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Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy. | | | | | |  | | By Ben White and Aubree Eliza Weaver | PROGRAMMING NOTE: Morning Money will not publish on Friday June 18. We'll be back on our normal schedule on Monday, June 21. Please continue to follow Pro Financial Services. 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 6 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. | | | Fed gets (a tiny bit) more hawkish — Markets went a little nuts when the Fed boosted its inflation forecast for the fourth quarter and the “dot plot” suggested a couple of rate hikes in 2023. But Chair Jay Powell, as he is wont to do these days, pretty much dismissed the dot plot as meaningless and leaned heavily into the transitory inflation narrative, suggesting policy will stay super accommodative until the labor market heals further and inflation settles slightly above the central bank’s 2 percent target. MM’s view is that if Powell could nuke the dot plot entirely, he would. Our Victoria Guida: “Central bank officials are now forecasting an inflation rate of 3 percent, excluding volatile food and energy prices, compared to their March projection of 2.2 percent. Their inflation estimate for next year was barely changed. “They also boosted their expectations for economic growth this year to 7 percent — a rate the U.S. hasn’t seen since the 1980s. The rate-hike prediction sent stocks tumbling and bond yields rising as investors grappled with the possibility that the Fed would soon begin to pull back on its massive support for the economy” White House mind meld — White House officials viewed the Fed announcement as a “good news” story given the upgraded growth forecasts and Powell’s consistent view that inflationary pressures will ease relatively soon as supply increases. “The overall economic story here is one of strong growth and job creation as we exit the pandemic,” a senior official told MM. “We are outpacing the rest of the world in the pace of recovery.” The official noted that further efforts from the White House to assist in unclogging supply chain issues in housing, autos and other areas would be coming soon. Via Goldman Sachs: “The … FOMC meeting delivered a hawkish surprise with a shift up in the median dot in 2023 to two hikes, from none in March and against our expectation of an unchanged flat path. … “We continue to expect the first hint about tapering in August or September, followed by a formal announcement in December that would begin the tapering process at the start of next year, though the risks lean toward an earlier start” GOOD THURSDAY MORNING — 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. | | | | DON'T MISS THE MILKEN INSTITUTE FUTURE OF HEALTH SUMMIT: POLITICO will feature a special edition of our Future Pulse newsletter at the 2021 Milken Institute Future of Health Summit. The newsletter takes readers inside one of the most influential gatherings of global health industry leaders and innovators who are turning lessons learned from the past year into a healthier, more resilient and more equitable future. Covid-19 threatened our health and well-being, while simultaneously leading to extraordinary coordination to improve pandemic preparedness, disease prevention, diversity in clinical trials, mental health resources, food access and more. SUBSCRIBE TODAY to receive exclusive coverage from June 22-24. | | | | | | | | Biden arrives back in D.C. … Jobless claims at 8:30 a.m. expected to tick down again to 360K from 376K, getting even closer to normal territory … Index of leading economic indicators at 10:00 a.m. expected to rise 1.2 percent INFLATION FEARS OVERBLOWN? — Via Morning Consult data out this a.m.: “Inflation expectations and price growth are both concentrated in the sectors hardest hit by the pandemic. The increase in expectations coincides with reopening and renewed attention on the travel sector. “A ‘trimmed’ version of the CPI presents a more modest increase when outliers are removed. Sector-specific price increases are likely temporary. Demand surges are likely to subside as the economy normalizes … Consumers still anticipate relatively stable prices over the next 12 months. 42-58% of consumers expect prices to stay the same or decline in the next year.” WHITE HOUSE STILL SEES BIPARTISAN INFRA DEAL — Our Laura Barrón-López: “After being pummeled by progressives for continuing to pursue infrastructure talks with Republicans, the White House is now being offered what’s likely the best bipartisan deal it’s going to get. “On Wednesday, a group of 10 Senate Democrats and Republicans announced that it had agreed on a framework of a compromise. There were scant specifics until late Wednesday night, but negotiators described it as a ‘historic’ investment in infrastructure without raising taxes. Though the administration has yet to weigh in on the new proposal, its introduction creates an immediate, big decision for … Biden just as he returns to U.S. soil” NEW YORK DEMOCRATS URGE DIMON TO REFUND OVERDRAFTS — Via our Zachary Warmbrodt: “JPMorgan Chase CEO Jamie Dimon is facing new pressure from New York lawmakers to curtail the bank’s use of overdraft fees. In a new letter, Reps. Carolyn Maloney, Gregory Meeks, Kathleen Rice and Tom Suozzi urged Dimon to refund overdraft fees charged during the pandemic and to stop charging them going forward.” | | | STOCKS DOWN, YIELDS UP — AP’s Damian J. Troise and Stan Choe: “U.S. stocks fell and bond yields climbed Wednesday after the Federal Reserve signaled it may start easing off the accelerator on its massive support for the economy earlier than previously thought. “The S&P 500 fell 22.89, or 0.5 percent, to 4,223.70 after the Fed unveiled a highly anticipated set of projections by its policymakers, which showed some expect short-term rates to rise half a percentage point by late 2023. The Fed’s chair also said it has begun talking about the possibility of slowing down the bond purchases it makes every month to keep longer-term rates low.” WALL STREET BANKS WARN THEIR TRADING BOOM IS OVER — WSJ’s David Benoit: “The Wall Street boom is petering out at U.S. banks. For much of 2020 and through the first quarter of this year, the biggest U.S. banks posted blockbuster results from trading stocks and bonds and advising companies on deals. “The Federal Reserve flooded the market with money, companies raced to sell new debt and go public, and traders on Reddit and from big institutions moved those securities quickly. Banks at the middle of all of those transactions reaped the rewards. Now, executives are warning that their market revenue is tumbling, at least compared with the past year.” | | | | SUBSCRIBE TO WEST WING PLAYBOOK: Add West Wing Playbook to keep up with the power players, latest policy developments and intriguing whispers percolating inside the West Wing and across the highest levels of the Cabinet. For buzzy nuggets and details you won't find anywhere else, subscribe today. | | | | | | | | FED NOW PROJECTS RATE INCREASES IN 2023 — NYT’s Jeanna Smialek: “Federal Reserve officials left policy unchanged on Wednesday but moved up expectations for when they would first raise interest rates from rock bottom, a sign that a healing labor market and rising inflation were giving policymakers confidence that they would achieve their full employment and stable price goals in coming years. “Fed policymakers expect to make two interest rate increases by the end of 2023, the central bank’s updated summary of economic projections showed Wednesday. Previously, the median official had anticipated that rates would stay near zero — where they have been since March 2020 — at least into 2024. The Fed now sees rates rising to 0.6 percent by the end of 2023, up from 0.1 percent.” But the Fed’s shift is more about Covid than inflation — WSJ’s Justin Lahart: “Federal Reserve policy makers have pushed up the timeline on when they expect to start raising interest rates. That probably had more to do with the progress the U.S. has made in the fight against Covid-19 than worries about inflation. “Following its two-day meeting, the Fed’s policy-setting committee on Wednesday left its target range on overnight rates where it has been since the pandemic struck last year: right near zero. The most significant changes to the postmeeting statement from the previous one were an acknowledgment that vaccinations have reduced the spread of Covid-19 and an expectation that the effects of the economy’s crisis will continue to moderate.” YELLEN SAYS ADMINISTRATION IS WATCHING INFLATION CLOSELY — AP’s Martin Crutsinger: “Treasury Secretary Janet Yellen assured Congress that the recent jump in inflation is being monitored very carefully by the Biden administration, but said again that any increase will prove temporary. "Testifying about Biden’s $6 trillion budget proposal before the Senate Finance Committee, Yellen was asked Wednesday by Republican lawmakers about recent sharp gains in inflation, including a 5 percent rise in consumer prices for the 12 months ending in May, the biggest jump since 2008.” She also said Biden’s policies would help unwind the destructive forces of inequality and climate change — WSJ’s Kate Davidson and Richard Rubin: “The U.S. economy needs ambitious fiscal policy to help unwind destructive forces, such as racial inequality and climate change, that have kept prosperity out of reach for millions of Americans, Treasury Secretary Janet Yellen told lawmakers Wednesday. “Ms. Yellen, who testified before the Senate Finance Committee, defended the Biden administration’s $6 trillion budget proposal for fiscal year 2022 in prepared testimony, calling for policies such as paid family leave, modernizing infrastructure, reducing emissions and making housing and education more affordable. The private sector doesn’t make enough of these investments to reverse long-term, structural economic challenges, such as falling labor-force participation and wage inequality, Ms. Yellen said.” And Yellen added that the leak of taxpayer data is a ‘very serious situation’ — Reuters: “Asked about the news report, which cited tax returns by thousands of the wealthiest Americans, Yellen said Treasury had referred the matter to the Justice Department and Treasury’s inspector general for tax administration, but it was still unclear how the data breach occurred. ‘We don’t have any facts at this point,’ she said. ‘But it is absolutely a top priority to safeguard taxpayer data.’” ICYMI: EVICTION MORATORIUMS ARE EXPIRING, BUT MILLIONS ARE STILL RELYING ON THEM — NYT’s Conor Dougherty and Glenn Thrush: “The United States averted the most dire predictions about what the pandemic would do to the housing market. An eviction wave never materialized. The share of people behind on mortgages, after falling steadily for months, recently hit its prepandemic level. But a comprehensive report on housing conditions over the past year makes clear that while one crisis is passing, another is growing much worse.” | | | | Follow us on Twitter | | | | Follow us | | | | |  |
