The new inflation politics

From: POLITICO's Morning Money - Wednesday Jun 14,2023 12:01 pm
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POLITICO Morning Money

By Victoria Guida and Zachary Warmbrodt

Presented by the Consumer Credit Card Protection Coalition

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.

Inflation is still high enough to concern the Federal Reserve, but two of the most politically charged items are looking a lot better — food and gas prices.

That could offer President Joe Biden a bit of a reprieve after years of bleak public sentiment about the economy, spurred by GOP criticism.

Food prices ticked up 0.2 percent in May compared to April, with grocery costs essentially flat after falling in the previous two months, the government reported Tuesday. Energy prices dropped a whopping 3.6 percent — with gasoline alone plunging 5.6 percent. While the Consumer Price Index tracks everything from cars to telephone plans, food and fuel prices stand out the most for consumers.

Fed policymakers meet on Wednesday and are expected to pause after more than a year of interest rate hikes. A pause keeps alive hopes of a soft landing, meaning the economy can avoid a recession even as growth slows. But they might not be done for good, and even just holding rates where they are will likely be a burden on a lot of Americans.

To be clear, economic confidence is still quite low — with only about a third of Americans approving of Biden’s handling of the economy. But it can’t be a total coincidence that Gallup polling shows the number markedly improved as gas prices dropped last year and has more recently been more stable.

JPMorgan’s Michael Feroli agreed that there would probably be a political benefit from price drops in the most salient sectors: “Your thesis could also be why we’re seeing shorter-term inflation expectations start to take a move lower.” he told MM. (The New York Fed on Monday reported that consumer expectations for inflation a year from now have declined.)

Stifel’s Brian Gardner cautioned, though, that prices are still much higher than they were before the pandemic.

“Any kind of change in thinking is going to be slow because while the increase in prices is slowing and maybe topping out, we’re still dealing with some hefty increases over the past couple of years,” he said.

Gardner said this could be tricky for Biden to message heading into the 2024 election, especially since the administration — as well as Fed Chair Jerome Powell and many external forecasters — originally argued that inflation would only be transitory.

“To the extent that inflation can get under 4 percent and closer to 2 percent, the White House and the Biden campaign would be on stronger footing,” Gardner said. “But I think because of their credibility problem coming out of the beginning of inflation, they’re going to have to be a little bit careful on that.”

A White House official told MM that the data undeniably shows progress is being made. “We’re not making the point about what the forecast will be, but what has happened,” the official said. “There’s still work to be done, but we are coming from CPI above 9 percent to 4 percent.”

Economic sentiment in the U.S. is also heavily driven by partisanship, so Republican politicians will still use inflation to rally support regardless of how it behaves now, said George Washington University’s Sarah Binder.

“Certainly, falling prices for gas and food — things Americans notice the most — will take some bite out of Republican attacks,” she said. But “with a Democrat in the White House, Democrats think inflation will be lower than do Republicans.”

Meanwhile, many prices are still rising, and annual headline inflation — which includes food and energy — is still at 4 percent. So a potential victory lap isn’t in the cards for some time yet.

“Other economic headwinds remain on the horizon, including stubbornly high shelter inflation, increasingly restrictive monetary policy, as well as the possibility of a recession — albeit likely a mild one — as we head into an election year,” said Libby Cantrill, head of public policy at PIMCO.

It’s Wednesday – Congrats, Jared Bernstein, on being confirmed as CEA chair. We’d love to hear what you’re up to: Zach Warmbrodt, Sam Sutton.

 

A message from the Consumer Credit Card Protection Coalition:

Defunding data security for credit cards and ripping away hard-earned rewards from working families would be a disaster for consumers, but that’s exactly what the Durbin-Marshall credit card bill would do. Thousands of Americans are mobilizing to demand Washington stay out of their wallets by stopping the Durbin-Marshall credit card bill. Learn more by clicking here.

 
Driving the day

The Producer Price Index for May is out at 8:30 a.m. … CFPB Director Rohit Chopra testifies at House Financial Services at 10 a.m. … FOMC releases its monetary policy statement at 2 p.m. followed by a Powell press conference at 2:30 p.m.

Bernstein vs. Manchin — The Senate on Tuesday – with a last-minute dash of drama – confirmed Jared Bernstein to lead the White House Council of Economic of Advisers.

Sen. Joe Manchin voted against Bernstein as he continued to pick spots to criticize Biden’s economic policies. Manchin’s opposition, which he revealed just before the Tuesday votes, triggered some brief uncertainty about whether Bernstein could be confirmed or would need an assist from Vice President Kamala Harris, because he faced universal resistance from Republicans.

But thanks in part to the unexpected absence of Sen. Tommy Tuberville (R-Ala.), Bernstein made it through confirmation in a 50-49 vote.

Yellen sees an EU problem — Treasury Secretary Janet Yellen on Tuesday told lawmakers that an upcoming European Union rule requiring companies to disclose information about their environmental and human-rights impact could hurt U.S. firms.

Yellen was the most senior U.S. official yet to weigh in on the planned regulation, which has multinational companies riled up.

“While we’re supportive of the high-level aims of the [Corporate Sustainability Due Diligence Directive], we’re concerned it has extraterritorial scope,” Yellen said at a House Financial Services hearing. “This is something we are discussing with the European Union and will certainly make our concerns known.”

 

GET READY FOR GLOBAL TECH DAY: Join POLITICO Live as we launch our first Global Tech Day alongside London Tech Week on Thursday, June 15. Register now for continuing updates and to be a part of this momentous and program-packed day! From the blockchain, to AI, and autonomous vehicles, technology is changing how power is exercised around the world, so who will write the rules? REGISTER HERE.

 
 
Economy

No skip for Europe — Our Johanna Treeck in Frankfurt reports that the ECB is set to raise interest rates to their highest level in more than 20 years on Thursday, even after the eurozone slid into recession. ECB President Christine Lagarde said last week: “There is no clear evidence that underlying inflation has peaked.”

 

A message from the Consumer Credit Card Protection Coalition:

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Crypto

‘Toothless and feeble’ — Democrats atop the House Financial Services Committee are not sold on the new GOP crypto bill that would revamp rules under the SEC and CFTC, Declan Harty reports.

At a hearing Tuesday, Rep. Maxine Waters of California raised concerns that the bill would offer a “get-out-of-jail-free card” to crypto companies. Rep. Jim Himes of Connecticut questioned whether the legislation would prevent firms from mixing their funds with customer money, citing an exemption that talks about allowing them to do so “for convenience.”

Rep. Ayanna Pressley of Massachusetts called it “toothless and feeble.”

Financial Services Chair Patrick McHenry (R-N.C.) made clear that the bill is still a draft and that he is open to changes. McHenry plans to hold a vote on the legislation after July 4, he said.

 

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.

 
 
Regulatory Corner

CFPB hints at timing for data rule — The CFPB is eyeing an October timeframe to propose a rule on consumer data rights, Victoria reports. The target is in the government’s latest semiannual unified agenda for regulations, which isn’t binding but gives a general sense of where agencies are headed.

Fly Around

People moves Diana Banks Thompson has joined Discover Financial’s government relations team as director and assistant general counsel. She was previously at the American Bankers Association … Karl Haddeland has joined Citigroup from PNC as a director for the federal government affairs team.

 

A message from the Consumer Credit Card Protection Coalition:

Millions of Americans rely on their credit card points and cash back rewards to pay for gas, groceries, travel and more. But the Durbin-Marshall credit card bill would steal the rewards that millions of Americans have earned, all to pay for a bailout for multibillion dollar retailer special interests. Worse yet, the Durbin-Marshall credit card bill would defund data security for credit cards, making it easier for cyber criminals to steal the personal and financial data of millions of Americans. Congress should protect American families, not find new ways to put Washington into the wallets of millions of consumers. Learn more about the disastrous Durbin-Marshall bill by clicking here.

 
 

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