Biden bets on the economy — What's going on with OCC? — MM real talk on tax changes

From: POLITICO's Morning Money - Friday Mar 26,2021 12:04 pm

Mar 26, 2021

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Quick Fix

Biden bets on the economy — Not exactly a Trumpian performance by President Joe Biden. But he did boast about the economy at his press conference in ways MM hadn’t heard before. Still, he did something Trump did not, which is under-promise. May seem small now. But seeing as how Biden suggested he plans to run for re-election, it’s really not.

Trump consistently promised growth rates well in excess of anything he could realistically achieve. He also boasted about changes in trade and American manufacturing that he couldn’t possibly deliver. These are not the only – or maybe primary – reasons Trump lost. But they are on the list. High up. Handy for Biden, he could talk up a remarkably higher number and still not be exaggerating.

Biden said : “Since we passed the American Rescue Plan, we’re starting to see new signs of hope in our economy … Since it was passed, a majority ... of economic forecasters have significantly increased their projections on the economic growth that’s going to take place this year. They’re now projecting it will exceed 6 percent growth…” He also talked up the drop in jobless claims to a level not seen since before the pandemic.

And in fact, consensus estimates are for even faster growth than Biden touted. Of course, this is largely because of how hard Covid-19 hit the economy and isn’t a sustainable number. But it’s an early guide to how Biden will run if he does in fact run again: Beat Covid and juiced the economy. It’s also presumably how Democrats will try and avoid traditional losses for the incumbent White House party in the 2022 midterms.

It’s not a sure bet that these two goals will be achieved. But increasing vaccination numbers and the amount of fiscal and monetary stimulus pumping into the system mean they very well could be. And while MM is a broken record on the inflation risk stuff (not today!), the alternate scenario of a Biden boom is quite possible. And if it happens it will have significant political impact.

GOOD FRIDAY MORNING — Happy weekend, everyone. Email me on bwhite@politico.com and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on aweaver@politico.com and follow her on Twitter @AubreeEWeaver.

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Driving the Day

Biden receives his weekly economic brief in the morning … Personal income and spending at 8:30 a.m. expected to drop 7 percent and 1 percent, respectively … Univ. of Michigan consumer sentiment at 10 a.m. expected to rise to 83.6 from 76.8 as stimulus payments hit

FED TO EASE UP ON BANK PAYOUTS — Our Victoria Guida: “The Fed … said it would extend restrictions on dividend payments and stock buybacks by big banks until the middle of the year, at which point those curbs would be lifted for lenders that do well in the central bank’s annual stress tests …

“The announcement means the central bank will finally move, in the second half of the year, to using its new stress capital buffer framework, which was finalized in 2020. Under that regime, the stress tests are used to set large banks’ capital requirements for the following year.”

WHAT’S UP WITH OCC? — Via American Bankers’ Brendan Pederson: “Three new names have emerged in the race to be Biden's comptroller: - Sarah Bloom Raskin, former Fed governor, deputy treasury sec. - Kara Stein, former SEC commissioner - Raphael Bostic of the Atlanta Fed.” Full American Banker story is here.

INDUSTRY SEEMED TO LIKE THE NEW NAMES — A banking industry official emails MM: “Each of these potential nominees have played leading roles in running large government regulatory agencies, they have impressive resumes and their views are well-known. I imagine they would all receive strong bipartisan support and importantly send a strong signal to the rest of the world about the strength and long-term stability of American financial markets.”

WHAT THIS TELLS US — Basically that the industry really doesn’t want UC Irvine’s Mehrsa Baradaran. But MM hears Baradaran is still very much in the mix though it’s puzzling the nomination has hung out there this long.

INTEREST GROUPS PREPARE FOR TAX REFORM WAR — CNBC’s Brian Schwartz: “Advocacy groups from across the political spectrum are preparing for an all-out war over … Biden’s coming tax reform proposal, which is expected to include tax increases on wealthier families and corporations as part of his massive infrastructure plan.

“It is shaping up to be the ‘Super Bowl of tax reform,’ according to one person who is planning to join the fight. This person, who declined to be named in order to speak freely, expects a ‘protracted battle.’”

MM REAL TALK — If Biden has any shot at gutting some of the Trump tax cuts, it will come in a reconciliation package given there won’t be 60 votes for it in the Senate. And to get moderate Democrats like Sen. Joe Manchin (D-W.Va.) it will have to be relatively limited to only the highest earners and only a modest bump to the top corporate rate.

Manchin has suggested he is in favor of higher taxes on the wealthy to pay for infrastructure. But it’s not going to be the same kind of bonanza for lobbyists that the debate over Trump’s TCJA was. In fact it may be a much narrower battle over where the top and corporate rates wind up.

CONGRESSIONAL RECKONING COMING FOR TECH — Our Cristiano Lima: “A congressional reckoning is coming for Silicon Valley, lawmakers said … to the CEOs of Facebook, Google and Twitter — who showed every sign of recognizing that Washington's talk of tougher rules for the tech industry might soon get real.

“A marathon House hearing delved into the usual litany of criticisms about a host of online ills … But the session also featured dozens of exchanges between lawmakers and Facebook's Mark Zuckerberg, Google's Sundar Pichai and Twitter's Jack Dorsey about how to legislate on issues such as digital civil rights abuses and children's social media addictions.”

Markets

STOCKS REBOUND IN LATE-DAY RALLY — Reuters’ Herbert Lash: “U.S. stocks rose in a late-day rally on Thursday as investors bought stocks likely to do well in the recovery and picked up beaten-down Apple and Tesla shares in anticipation that the U.S. economy grows at its fastest pace in decades this year. …

“An end-of-quarter rebalancing of investment portfolios by institutional investors added to another mostly seesaw session in which the major Wall Street indexes rose and fell amid the ongoing rotation from growth into so-called value stocks.”

TREASURY MARKETS CALM, BUT INVESTORS ANTICIPATE A RATE RISE SOON — WSJ’s Paul J. Davies: “Treasury markets have calmed this week, but yields are signaling that investors still expect the Federal Reserve to be forced to raise rates sooner than it is saying. The yield on the 10-year note edged down to 1.623 percent on Thursday, according to Tradeweb. It had closed as high as 1.730 percent last week, the highest in 14 months. Yields fall when prices rise.

“Investors remain skeptical that the Fed won’t be forced to raise rates sooner and faster than it has said. The central bank has pledged to keep monetary policy loose until the economy is on a stronger footing. It also plans to let inflation rise above 2 percent for a period to offset years of weak inflation in the past.”

STEP INSIDE THE WEST WING : The Biden administration is more than halfway through its first 100 days and is now facing a growing crisis at the border and escalating violence against Asian Americans, while navigating the pandemic and ongoing economic challenges. Add Transition Playbook to your daily reads to find out what actions are being considered, as well the internal state of play inside the West Wing and across the administration. Track the people, policies, and emerging power centers of the Biden administration. Don't miss out. Subscribe today.

Fly Around

JOBLESS CLAIMS DROP TO ONE-YEAR LOW — AP’s Christopher Rugaber: “The number of people seeking unemployment benefits fell sharply last week to 684,000, the fewest since the pandemic erupted a year ago and a sign that the economy is improving.

“Thursday’s report from the Labor Department showed that jobless claims fell from 781,000 the week before. It is the first time that weekly applications for jobless aid have fallen below 700,000 since mid-March of last year. Before the pandemic tore through the economy, applications had never topped that level.”

SENATE PASSES PPP BILL, EXTENDING LOAN APPLICATIONS THROUGH MAY — WSJ’s Andrew Duehren: “The Senate approved a bill extending the deadline for applying for a Paycheck Protection Program loan to May 31, sending the legislation to the White House for President Biden’s signature days before the current March 31 deadline.

“Small-business advocates had pushed for an extension of the deadline after the Biden administration made a series of changes to the program aimed at increasing access to the funds for businesses owned by women, minorities, and rural residents.”

FED SAYS BUYBACK, DIVIDEND RESTRICTIONS WILL END FOR MOST BANKS — NYT’s Jeanna Smialek: “The Federal Reserve said Thursday that the pandemic-era limitations it had placed on banks that restricted share buybacks and dividend payouts will end midway through 2021 for most firms, a victory for some of America’s biggest financial institutions.

“‘Temporary and additional restrictions on bank holding company dividends and share repurchases currently in place will end for most firms after June 30, after completion of the current round of stress tests,’ the Fed said in a release, a reference to its annual review that gauges a bank’s ability to withstand severe economic conditions.”

POWELL SAYS NOW IS NOT THE TIME TO FOCUS ON REDUCING FEDERAL DEBT — WSJ’s Paul Kiernan: “Federal Reserve Chairman Jerome Powell said that the federal government can manage its debt at current levels but fiscal-policy makers should seek to slow its growth once the economy is stronger.

"‘Given the low level of interest rates, there’s no issue about the United States being able to service its debt at this time or in the foreseeable future,’ Mr. Powell said Thursday in an interview with National Public Radio.”

And he likened the Fed’s pandemic response to the British at Dunkirk — AP’s Martin Crutsinger: “Federal Reserve Chairman Jerome Powell compared the actions taken by the central bank early in the pandemic as the economy barreled toward a recession to British efforts in World War II to evacuate troops at Dunkirk.”

FED OFFICIALS PRESS PROMISE OF COMPLETE RECOVERY BEFORE ‘PUNCH BOWL’ DISAPPEARS — Reuters’ Howard Schneider and Ann Saphir: “Top Federal Reserve officials continued a barnstorming effort on Thursday to tell investors and the public at large that the U.S. central bank’s expansive support for the economy will stay in place until an accelerating recovery reaches all levels of American society and is effectively complete.”

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