News : More on Powell and Yellen — Pelosi courts moderates — Could Wall Street handle a change at the Fed?

Tuesday, August 24, 2021

More on Powell and Yellen — Pelosi courts moderates — Could Wall Street handle a change at the Fed?

Aug 24, 2021

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Quick fix

More on Powell and Yellen — In Monday's MM, we quoted Better Markets' Dennis Kelleher suggesting that current Fed Chair Jerome Powell lobbied Donald Trump to dump then-Fed Chair Janet Yellen. Trump ultimately did this and nominated Powell, who is now up for renomination this year.

Several readers wondered where the allegation of a Powell lobbying campaign against Yellen came from, so we asked Kelleher. He emails: "Yellen was in a position (Fed Chair) where the person in that position had been reappointed uniformly for decades.

"As widely reported at the time … Powell was going after the job, which he could not have if she was in it. … So Powell's allies are now saying, sure, he might have been lobbying … for the job, but not to have her fired. To me, that's a distinction without a difference. He could not have the job that was filled by someone (Yellen) unless Trump de facto fired her, breaking with decades of tradition."

Cap Alpha's Ian Katz : "The one thing the administration doesn't want to do is drop a surprise Fed nominee on financial markets. If Powell were to be replaced, the White House would have to do a lot of signaling of its move in that direction and we haven't seen that."

MM SIDEBAR — This is a good point. Markets could deal with someone like Lael Brainard. But any change would require significant signaling before the choice is made. None of that has happened. Markets would be much less inclined to embrace an unknown candidate. And it's tougher now to make a move with Delta raging and the Afghanistan mess. The needle is tilting to Powell.

GOOD TUESDAY 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.

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PELOSI FLOATS DEAL FOR MODERATES — Our Heather Caygle and Sarah Ferris: "Speaker Nancy Pelosi has floated a deal to the leader of centrist defectors that she hopes will end a standoff and clear the way for passage of a $3.5 trillion budget framework …

"The agreement is not final, as Rep. Josh Gottheimer takes the offer back to the group of nine moderates who have vowed to tank the spending plan unless they get an immediate, standalone vote on the infrastructure bill. … The details of the deal are still up in the air, but one element is a wonky maneuver that would wrap consideration of the ground rules of debate and the budget resolution itself into one vote, rather than the original plan that required two votes to advance the spending plan."

INFRASTRUCTURE IMPACT — S&P's Beth Ann Bovino on potential economic impact of the stand-alone infrastructure bill: "We estimate that, in real dollar terms, the project will create more in economic activity than it would cost. In particular, we estimate that a $1 trillion investment in infrastructure would add $1.4 trillion to the economy over an eight-year period—a fiscal multiplier of 1.4x.

"In terms of jobs, we found that the infrastructure project would create 883,600 jobs by 2030--many middle-class jobs. And per capita income would be $100.50 (10.5%) larger than in the no infrastructure scenario."

SINEMA STILL A NO ON THE BIG BILL — Via Burgess: "Kyrsten Sinema still opposes her party's plans for a $3.5 trillion, party-line spending bill. And she's not up for a negotiation about it.

"As House Democratic leaders hold back Sinema's own Senate-passed bipartisan infrastructure bill in order to push the Arizona Democrat and Sen. Joe Manchin (D-W.Va.) to support a multitrillion-dollar spending bill, Sinema is making it crystal clear that her mind can't be changed. And that applies even as her own legislation becomes a bargaining chip in House Democrats' internal discussions."

Markets

STOCKS RISE BROADLY — AP's Alex Veiga: "Stocks notched gains on Wall Street Monday, pushing the Nasdaq composite to an all-time high and helping the S&P 500 more than make up for its losses last week. The S&P 500 rose 0.9 percent, after spending much of the day within striking distance of notching its own record high. The benchmark index ended less than 0.2 percent below its all-time high set a week ago.

"Technology, communication and financial stocks helped lift the S&P 500. Companies that rely on consumer spending also notched gains. Energy stocks rose as the price of U.S. crude oil jumped 5.3 percent, recovering some of the ground it lost last week. Only utilities, household goods makers and real estate companies fell."

NEW APPETITE FOR MORTGAGE BONDS THAT SIDESTEP FANNIE, FREDDIE — WSJ's Ben Eisen: "Wall Street is diving back into the business of turning home loans into bonds, injecting new competition into a market long dominated by government-backed mortgage giants Fannie Mae and Freddie Mac.

"The so-called private-label mortgage market — in which financial firms serve the middleman role of creating giant pools of loans and selling them to investors — had more than $42 billion of issuance in the second quarter. That is the most since the pandemic started and almost the most for any quarter since the last financial crisis, according to Inside Mortgage Finance, an industry research firm."

CRYPTO'S SURGE LEAVES GLOBAL WATCHDOGS TRYING TO CATCH UP — WSJ's Dave Michaels, Caitlin Ostroff and Elaine Yu: "The cryptocurrency industry is getting so big and enabling so much risk-taking that governments around the globe are taking notice. Bitcoin traded above $50,000 Monday; its total value now exceeds $900 billion, more than all but a handful of companies.

"Digital currencies called stablecoins grease ever more trading and issuance. Giant crypto exchanges in Asia offer 100-to-1 bets, often serving traders in countries where their products aren't legal."
Fly around

BIDEN, FED WANTED A HOT ECONOMY. THERE'S RISK OF GETTING BURNED. — NYT's Neil Irwin: "There is a big idea in economic policy that has become ascendant in recent years: Great things can be achieved for American workers if the economy is allowed to run hot.

"The notion of creating a 'high-pressure' economy is that government should be willing to risk a bit of inflation in the near term to achieve conditions that will over the long run lift people out of poverty, prevent the scars of recessions from becoming permanent, and make the nation's economic potential stronger."

POWELL NAVIGATES THE INFLATION DEBATE — WSJ's Nick Timiraos and Paul Kiernan: "After a decade of low growth and inflation, Federal Reserve Chairman Jerome Powell unveiled a new strategy a year ago in which the central bank would keep interest rates lower for longer.

"Reality has dealt Mr. Powell a different and unexpected challenge: the biggest inflation spike in decades. Consumer prices rose 5.4 percent in July from a year earlier. Mr. Powell heads into the Kansas City Fed's annual conference this week at the center of the debate over how long the currently higher inflation will last, and what the Fed should do about it."

FED'S JACKSON HOLE SHIFT SHOWS DELTA'S ABILITY TO SKEW PLANS — Reuters' Howard Schneider: "Health officials in Teton County, Wyoming, announced last Thursday what was in part an administrative change, swapping a local five-point index for assessing COVID-19 risk for a four-point scale used by the U.S. Centers for Disease Control and Prevention.

"But that change promptly pushed the county into the CDC's highest risk category, and shifted the Federal Reserve's plans to hold its Jackson Hole central banking conference as an in-person event into non-compliance with local health guidance. Within a day, the U.S. central bank had cancelled the in-person portion of the conference at the local mountain resort."

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FED'S ABILITY TO SET A FLOOR ON RATES WEAKENING AMID CASH DELUGE — Bloomberg's Alex Harris: "The Federal Reserve's floor for overnight funding markets is proving to be no match for the deluge of cash. Money-market securities ranging from Treasury bills to repurchase agreements continue to trade below 0.05 percent — the offering rate on the overnight reverse repo facility, which is supposed to act like a floor for the front end.

"The Fed at its June meeting had adjusted the rate by 5 basis points to help support the smooth functioning of short-term funding markets. Still, usage of the tool rose to a record $1.136 trillion on Monday, eclipsing the previous all-time high of $1.116 trillion on Aug. 18."

NEW YORK'S ECONOMY, POISED FOR COMEBACK, FINDS SETBACK INSTEAD — NYT's Nelson D. Schwartz, Nicole Hong and Patrick McGeehan: "For New York City and its trillion-dollar economy, September was supposed to mark a return to normal, a moment when Broadway theaters reopened, stores and restaurants hummed, and tourists and office workers again filled the streets.

"But that long-awaited milestone has been upended by the Delta variant of the coronavirus. One big company after another has postponed plans to come back to Manhattan's soaring towers. Trade shows have been canceled. Some small businesses have had orders evaporate."

WEEKEND WEDDING — James Ratcliffe, who works in banking, on Friday married Kaleigh Kramer, who works in PR. The couple met at a bar in NYC (Los Feliz) and wed in Newport, R.I. at St. Augustine Church

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