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Presented by the American Bankers Association: Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy. | | | | |  | | By Sam Sutton | | | 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. If you’re hungover from a weekend of celebrating Friday’s “Goldilocks” jobs report, MM would like to welcome you to Monday with a serving of ice cold porridge. A record number of American workers cracked into their retirement savings as inflation soared last year, a dangerous sign that the bulwark amassed by households across two stimulus-flush pandemic years is fading. Vanguard, which oversees roughly 5 million retirement accounts, found that a growing number of participants in its employer-sponsored plans were requesting loans or seeking withdrawals as inflation rocketed over the last year. Data from the $7.2 trillion asset management firm found that a record number of savers used their 401(k)s to address immediate emergencies like medical bills or prolonged unemployment. “Their cash buffers have waned,” Vanguard’s Global Head of Investor Research and Policy Fiona Greig told MM. “We're seeing some early signs that some families are feeling the bite of perhaps higher inflation and wages not keeping pace with that inflation.” Americans built up a solid financial cushion during the pandemic — unemployment is now at a fifty-year low, after all — but the growing number of 401(k) withdrawals, along with marked declines in personal savings and some troubling loan delinquency figures, suggests the upholstery is getting threadbare. That’s important to keep in mind as more tech and financial services employers announce cutbacks (something we’ll be watching closely on fourth-quarter earnings calls over the next several weeks). Personal financial health affects consumer behavior and economic expectations as well — something the Federal Reserve is eyeing closely as it weighs new rate hikes to stamp out inflation. We’ll get a clearer sense of both later today with the New York Fed’s monthly inflation survey and the Federal Reserve’s consumer credit report. It’s not all bad, Greig told MM. The actual percentage of Vanguard plan participants who’ve tapped into their retirement accounts to address hardships is still only about 0.5 percent. And Trump-era changes that made 401(k) withdrawals easier — along with Covid allowances that relieved the tax hit for pulling out cash – have informed people “that this is the pot of money that you can use” in a time of need, she said. More are likely to take advantage of that pot of money in 2024. The government funding law signed by President Joe Biden last month includes a set of changes, known as Secure 2.0, that will allow individuals to withdraw up to $1,000 from their 401(k)s without paying a tax penalty. It also includes provisions that will make it easier to save, including auto-enrollment in plans and new rules that would allow companies to match their employees’ student loan payments with retirement contributions. “Are we going to see an increase in hardship? Possibly, but I think there are really positive provisions in Secure 2.0 that might help protect that nest egg,” Greig said. IT’S MONDAY — It took 15 tries and some roughhousing, but Kevin McCarthy is now the House speaker. What’s something that took you 15 or more attempts to nail? Mine’s Detroit pizza (the meltdowns there were a bit tastier). Please send tips to ssutton@politico.com and zwarmbrodt@politico.com.
| | A message from the American Bankers Association: The banking system works best when it works for all Americans. Thanks to initiatives like simple Bank On-certified accounts, the number of unbanked in the U.S. is now at its lowest level ever. Today more than 41,000 bank branches offer these low-cost, easy-access accounts. Learn more about Bank On. | | | | | | Monday … The New York Fed releases inflation expectation data at 11 a.m. … Atlanta Fed President Raphael Bostic speaks at 1 p.m. … Fed releases consumer credit data at 3 p.m. … Tuesday … Fed Chair Jerome Powell speaks at the Sveriges Riksbank International Symposium on Central Bank Independence at 9 a.m. … Thursday … Philadelphia Fed President Patrick Harker speaks at 7:30 a.m. … St. Louis Fed President James Bullard speaks at 8 a.m. … CPI data will be out at 8:30 a.m. … Rep. Maxine Waters (D-Calif.) speaks at a Brookings Institution and National Fair Housing Alliance event on bias in home appraisals at 1 p.m. … Friday … University of Michigan consumer sentiment and inflation expectations survey will be released at 10 a.m. WE DID IT, KEV — Our Nicholas Wu, Kyle Cheney and Marianne LeVine: “Kevin McCarthy’s speakership victory after a brutal four-day floor fight caps a 16-year ascent to power in the House – including a lengthy climb back to the gavel after conservatives torpedoed his run in 2015.” Why it matters that Financial Services Republicans boosted McCarthy — Our Zachary Warmbrodt: Incoming House Financial Services Chair Patrick McHenry was in the national spotlight Friday night, delivering what was supposed to be McCarthy's final nomination for speaker and then scrambling to shore up the fifteenth round of votes when it all briefly fell apart. While McHenry, one of the House GOP's most-skilled vote counters and a leading alternate speaker candidate himself, was critical to boosting support for McCarthy, other senior Financial Services members also played key roles. These included Reps. Tom Emmer, the new House majority whip, French Hill, and Warren Davidson, a Freedom Caucus member who made the conservative pitch for McCarthy. Ogilvy principal Dee Buchanan , a former top aide to one-time Financial Services Chair Jeb Hensarling, who often clashed with GOP leadership, told MM that "no single committee’s membership is doing more to unify the conference than that of the Financial Services Committee." Keep an eye on this space. McHenry, who told MM last year he opposes plans to hold the debt ceiling hostage in exchange for spending cuts, will likely be thrust into more big fights to come. "I would never underestimate Chairman McHenry’s ability to negotiate an outcome," Buchanan said. "Those who will do so at their own peril." Speaking of the debt ceiling, Rep.Chip Roy (R-Texas), a Freedom Caucus member who had opposed McCarthy’s speakership, said on Sunday that “he’d welcome a hard-fought battle over the US debt ceiling, but said both parties should start negotiating terms for the increase now so it doesn’t go down to the wire,” writes Bloomberg’s Laura Litvan.
| | | BANKS TAKE AIM AT CIRCLE’S MONEY MARKET FUND — The banking lobby launched a broadside last week against Circle over its plan to access the Fed’s overnight reverse repo facility through a BlackRock-managed money market fund that will house the bulk of the stablecoin issuer’s reserves. Fed approval would allow Circle to lend its reserves, via BlackRock, to the central bank overnight in exchange for collateral Treasuries and interest. “The ramifications here are difficult to overstate. In essence, anyone in the world wishing to hold the equivalent of reserves at the Federal Reserve will be able to do so by purchasing [Circle’s stablecoin] USDC. Especially in times of crisis, this asset would be highly desirable as a back-door CBDC or account at the Federal Reserve,” according to a blog post from the Bank Policy Institute, whose board is chaired by JPMorgan Chase CEO Jamie Dimon. “It is a breathtaking example of regulatory arbitrage.” Why you should care: Federal agencies have repeatedly warned that stablecoins need to be regulated before they become enmeshed in traditional banking and payment systems. Circle has been lobbying McHenry and top Democrat Rep. Maxine Waters (D-Calif.) on legislation that would subject stablecoins to Fed oversight. “We believe access to the Fed’s RRP facility, should it be approved, would help reduce credit and counterparty risk for the cash portion of the USDC reserve. We would also continue to maintain a portion of our cash reserves inside the regulated U.S. banking system,” a Circle spokesperson said in a statement. WATCH THIS SPACE — Bloomberg’s Allyson Versprille and Ava Benny-Morrison: “US authorities are digging into the internal financial dealings of Barry Silbert’s expansive crypto empire, according to people familiar with the matter. Federal prosecutors in Brooklyn are scrutinizing transfers between Digital Currency Group Inc. and an embattled subsidiary that offers crypto lending services, said the people, who asked not to be named because the probe hasn’t been made public. They’re also delving into what investors were told about those transactions.” PEACE IN OUR TIME — From Sam: “FTX’s U.S. restructuring team has notched an agreement with Bahamian liquidators to resolve some of the jurisdictional battles that have bogged down the defunct crypto exchange’s bankruptcy proceedings.” FIRST IN MM — A new report from the blockchain analytics firm Chainalysis found that the results of Treasury’s sanctioning of crypto mixing services have been a mixed bag. While inflows plummeted at Tornado Cash – the popular decentralized service that blended crypto transactions — they surged at a Russia-based service that launders ransomware funds.
| | | | A message from the American Bankers Association:   | | | | | | ALL EYES ON CPI — Bloomberg’s Rich Miller, Steve Matthews, and Catarina Saraiva: “US inflation data in the coming week are expected to stay consistent with a gradual step-down in cost pressures, and will help determine the size of the Federal Reserve’s next interest-rate increase.” — Also from Bloomberg: “The world economy looks to be transitioning to a more difficult era where interest rates will be higher, geopolitical tensions greater and uncertainties more pronounced. That’s the message that emanated from this year’s annual meeting of the American Economic Association in New Orleans.”
| | | UPDATE — We reported on a St. Louis Fed blog post last week that found that 27 states reported negative growth in October. A new post published Friday based on revised data now shows that just 22 states reported negative growth. EARNINGS SZN — WSJ’s Hannah Miao: “The stock market faces its next big test this week with the kickoff of a corporate earnings season that is expected to be dominated by worries about inflation and the health of the economy.” NOT IN MY PERSONAL EXPERIENCE — WSJ’s Jennifer Maloney: “U.S. demand for beer fell in the last three months of the year as consumers reacted with sticker shock.”
| | | Supporters of former Brazilian President Jair Bolsonaro who refuse to accept his electoral defeat stormed Congress, the Supreme Court and presidential palace in the capital Sunday, just a week after the inauguration of his leftist rival, President Luiz Inácio Lula da Silva. — The Associated Press Inflation in the eurozone fell to below double digits at the end of last year, providing some, albeit limited, relief to those across the regions struggling with the cost of living. — POLITICO’s Johanna Treeck Tens of thousands of travelers began to fly in and out of mainland China on Sunday as Beijing removed almost all of its border restrictions, bringing an end to pandemic measures that effectively sealed off the world’s most populous nation from the rest of the world for three years. — WSJ’s Wenxin Fan
| | A message from the American Bankers Association: The banking system works best when it works for all Americans. To promote financial inclusion and expand access to banking services, America’s banks are joining the Bank On movement. Now available in more than 41,000 bank branches in all 50 states, Bank On-certified accounts are low-cost and give unbanked individuals a viable path toward long-term financial security. Learn about Bank On’s impact here. | | | | | | | Follow us on Twitter | | | | Follow us | | | | |  |
