Here comes a big GDP number — But risks abound — Fed stays bullish

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Jul 29, 2021 View in browser   By Ben White and Aubree Eliza Weaver Presented by Editor's Note: Morning Money is a free version of POLITICO Pro Financial Services' morning newsletter, which is delivered to our subscribers 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. Quick Fix Here comes GDP — First read on second quarter GDP out at 8:30 a.m. expected to show very strong growth of an annualized 8.5 percent, which would be the biggest jump since Ronald Regan's presidency in 1983, absenting the third quarter of last year when the economy first bounced back from the massive Covid-19 hit. Much of the jump will come from consumer spending, likely up 10 percent, as Americans binged on eating and shopping, drawing both from substantial savings built up during Covid and healthy stimulus benefits from the federal government. The Biden White House will get a juicy headline out of the number. But risks are rippling through the economy including the spread of the Delta variant, inflation, the expiration of a lot of stimulus money and supply chain problems. The bipartisan infrastructure bill looks like close to a lock but the much larger Democrat-only reconciliation package remains somewhat troubled and would be spread out over 10 years anyway. So there is a fiscal drag coming at some point. And businesses from hotels to retailers and airlines still can't find close to enough workers to fill open jobs. Infrastructure deals moves ahead —The bipartisan infrastructure deal (known by insiders as the BID, which is kind of a BFD) looks headed for passage. You can check out the bill, H.R. 3684 (117), right here. The pay-fors shocked some in the cyrpto industry. Via an industry insider email: "The industry (or at least some of us) had an idea [Ohio GOP Senator Rob] Portman was thinking about reporting as a payfor but no one expected $28 billion. It was a fire drill today and everyone feels pretty caught off guard." Cowen's Jaret Seiberg: "The Senate bipartisan infrastructure bill would be partly funded by extending for a decade the 10 basis point tax on GSE-backed mortgages as well as by requiring tax reporting for crypto transactions in excess of $10,000. … "We believe it is likely that these revenue raisers will remain in the infrastructure bill, which appears likely to become law." Crypto" GOOD THURSDAY MORNING — Happy GDP Day! 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. A message from Altria: Helping prevent youth access. Kids shouldn't use any tobacco products. While underage use of traditional tobacco products is at historic lows, more must be done to address underage vaping. That's why Altria strongly supported legislation to raise the minimum age for all tobacco products to 21. See how we're moving.   Driving the Day First look at Q2 GDP at 8:30 a.m. expected to show robust growth of 8.5 percent … President Biden at 4:00 p.m. delivers remarks "laying out the next steps in our effort to get more Americans vaccinated" … House Financial Services Committee at 10:00 a.m. continues its markup hearing … Senate Banking at 10:00 a.m. has a hearing on "Protecting Americans from Debt Traps by Extending the Military's 36 Percent Interest Rate Cap to Everyone" FED REMAINS BULLISH — Our Victoria Guida: "The Biden administration and U.S. lawmakers are growing increasingly worried about fallout from a new coronavirus surge, but when it comes to the potential risk to the economy, the Federal Reserve isn't sweating it. "Fed Chair Jerome Powell … downplayed concerns that the latest Covid spread tied to the Delta variant could cause significant financial pain to Americans, saying that even though the health consequences could be serious for those infected, the economy has grown more resilient to the virus. … "Powell's take on the threat posed by the virus is being closely watched by investors because it's likely to influence the Fed's decision on how long to continue its extraordinary support for the economy" CRYPTO TAKES A HIT — Our Zachary Warmbrodt: "A long-awaited bipartisan infrastructure deal … would rely on tougher tax enforcement of cryptocurrencies to help pay for the $550 billion package, according to summaries from the White House and Capitol Hill. "Applying reporting requirements to cryptocurrency would generate about $28 billion, according to one outline provided to lawmakers , which said the bipartisan plan would ensure that digital assets are 'properly reported to the IRS.' Digital assets would be added to current rules requiring businesses to report cash payments above $10,000, according to the Hill summary." SINEMA WANTS TO TRIM GIANT SPENDING BILL — Our Burgess Everett: "Kyrsten Sinema will move forward on Democrats' plans to craft a massive partisan spending bill running into the trillions, but indicated at the same time that she will seek to pare down the package's cost, infuriating progressives in the House. "The moderate Arizona Democrat said … that she has informed Senate leaders and … Biden that she will advance a budget proposal that allows a subsequent spending bill of up to $3.5 trillion backed by most Senate Democrats. And though she supports 'many of the goals in this proposal,' she'll want changes to the final product."   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.         Markets S&P TURNS SLIGHTLY HIGHER — Reuters' Caroline Valetkevitch: "The S&P 500 reversed declines to trade barely higher in choppy trading on Wednesday after the Federal Reserve said the U.S. economic recovery remained on track despite rising coronavirus cases and that higher inflation remained the result of 'transitory factors.' The Dow cut its declines while the Nasdaq added to gains." COVID FUELED A TREASURY MARKET MELTDOWN IN 2020. REPORT OFFERS POTENTIAL FIXES. — WSJ's Nick Timiraos: "A global dash for cash sparked by the coronavirus pandemic in March 2020 forced the Federal Reserve to buy hundreds of billions of dollars of U.S. Treasury securities in a matter of days to prevent a broader meltdown in financial markets. "A new report from a group that includes former central bankers warns that failing to address key market fragilities revealed by that episode could weaken the confidence in the market for U.S. Treasurys, which is widely assumed to be the global risk-free asset." A message from Altria: Kids shouldn't use any tobacco products. Today, underage use of traditional tobacco products is at historic and generational lows, but more must be done to address underage vaping rates. Raising legal age restricts access. In addition to our longstanding efforts to keep tobacco out of kids' hands, we strongly supported legislation to raise the minimum age of purchase for all tobacco products to 21, nationwide. And we are offering retailers incentives for using age verification technology that can make sure retail remains a trusted place to responsibly sell tobacco products. Continuing our commitment to responsibility. Operating responsibly is our number one priority. We are committed to continue our work with multiple stakeholders to drive down underage use and maintain the opportunity in potential harm reduction that non-combustible tobacco products hold for adult smokers 21+. See how we're moving.   Fly Around FED KEEPS RATES UNCHANGED, BUT POWELL SEES PROGRESS — Bloomberg's Catarina Saraiva and Rich Miller: "Federal Reserve officials signaled they are moving closer to when they can start reducing massive support for the U.S. economy, though Chair Jerome Powell said there was still some way to go. "'We're not there. And we see ourselves as having some ground to cover to get there,' he told a press conference Wednesday after the Federal Open Market Committee held interest rates in a range near zero and maintained asset purchases at $120 billion a month until "substantial further progress" was made on employment and inflation." INFLATION IS THE NEW BATTLE LINE AS BIDEN, GOP SPAR OVER SPENDING — NYT's Jim Tankersley: "Republicans have made Americans' concerns over rising prices their primary line of attack on President Biden's economic agenda, seeking to derail trillions of dollars in spending programs and tax cuts by warning that they will produce rocketing 1970s-style inflation. "They have seized on the increasing costs of gasoline, used cars, and other goods and services to accuse the president of stoking 'Bidenflation,' first with the $1.9 trillion stimulus bill he signed in March and now with a proposed $3.5 trillion economic bill that Democrats have begun to draft in the Senate." FED ESTABLISHES STANDING REPO FACILITIES — Reuters' Jonnelle Marte: "The Federal Reserve announced on Wednesday it will establish separate domestic and international standing repo facilities to backstop money markets during times of stress. The domestic standing repo facility, or SRF, will conduct daily overnight repo operations against Treasury securities, agency debt securities and agency mortgage-backed securities. "Through the facility for foreign and international monetary authorities, known as the FIMA repo facility, the U.S. central bank will enter into overnight repo agreements as needed with foreign official institutions against their holdings of Treasury securities held at the New York Fed." SBA TO SIMPLIFY PPP LOAN FORGIVENESS FOR SMALLEST BORROWERS — WSJ's Charity L. Scott: "The Small Business Administration said it would make it easier for the smallest businesses that got funds from the Paycheck Protection Program to have their loans forgiven, as the agency seeks to wind down the Covid-19 rescue program. "About 2 million business owners with PPP loans of $150,000 or less will soon be allowed to apply for loan forgiveness directly through the SBA instead of their banks. There are about 7.1 million PPP loans that remain outstanding and about 6 million are for $150,000 or less." ROBINHOOD HEADS TO MARKET — AP's Stan Choe and Alex Veiga: "After a rocket rise where it introduced millions of people to investing and reshaped the brokerage industry, all while racking up a long list of controversies in less than eight years, Robinhood is about to take the leap itself into the stock market. Robinhood Markets and three of its executives are selling up to 60.5 million shares of its stock in an initial public offering, with trading expected to begin on the Nasdaq Thursday." KUSHNER BACK TO WALL STREET — "Jared Kushner to leave politics, launch investment firm - sources," by Reuters' Steve Holland: "[He's] in the final stages of launching an investment firm called Affinity Partners that will be headquartered in Miami. Kushner … is also looking to open an office in Israel."   Sponsored Survey WE VALUE YOUR OPINION: Please take a 1-minute survey about one of our advertising partners.     Be a Policy Pro. POLITICO Pro has a free policy resource center filled with our best practices on building relationships with state and federal representatives, demonstrating ROI, and influencing policy through digital storytelling. Read our free guides today .       Follow us on Twitter Mark McQuillian @mcqdc Ben White @morningmoneyben Aubree Eliza Weaver @aubreeeweaver Victoria Guida @vtg2 Katy O'Donnell @katyodonnell_ Zachary Warmbrodt @Zachary Kellie Mejdrich @kelmej   Follow us

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