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. President Joe Biden and his top aides have been doggedly upbeat about the prospects for the economy in the run-up to his reelection announcement. Treasury Secretary Janet Yellen told your MM host a couple of weeks ago to not “overdo the negativism” about growth. But as Biden closes out the week of his 2024 campaign kickoff, it’s going to get much harder to dismiss evidence that a slowdown has already begun and that major risks are on the horizon. First-quarter GDP data released Thursday showed that the U.S. economy was in the process of downshifting well ahead of any potential credit crunch triggered by the banking turmoil that erupted in mid-March. Amid higher interest rates and persistent inflation, U.S. GDP grew by 1.1 percent in the first three months of the year — below expectations of 2 percent growth and short of the 2.6 percent increase seen in the fourth quarter. Biden put a positive spin on the news, calling it a transition to “steady and stable growth.” He pointed to the continuing strength of the American consumer bolstered by higher disposable income. But as our Ben White reports, the data only underlines expectations on Wall Street that the U.S. is headed for a recession. “In this unique business cycle characterized by elevated economic uncertainty, one would be misguided to take solace in the economy’s moderate Q1 advance,” EY-Parthenon chief economist Gregory Daco said on Twitter. The weakening only raises the stakes for one of the most consequential decisions of Biden’s presidency – how to head off a U.S. debt default that could rock markets and further dampen economic growth. Democrats bristle at the notion that any ball is in their court. But they face growing pressure to respond to the debt limit and spending cuts package that House Republicans passed Wednesday. “With Democrats and Republicans agreeing default is not an option, now is the time for them to come together to find a solution that can pass the House and Senate,” Business Roundtable CEO Josh Bolten said. “We urge both sides to act swiftly to secure a bipartisan agreement that takes default off the table and begins the hard work of dealing with our deficits and debt.” Treasury will start the clock any day now when it releases its “X-date” projection for when the U.S. won’t have enough cash to pay its bills. From there, the U.S. runs the real risk of seeing its creditworthiness take another hit if markets don’t see movement in Washington. “If, ahead of the X-date, we were to assess the risk of a default as having become more material, the U.S.’s rating would likely be placed on rating watch negative and further rating action could be considered,” Richard Francis, co-head of Americas sovereigns at Fitch Ratings, told MM. It’s Friday — A reminder that Zach Warmbrodt and Sam Sutton will be reporting from the Milken conference in Beverly Hills next week. If you’ll be there, please don’t be shy.
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