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| | | The end of the era of easy money? — The Federal Reserve got more aggressive in its battle against inflation on Wednesday, doubling the size of its typical interest rate hike and announcing plans to begin shrinking its asset holdings starting June 1. Fed Chair Jerome Powell also made clear that this same scale of rate increase was "on the table" for the next couple of meetings, a pace that, if continued for the rest of the year, would put the central bank's main borrowing rate at its highest level since 2008. In the bizarro land of financial markets and the Fed, this was viewed as relatively "dovish" (i.e. less severe toward inflation than expected). That's because Powell took a three-quarter percentage point increase off the table for now; to be clear, a 75-basis-point hike by modern standards would be a monster increase (though it would have been child's play to former Chair Paul Volcker in his day). It's now a brave new world. "For more than a decade, the Fed has kept interest rates at historic lows and gone to extraordinary lengths to help markets survive a financial meltdown and then a pandemic," your MM host reports. "Now, it's pulling back, and Wall Street and the economy are entering a new world. " .. Lifting borrowing costs for the rest of 2022 raises the odds of the U.S. tipping into recession during an election year, an event that would further sour voters already angry at President Joe Biden's handling of the economy. "Powell said the Fed could avoid that outcome. 'We have a good chance to restore price stability without a recession, without a severe downturn, without materially higher unemployment,' he said. 'I see a strong economy now. I see a very strong labor market.'" Plenty of folks aren't as optimistic, including former New York Fed President Bill Dudley. Charles Calomiris, a professor at Columbia Business School who served as chief economist at a key bank regulatory agency under former President Donald Trump, argued that the question is now not whether there will be a recession, but how bad it will be. "The Fed missed its chance to tighten without a recession," he said. "The longer they delay and pretend they might still have that chance, the more severe they're going to make it." One thing Powell did not exactly answer in his press conference was what the Fed would do about price stability if supply chains do not heal as quickly as the central bank hopes. "It puts any central bank in a very difficult situation" to have those kinds of supply-side problems because the Fed can't do anything about them, he said. "For now, we're focused on doing the job we need to do on demand. There's plenty to be done there," Powell said, pointing to the fact that job openings exceed unemployed workers. He also emphasized that the Fed doesn't want people to continue to expect high inflation: "We have to be sure that inflation expectations remain anchored. That's part of our job too." So, basically, the longer production and shipping delays continue, the thornier things get for the central bank. Meanwhile, there's the difficult question of how much the Fed has to raise interest rates to even get to the point where it's no longer actively boosting the economy, known as the "neutral" stance of policy. But no one knows where that is, a problem that Powell was quite blunt about in his assessment. Also the Fed doesn't know yet how much price spikes will cool on their own this year as congressional spending fades and supply chains, maybe, get a bit better. "I think more likely than not the Fed will have to go a little past neutral, but it's unclear at this juncture whether they need to go a little past neutral, a lot past neutral, or not past neutral at all," said Krishna Guha, vice chair at Evercore ISI and a former official at the New York Fed. But he said the Fed will have time as it feels its way to neutral to figure out that question. "By the time we get to neutral, we're going to learn some useful things," he said. "That will allow the Fed to make an informed decision late this year and into next."
| | | | 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 cheer — The news gave tech stocks a lift — Bloomberg's Ryan Vlastelica: "The Federal Reserve gave a much needed shot in the arm of technology stocks on Wednesday by ruling out an [even] more aggressive rate hike path and reassuring the U.S. economy remains strong. The megacap tech complex — which includes Apple Inc., Microsoft Corp. and Amazon Inc — rallied after Fed Chairman Jerome Powell said a 75 basis point hike is 'not something that the committee is actively considering,' sending the Nasdaq 100 Index up nearly 3 percent — its biggest one-day jump in one week." Treasury yields fell, too — WSJ's Sam Goldfarb: "Yields, which rise when bond prices fall, climbed early Wednesday and initially clung to gains after the Fed approved a rare half-percentage-point interest rate increase. They dropped, however, when Mr. Powell said in a press conference that a future rate increase of three-quarters of a percentage point was not something that the Fed was actively considering." IT'S THURSDAY: Also known as Community Reinvestment Act day. Get your coffee early before the FDIC meeting at 10 a.m., when the interagency proposal to overhaul the anti-redlining law is revealed. Send thoughts and tips to kdavidson@politico.com and vguida@politico.com.
| | A message from Ripple: Ripple is helping build the future of global finance. We're doing for value what the internet did for information: enabling its instant and seamless flow around the world. Using the power of blockchain and cryptocurrency, we enable financial institutions and other businesses to unlock economic opportunity, gain business advantage and drive U.S. innovation—all while supporting their compliance efforts. Learn more about a U.S.-based crypto innovator: realvaluerightnow.ripple.com | | | | | | First-quarter productivity data released at 8:30 a.m. … Department of Labor releases initial and continuing jobless claims at 8:30 a.m…Senate Banking hearing on student loan servicers at 10 a.m. THE BIG WINNER IN THE OHIO PRIMARIES? CRYPTO — Our Sam Sutton: "J.D. Vance, the Republican nominee, and Rep. Tim Ryan, the Democratic nominee, emerged victorious Tuesday after they and their opponents took pains to present themselves as the type of lawmaker who'd prefer a lighter touch when it comes to digital asset regulation. "'Both Ohio primaries gave us a hard time in terms of ironing out our endorsement strategy and process because of the fact that there are so many kinds of crypto-friendly voices,' said Tyler Whirty, founder of the pro-crypto political action committee HODLpac, which endorsed Ryan and Republican state Treasurer Josh Mandel. 'It's a good position to be in.'" — Meanwhile in Pennsylvania: A cryptocurrency super PAC is poised to make a dent in the state's Senate Democratic primary by supporting John Fetterman, our Holly Otterbein reports: "A new TV ad by Web3 Forward PAC portrays Fetterman as an anti-establishment outsider who has been an advocate for the working class. The commercial does not make any mention of crypto."
| | | | INTRODUCING 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. | | | | | TWEET OF THE DAY — Capitol Counsel Principal Alex Parker, on Treasury Secretary Janet Yellen's optimism over Congress passing international tax changes: "Even Pollyanna is like 'Dude.'" Yellen spoke Wednesday at a WSJ CEO Council event, where she also said the U.S. economy remains strong despite a first-quarter slowdown but that persistently high inflation and spillovers from the war in Ukraine present risks, WSJ's Andrew Duehren reported. U.S. TRADE DEFICIT SURGES TO RECORD: "Inflation, supply imbalances and strong demand for imported goods widened the U.S. trade deficit to a record in March, with clothing, computers, and vehicles driving the surge," WSJ's Harriet Torry reported. "The trade gap in goods and services widened by 22.3% in March from the prior month to a seasonally adjusted $109.8 billion, the Commerce Department said Wednesday." NOT SO FAST — Maya MacGuineas, president of the Committee for a Responsible Federal Budget, praised President Joe Biden's focus on deficit-reduction in his remarks at the White House Wednesday. But she called him out for taking all the credit. "The President's budget calls for $1 trillion in net deficit reduction over the next decade, which is a good start, though we believe this should be a floor, not a ceiling. But taking credit for a deficit drop that is largely the result of expiring stimulus and higher inflation makes little sense." Here's CRFB's deficit fact-check. GATES QUESTIONS MUSK'S GOALS FOR TWITTER: "Bill Gates said that he isn't sure of Elon Musk's motives in buying Twitter Inc. and that social media must play a role in curbing the spread of misinformation," the WSJ's Khadeeja Safdar reports. "`He actually could make it worse'," Mr. Gates said of Mr. Musk's potential impact on the platform, speaking Wednesday at The Wall Street Journal's CEO Council Summit. But, he said, `That's not his track record'." WARREN CALLS ON BIG BANKS TO END OVERDRAFTS — Bloomberg's Max Abelson and Jennifer Surane: [Sen. Elizabeth Warren (D-Mass.)] "sent letters Wednesday to [JPMorgan CEO Jamie] Dimon, Wells Fargo & Co.'s Charlie Scharf, and Brian Moynihan of Bank of America Corp., pushing them to follow the lead of some rivals and get rid of all fees for overdrafts." EU'S RUSSIAN OIL BAN HITS TROUBLE — "European Commission President Ursula von der Leyen faces a battle to save her proposed ban on Russian oil imports, after Hungary and Slovakia raised major objections," our Barbara Moens and Jacopo Barigazzi report. — The European Commission also targeted the head of the Russian Orthodox Church , Patriarch Kirill, as part of its sixth package of sanctions against Russia. PUTIN-LINKED SUPERYACHT MAY ELUDE SANCTIONS BY SETTING SAIL: "The Italian police are in a race to finish investigating the ownership of a $700 million superyacht, which U.S. officials say is linked to President Vladimir V. Putin of Russia, before the vessel is put to sea and able to elude possible sanctions. They may be running out of time," the NYT's Gaia Pianigiani and Michael Forsythe report . "After spending months dry-docked in the Tuscan port of Marina di Carrara, the 459-foot vessel, called the Scheherazade, was put into the water again on Tuesday." WARREN SAYS DEMS WILL PASS BOOK INCOME TAX — Our Brian Faler: "There is unanimous support among Senate Democrats for creating a new 15 percent 'book income' tax on big corporations, Sen. Elizabeth Warren (D-Mass.) said Wednesday. 'I've got 50 Democrats in favor of a minimum book tax,' she said in an appearance before the Center for American Progress. 'And the president of the United States is on board.'" IS LAGARDE TOO POLITICAL FOR THE ECB? — Speculation has swirled for months that European Central Bank President Christine Lagarde has her sights set on becoming the next French prime minister, our colleagues Johanna Treeck and Marion Solletty write from Frankfurt. Her effusive congratulations on Twitter to French President Emmanuel Macron after his reelection victory prompted more speculation — as well as barbs that she overstepped her role as a nonpolitical central bank chief. "Lagarde's strengths are more in politics than in monetary policy techniques," said EFG Bank economist Stefan Gerlach, who previously worked in various senior central banking positions. Corporate America Doesn't Want to Talk Abortion, but It May Have To: "Some political and cultural events set off a cascade of emails from brands — sneaker, makeup and food companies telling their customers that they stand with them in a stressful time, or reminding them to vote. But after a draft opinion obtained by Politico revealed the Supreme Court's intention to overturn Roe v. Wade, the overwhelming reaction from corporate leaders was silence," report the NYT's Emma Goldberg, Alisha Haridasani Gupta and Lauren Hirsch. "'This is an issue that many companies have shied away from,' said Miriam Warren, Yelp's chief diversity officer. Ms. Warren, whose company has been among the most vocal in support of abortion rights, is hoping the silence will break… 'The days of companies not wading into political issues, or not speaking out on things that are perceived as private or personal, are over,' she said."
| | | | A message from Ripple:   | | | | | | Erik Johnson has joined the Managed Funds Association as vice president of U.S. government affairs. He was most recently managing director at Daly Consulting Group. Adam Toronto is now investor and operating partner at Enprendo Management. He most recently was COO of Leavitt Partners and is a Bush HHS alum. (h/t Daniel Lippman) Carolyn Dee is now senior policy adviser for finance and technology at the New York State Executive Chamber. She most recently was chief of staff at Long-Term Stock Exchange, Inc. (h/t Daniel)
| | | Netflix Inc has been hit with a shareholder lawsuit accusing the streaming entertainment company of misleading the market about its ability to keep adding subscribers in recent months. —Reuters' Jody Godoy U.S. companies in April added the fewest jobs in the pandemic recovery, according to ADP Research Institute data, underscoring the persistent challenges faced by small firms to increase headcount in a tight labor market. — Bloomberg's Reade Pickert
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