| | | | |  | | By Katy O'Donnell and Aubree Eliza Weaver | Presented by U.S. Bank | Programming note: We'll be off this Monday for Memorial Day but will be back in your inboxes on Tuesday. 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.
| | | More signs the housing market is cooling — On Tuesday we learned that new-home sales fell 16.6 percent last month , surprising even the most pessimistic economists. New data points out Thursday only reinforced the idea that the blistering pandemic housing market is finally cooling, as the combination of surging mortgage rates and soaring home prices boxed some would-be buyers out of the market. Pending home sales fell 3.9 percent in April as contract activity declined for the sixth consecutive month, the National Association of Realtors said. They were down 9.1 percent from April last year. Contract signings are "at the slowest pace in nearly a decade," NAR chief economist Lawrence Yun said. Yun forecasts existing-home sales will drop 9 percent this year and home price growth will slow to 5 percent by the end of the year. Nineteen percent of home sellers, meanwhile, dropped their price in the four-week period ending May 22, according to report released by Redfin, as "the typical listing's time on market, the share of homes pending sale within one week and the share of homes sold above list price have all plateaued." "The picture of a softening housing market is becoming more clear, especially to home sellers who are increasingly turning to price drops as buyers become more cost-conscious under higher mortgage rates," Redfin Chief Economist Daryl Fairweather said. "For now, mortgage rates have stabilized, and I expect prices to do the same. This will remove some uncertainty for buyers. That means that as long as a home is priced conservatively, it still has a good chance of selling quickly." Mortgage rates have moderated — they fell slightly, to 5.1 percent, for the second week in a row, Freddie Mac said Thursday. But they're still up about 2 percentage points from the beginning of the year. The one-two punch of higher rates and higher prices is brutal: "The escalating mortgage rates have bumped up the cost of purchasing a home by more than 25 percent from a year ago, while steeper home prices are adding another 15 percent to that figure," Yun said. HAPPY FRIDAY — Enjoy the three-day weekend! Kate Davidson is back on Tuesday — send tips to kdavidson@politico.com or @KateDavidson, or aweaver@politico.com or @aubreeeweaver. And you can always reach me at kodonnell@politico.com.
| | A message from U.S. Bank: U.S. Bank has given students hundreds of thousands of dollars in scholarships. Minnesota high schooler Addison Gray received hers—to study nursing—as her father battled COVID-19. "Seeing the way those nurses cared for him, it definitely reinforced going to school to help more people," she said. Because at U.S. Bank, we're small enough to care, and big enough to make a difference. Learn more. | | | | | | DAVOS ELITE CAN'T AGREE ABOUT THE ECONOMY AND NEITHER CAN MARKETS — WSJ's James Mackintosh: "Usually the Davos crowd herds together on markets and the economy at the World Economic Forum in Switzerland. The "Davos consensus" can be a useful contrarian indicator since it is often entirely wrong. But there isn't a consensus this year, which helps explain the jumbled state of markets. The S&P 500 is almost in a bear market. Yet there's no agreement on whether recession is on the way. The problem as many executives describe it: Current business is great, but the difficulties ahead are obvious." WORRY ABOUT STAGFLATION, A FLASHBACK TO THE 70S, BEGINS TO GROW — AP's Paul Wiseman: "Stagflation. It was the dreaded 'S word' of the 1970s. For Americans of a certain age, it conjures memories of painfully long lines at gas stations, shuttered factories and President Gerald Ford's much-ridiculed 'Whip Inflation Now' buttons. Stagflation is the bitterest of economic pills: High inflation mixes with a weak job market to cause a toxic brew that punishes consumers and befuddles economists. "For decades, most economists didn't think such a nasty concoction was even possible. They'd long assumed that inflation would run high only when the economy was strong and unemployment low. But an unhappy confluence of events has economists reaching back to the days of disco and the bleak high-inflation, high-unemployment economy of nearly a half century ago. Few think stagflation is in sight. But as a longer-term threat, it can no longer be dismissed."
| | | | A message from U.S. Bank:   | | | FED SURVEY: CONSUMER EXPECT INFLATION SHOCK TO PASS — Bloomberg's Jonnelle Marte: "US consumers still largely expect the current inflationary shock to be temporary, and for price gains to be low and stable in the longer run, according to a report released Thursday by the Federal Reserve Bank of New York. The survey, which confirmed earlier findings from the New York Fed, showed that while short-term inflation expectations are rising, consumers expect prices to rise by about 3 percent in five years. That suggests they expect the near-term surge in prices to fade over time, according to the researchers." BIDEN'S ADVOCATE FOR TAXING THE RICH TO LEAVE WHITE HOUSE — From our Kate Davidson and Daniel Lippman: "One of the Biden administration's most outspoken proponents of taxing the rich to finance the president's economic agenda is leaving the administration at the end of the week. David Kamin, a former Obama administration tax and budget official, joined the National Economic Council as deputy director at the start of Joe Biden's presidency and before that served on the campaign's transition team. His last day is Friday. "It has been a tremendous honor and a great job, but one with a timeline from the start," Kamin told POLITICO. "And now it's time for me to be back in NYC with my family." To fill Kamin's role, the White House is tapping economist Aviva Aron-Dine, who is currently executive associate director of the Office of Management and Budget and an expert on health and budget policy.
| | | | 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. | | | | | | | | A NEW NISKANEN CENTER PRESIDENT — Via Kate: Economist Ted Gayer, executive vice president at the Brookings Institution, is set to become president of the Niskanen Center. Brookings President John Allen broke the news to employees Thursday in an email shared with MM, writing "with a mixture of sadness and excitement." "Ted's contributions to Brookings cannot be overstated," he said. "Not only a world-class economist and researcher, he has proven himself a uniquely capable leader, counselor and friend to many inside the Brookings family. Ted has been my partner, helping me lead the Institution through an uncertain strategic environment, the successful transition of our three foreign centers and a once-in-a-generation pandemic that presented challenges across the spectrum of his responsibilities." Gayer joined Brookings in 2009, first as co-director and then vice president and director of the economic studies program. Allen asked him to become executive vice president shortly after taking over the think tank in November 2017. Before Brookings, Gayer was a professor of public policy at Georgetown University. He served as deputy assistant Treasury secretary for economic policy from 2007 to 2008, and was a senior economist at the Council of Economic Advisers during the George W. Bush administration.
| | | | 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. | | | | | WALL STREET SURGES — Reuters' Stephen Culp: "Wall Street closed sharply higher on Thursday after a raft of solid retail earnings and easing concerns about overly aggressive interest rate hikes by the Federal Reserve put investors in a buying mood. All three major U.S. stock indexes posted solid gains, with economically sensitive consumer discretionary and microchip stocks beating the broader market. On a weekly basis, the S&P 500, Nasdaq and Dow are on track to snap their longest losing streak in decades, during which the benchmark S&P plummeted 14.4 percent and brought it within striking distance of being confirmed as a bear market."" SPACS MAKE FLURRY OF DEALS AS BLANK CHECKS SEEK SOMETHING TO OWN — Bloomberg's Bailey Lipschultz: "Blank-check companies settled on deals to buy a members-only startup airline, a startup augmented reality firm and a company called Two Bit Circus this month as SPACs face pressing deadlines to strike deals or close shop. At least 16 special-purpose acquisition company tie-ups have been announced so far in May, the most since December, chipping away at a backlog of nearly 600 SPACs that need something to buy. Almost half the targets aren't expected to be profitable this year, according to merger presentations, which could hurt their prospects in a sector that's been one of the market's worst performers." THE CRYPTO SECURITY DEBATE HEADS TO COURT — WSJ's Paul Kiernan: "Investors are asking the courts to decide an existential question for the cryptocurrency industry: whether digital tokens are, for legal purposes, more similar to stocks or to gold. Attorneys for cryptocurrency-trading platform Coinbase Global Inc. filed a motion this month to dismiss a class-action lawsuit arguing that 79 of the tokens listed on the firm's platform are unregistered securities." TAKEAWAYS FROM THE HOUSE HEARING ON CENTRAL BANK DIGITAL CURRENCY — From our Sam Sutton: "Lawmakers are laying down a marker: The Federal Reserve shouldn't move forward on a digital dollar without legislation. Democrats and Republicans on the House Financial Services Committee on Thursday pressed Federal Reserve Vice Chair Lael Brainard on the Fed's authority to unilaterally issue a digital version of the U.S. dollar. Lawmakers argued that President Joe Biden's crypto executive order leaves the door open to the central bank acting without Congress. "Throughout the hearing, which covered the Fed's development of a central bank digital currency, members of both parties questioned Brainard on the effects the effort might have on banks and existing payment systems, including privately issued stablecoins. Stablecoins are a type of crypto token whose value is pegged to traditional assets like the U.S. dollar. "Congress should not rush to issue a digital currency, nor should the Fed," said ranking member Patrick McHenry (R-N.C.), who's poised to become the committee's chair next year if Republicans win control of the House. "We both should understand whether the benefits of a digital currency actually outweigh the risks before any further congressional action is considered." CEO PAY ROSE 17 PERCENT IN 2021 AS PROFITS SOARED — AP's Stan Choe: "Even when regular workers win their biggest raises in decades, they look minuscule compared with what CEOs are getting. The typical compensation package for chief executives who run S&P 500 companies soared 17.1 percent last year, to a median $14.5 million, according to data analyzed for The Associated Press by Equilar. The gain towers over the 4.4 percent increase in wages and benefits netted by private-sector workers through 2021, which was the fastest on record going back to 2001. The raises for many rank-and-file workers also failed to keep up with inflation, which reached 7 percent at the end of last year." RUSSIA CUTS ITS BENCHMARK RATE TO 11 PERCENT — NYT's Eshe Nelson: "Russia's central bank slashed its benchmark interest rate to 11 percent, from 14 percent, in a hastily arranged meeting on Thursday as policymakers sought to support businesses and households struggling under sanctions. The bank is cutting interest rates faster than expected as the country's currency has rapidly appreciated, reaching its strongest level in four years against the U.S. dollar this week."
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