| | | | |  | | By Kate Davidson and Aubree Eliza Weaver | | | 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 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. GIMME SHELTER — We're due for another big inflation report this week (yes, they're all big at this point), and while headlines of late have focused on soaring energy and food prices, economists are keeping a closer eye on another critical component — shelter. Shelter costs, which include rent or the implicit rent you would pay if you didn't own your house, have been accelerating on an annual basis for the past year, and rose 5 percent in March from a year earlier — the biggest increase since May 1991. The Labor Department will release the latest inflation figures Wednesday morning. Rising rent is also contributing much more to core inflation , which excludes the volatile food and energy categories, than it did on average before the pandemic, another reflection of a red-hot housing market. In March, the shelter index rose 0.5 percent from the previous month, and accounted for nearly two-thirds of the monthly increase in core inflation.
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Rent prices, which have been climbing for the past year, are a major factor in how quickly inflation cools. | Brandon Bell/Getty Images | Why is that bad news? Housing costs account for a huge share of household budgets. They also make up a large portion of the basket of goods and services included in the Consumer Price Index, a key inflation gauge. "The evolution of housing inflation will be key in determining how quickly overall inflation cools back to more tolerable levels," said EY-Parthenon chief economist Greg Daco, who expects annual rent inflation to move past 5 percent over the coming months. While some supply-side factors that have pushed up inflation — such as rising energy prices and supply chain disruptions — may ease on their own, housing inflation may not be such an easy fix. Shelter inflation is generally slow to come up and slower to come down than other inflation components, posing a challenge for the Federal Reserve, said Douglas Holtz-Eakin, president of the American Action Forum and a former Congressional Budget Office director. "That's not going to go away fast," Holtz-Eakin said last week on a panel at the Milken Institute Global Conference. "The Fed is going to have to lean against that. It's gonna be hard work." Industry data shows home prices rose a blistering 18.8 percent in 2021, and rent has climbed 17.6 percent nationwide over the last year, our Katy O'Donnell reported in March. But those prices haven't fully shown up in inflation figures because leases are typically annual. The Fed's rate increases, and its signals about future policy, have begun to push up mortgage rates, but it's not clear how long it will take for prices to start coming down. What to expect — Many economists expect to see year-over-year inflation figures begin to ebb. Gasoline prices have declined modestly, after soaring in March following Russia's invasion of Ukraine, and the surge in used-car prices last spring will soon drop out of the annual inflation figure. Economists estimate that the consumer price index rose 8.1 percent in April from a year earlier, down from 8.5 percent in March. But Deutsche Bank economists said they continue to expect elevated shelter inflation, in line with the 0.5 percent monthly increases seen over the past three months. That's in part because rent increases tend to be a function of the tight labor market. "While our expectation is that rental prints stay near their current values for the rest of the year, there is some risk that the prints accelerate further should the labor market continue to tighten," analyst Jiefu Luo and economist Justin Weidner wrote. Researchers at the San Francisco Fed said the "extraordinarily large" increases in current asking rents and current home prices "point to significant upside risks to the overall inflation outlook." They estimated that rent inflation could add 1.1 percentage points to overall CPI inflation in 2022 and 2023. (The estimate doesn't take account of Fed policy decisions.) The upshot: Some inflation factors may begin to improve, but housing costs will continue to loom large, for the Fed and the White House, ahead of the November midterm elections. "Shelter accounts for 40% of the CPI — as it does for many household budgets — and with double-digit increases in rents kicking in, this puts the household budget in a vise even if food and energy costs level out," said Greg McBride, chief financial analyst at Bankrate.com. IT'S MONDAY — Congrats to those of you who bet on Rich Strike! Is there anything more exhilarating than seeing a long shot pull off a big win? (For those wondering, USA Today has a list of the top five Kentucky Derby upsets.) Have big tips, story ideas or an A+ mint julep recipe? Send them our way: kdavidson@politico.com or @katedavidson, or aweaver@politico.com or @aubreeeweaver.
| | | | A message from ExxonMobil: At ExxonMobil, we're working to supply the energy the world needs today, while developing solutions for tomorrow. Heavy transportation needs big solutions. Innovations like renewable diesel made from plants could help reduce emissions from trucks by about 3 million metric tons per year, compared to conventional fuel. Learn more about how we're helping society move toward a net-zero future at ExxonMobil.com/fuels. | | | | | | TODAY — Acting Comptroller Michael Hsu speaks at a Brookings Institution event on bank mergers and resolution at 9:30 a.m., followed by an all-star panel discussion with former Fed Governor Dan Tarullo, former National Economic Council Director Andrew Olmem, University of California at Irvine law professor Mehrsa Baradaran and Sullivan & Cromwell Senior Chairman Rodgin Cohen. THIS WEEK — Treasury Secretary Janet Yellen testifies at Senate Banking on the Financial Stability Oversight Council annual report Tuesday … Fed Governor Chris Waller speaks to the Economic Club of Minnesota Tuesday … the Federalist Society for Law and Public Policy hosts a virtual discussion on a central bank digital currency … Treasury releases monthly spending, revenue and deficit figures Tuesday … Labor Department releases inflation data Wednesday … Financial Services hearing on the bond rating industry Wednesday … House Economic Disparity and Fairness in Growth Committee hearing on economic development Wednesday … Yellen testifies at House Financial Services on the FSOC annual report Thursday … Senate Banking hearing on energy efficient housing Thursday … House Financial Services hearing on using AI for effective regulation … University of Michigan releases consumer sentiment and inflation expectations data Friday. RIP GLOBALIZATION — Our Gavin Bade: "President Joe Biden came into office hoping to chart a third way on trade — away from the economic nationalism of Donald Trump and the free-wheeling globalization that preceded him. But by the start of 2022, that agenda was on life support. … "Then, Russia invaded Ukraine, and China refused to condemn Moscow — seemingly confirming Biden's thesis that the 21st century would be defined by a struggle between democracy and authoritarianism." THE JOBS BOOM THAT JUST WON'T QUIT — Our Ben White: "On Friday, we got a glimpse at whether that extraordinary run is holding up even as clouds loom over other parts of the economy and the Federal Reserve is planning aggressive interest rate hikes to curb inflation. The answer is yes." CFA INSTITUTE CALLS FOR TOUGHER SPAC DISCLOSURES — FT's Nikou Gasgari: "The professional body for the investment industry is urging regulators to toughen disclosure requirements for Spac sponsors in an effort to make the blank-cheque companies more transparent. The CFA Institute is recommending that Spac sponsors fully disclose any affiliations with investors and target companies, as well as the existence of side deals with anchor or Pipe investors." HOW ROE SHAPED THE WORLD OF WORK FOR WOMEN — NYT's Emma Goldberg: "To women … who entered adulthood in the early 1970s, the world of work and opportunity was changing rapidly. Women's labor force participation went from about 43 percent in 1970 to 57.4 percent in 2019. Many different factors drove women into the work force in greater numbers in those years, but scholars argue that abortion access was an important one."
| | | | DON'T MISS DIGITAL FUTURE DAILY - OUR TECHNOLOGY NEWSLETTER, RE-IMAGINED: Technology is always evolving, and our new tech-obsessed newsletter is too! Digital Future Daily unlocks the most important stories determining the future of technology, from Washington to Silicon Valley and innovation power centers around the world. Readers get an in-depth look at how the next wave of tech will reshape civic and political life, including activism, fundraising, lobbying and legislating. Go inside the minds of the biggest tech players, policymakers and regulators to learn how their decisions affect our lives. Don't miss out, subscribe today. | | | | | | | | SEC SLAPS NVIDIA WITH CRYPTO FINE — Our Sam Sutton: "The SEC slapped the computer hardware company NVIDIA with a $5.5 million fine on Friday for failing to tell investors that the crypto mining industry's demand for high-powered equipment had become a key source of revenue. NVIDIA, which develops graphics hardware for video game and app developers, reported double-digit improvements across its gaming platform across two quarterly earnings statements from its 2018 fiscal year." TREASURY SANCTIONS CRYPTO MIXER — Sam again: "The Treasury Department on Friday announced sanctions against crypto mixing service Blender.io, which officials said was used by state-sponsored North Korean hackers to launder digital assets stolen in one of the largest virtual currency heists on record. The crackdown marks the first time Treasury has sanctioned a digital asset mixer — a service that scrambles crypto transactions on public blockchains to disguise the flow of payments."
| | | DOLLAR STRENGTH BUCKS INFLATION WOES — WSJ's Julia-Ambra Verlaine: "Years ago, high U.S. inflation meant a weak dollar. So far, it is different this time, and many on Wall Street are betting it will stay that way. The dollar is reaching multidecade highs against its trading partners, even with U.S. inflation at its highest level in nearly 40 years." PLENTY OF CATALYSTS TO HELP PUSH TREASURY RATES ABOVE 2018 HIGHS — Bloomberg's Michael Mackenzie and Liz McCormick: "The relentless bear market in U.S. Treasury debt is on the cusp of a new phase , with yields across much of the maturity spectrum on course to crack above their 2018 highs and several major potential catalysts to help such a move. Center stage will be April consumer price inflation on Wednesday, forecast to ebb from March rates that were the highest since 1982." AS GLOBAL INFLATION SOARS, CHINA HAS KEPT IT AT BAY — WSJ's Stella Yifan Xie: "Consumer prices in China increased just 1.5% in March from a year earlier, after rising 0.9% in 2021 from the year before. … [M]ost economists believe it won't surpass the government's full-year target of around 3% in 2022."
| | | |   | | | | | | FED HAWKS WALLER, BULLARD PUSH BACK ON 'BEHIND THE CURVE' VIEW — Reuters' Ann Saphir: "Two of the Federal Reserve's most outspoken policy hawks on Friday pushed back on the view that the U.S. central bank missed the boat on the fight against high inflation, citing a tightening of financial conditions that began well before the Fed began raising interest rates in March. 'How far behind the curve could we have possibly been in terms of time if, using forward guidance, one views rate hikes effectively beginning in September 2021?' Fed Governor Christopher Waller said, noting that yields on the two-year Treasury note rose last fall as the Fed began to signal the end of its super-easy policy." FED SAYS BANKS IN GOOD SHAPE — Reuters' Pete Schroeder: "The U.S. Federal Reserve said Friday the U.S. banking system remains strong despite heightened volatility and geopolitical risk, but cautioned them against prime brokerage services that come with heightened risk."
| | | Aaron Cutler is now head of the government relations and public affairs practice group at Hogan Lovells. Cutler, who has been a partner at the firm since 2014, worked previously as a senior adviser on financial services and energy policy for then-House Majority Leader Eric Cantor, and is a House Energy and Commerce alum.
| | | JPMorgan Chase & Co. shareholders should vote against CEO Jamie Dimon's pay package, proxy advisory firm Glass, Lewis & Co. recommended, citing a "disconnect" between his compensation and the bank's performance. — Bloomberg's Scott Carpenter and Hannah Levitt The technology industry, which powered the U.S. economy during the pandemic and grew at tremendous scale during a decade of ultralow interest rates, is confronting one of the most punishing stretches in years. — WSJ's Sebastian Herrera and Akane Otani It could take years for Russian assets seized by the United States to be permanently confiscated and sold to benefit the Ukrainian people. The Biden administration wants to speed up the process. — NYT's Matthew Goldstein
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