDING HOUSES — NYT’s Conor Dougherty and Ben Casselman: “The United States has a deep, decades-old housing shortage. Also, at the moment, homebuilders across the country are pulling back on development because they can’t sell enough homes. “How can both of these things be true? That riddle is at the heart of the boom-bust nature of housing, where an excess of regulation and the mixed incentives of the market mean there is never a supply that lines up with demand. One way or the other, solving it will require more building during downturns, and, most likely, some sort of public program to subsidize it.”
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