| | | | |  | | By Kate Davidson | | | 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. For economy watchers searching for inflation's peak amid the economic haze, the latest jobs report offered some hopeful signposts. We'll get an even clearer look this coming Friday, when the Labor Department releases new consumer price index data for May. What did we learn from the May employment report? The labor market is unequivocally strong and wages are still rising, despite a step down in monthly job growth. But it also gave us more reasons to think we are near or even past a turning point on inflation, said Bob Schwartz, senior economist for Oxford Economics, in a note Friday. First, the latest report suggests wage growth is slowing. Average hourly earnings for private sector workers rose 0.3 percent for the second consecutive month, bringing the annual increase to 5.2 percent, down from 5.5 percent in April and 5.6 percent in March. Schwartz also noted that several major companies announced hiring freezes in recent weeks. More people are also joining the labor force, pushing the labor-force participation rate among prime-age workers in May to its highest level since the pandemic began. Those factors would all be welcome developments for the Federal Reserve and could work in its favor as the central bank tries to suss out how far and fast to raise interest rates. "Worker shortages have been a key element driving up wages and stoking the inflation embers that the Fed is desperately striving to cool," Schwartz said. "Slower wage growth suggests that a less aggressive rate-hiking cycle than otherwise would be needed to rein in inflation, upping the chances of avoiding a recession." Why does this "peak" question matter so much? Of course, it matters because it means price pressures are finally abating. But it also has big implications for the path of interest rates. Fed officials have already made clear they plan to raise their benchmark federal-funds rate by half a percentage point at each of their next two policy meetings, in June and July. That puts the focus squarely on what will happen when policymakers meet in September. For now, officials have tried to quash any expectations that they may pause rate increases in the fall. Fed Vice Chair Lael Brainard said last week it's hard to see a case at the moment for pulling back, and added it was too soon to say whether inflation has peaked.
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Fed Vice Chair Lael Brainard has said it's too soon to say whether inflation has peaked. | Susan Walsh/AP | "I'm going to be looking to see a consistent string of decelerating monthly prints on core inflation before I'm going to feel more confident that we're getting to the kind of inflation trajectory that's going to get us back to our 2 percent goal," she said. As we await the May CPI numbers, forecasters expect 12-month core inflation dipped last month, to 5.9 percent from 6.2 percent in April, while headline inflation edged slightly lower to 8.2 percent from 8.3 percent. There's a lot more data to be released before the September meeting: three more CPI reports after this week, and three reports on the Fed's preferred inflation gauge, the personal consumption expenditures index (plus three more jobs reports for good measure). But each report that suggests inflation is treading water — or worse, drifting in the wrong direction — raises the likelihood that the central bank continues on its current course. What else to watch: The Fed's tools really only work to help cool demand, and won't fix the supply-related factors — e.g. supply chain bottlenecks, war in Ukraine — that are driving up energy and food prices. For an eye on how those issues are shaking out, former Fed governor Larry Meyer recommends the New York Fed's Global Supply Chain Pressure Index, which will be updated with fresh data this morning. The metric incorporates 27 commonly used measures of supply chain pressures, including global transportation costs and components of regional manufacturing surveys. Meyer told clients in a note Friday: "It is still way below its peak, reached last December. But it has remained elevated, and it rose in April. "It is more effective in identifying pressure on producer prices than retail prices, not surprisingly. But it does reinforce concerns about a potential effect on consumer prices. Some passthrough seems inevitable." IT'S MONDAY — Speaking of peak: We hope you enjoyed The Most Beautiful Weekend of the Year in the Washington region. (And maybe also found time to catch up on Stranger Things Season 4.) What should we be writing about this week? Let us know: kdavidson@politico.com or @katedavidson, and aweaver@politico.com or @aubreeeweaver.
| | | | A message from Grayscale: With an eight-year track record of working proactively and collaboratively with the SEC, Grayscale is committed to serving its investors. Grayscale's proposal to convert Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF is a chance to make history, while enhancing the fairness and accessibility of the market, so investors can decide what product works best for them. Learn more. | | | | | | April trade and consumer credit data released Tuesday … Treasury Secretary Janet Yellen testifies on the president's budget before Senate Finance on Tuesday and House Ways and Means on Wednesday … Senate Banking votes on Fed vice chair nominee Michael Barr and SEC nominees Jaime Lizarraga and Mark Uyeda Wednesday … CFTC Chair Rostin Behnam participates in a virtual discussion with Sens. Kirsten Gillibrand (D-N.Y.) and Cynthia Lummis (R-Wyo.) on cryptocurrency regulation hosted by Washington Post Live Wednesday … Sen. Pat Toomey (R-Pa.) participates in a discussion at the Cato Institute on the updated case for free trade Wednesday … Senate Budget hearing on saving Social Security Thursday … Consumer price index data released Friday. RECOMMENDED INFLATION READING: Check out our colleague Brian Faler's piece on how inflation is helping push up taxes on a group that lawmakers are loath to cross: the elderly. "Since 1984, Social Security recipients have become subject to tax on their benefits when they make more than $25,000 as individuals and $32,000 for couples. Now, government forecasters say surging inflation is pushing more people over those limits." CRYPTO LOBBYING HITS FEVER PITCH OVER NEW BILL — Our Sam Sutton: "The most highly anticipated legislation in the history of cryptocurrency is about to make its debut, after months of hype drummed up by Sens. Cynthia Lummis and Kirsten Gillibrand. "Lummis, the first-term Wyoming Republican who's enthralled the Bitcoin faithful with appearances at crypto festivals across the country, has been teasing the contents of her comprehensive digital currency regulation plan in a series of podcast appearances, industry gatherings and high-profile media appearances for much of the past year. Gillibrand, a New York Democrat, hopped on the hype train as a co-author in March, giving the effort a new sheen of bipartisanship." YELLEN DISPUTES BLOOMBERG REPORTING ON ARP VIEWS — Treasury Secretary Janet Yellen issued an unusual statement Saturday disputing a Bloomberg report that said she'd "initially urged Biden administration officials to scale back" the president's $1.9 trillion Covid relief package in early 2021. Bloomberg's source? Excerpts of a Yellen biography due out in September by former USA Today and BusinessWeek journalist Owen Ullmann, who had "unfiltered access" to Yellen while writing the book, according to publisher PublicAffairs. But Yellen said she "never urged adoption of a smaller American Rescue Plan package." In a subsequent statement Sunday, Ullmann — without mentioning Bloomberg by name — said recent reporting on his forthcoming book, "Empathy Economics," mischaracterized Yellen's views. "The book states that she 'had concerns that the cost was on the high side and would have preferred something closer to $1.3 trillion, according to colleagues.' It does not say that she urged the White House to reduce spending," Ullmann said. But according to excerpts from Ulmann's publisher shared with MM, he did write that Yellen "had sought without success to scale back the $1.9 trillion relief plan by a third early in 2021 before Congress passed the enormous program." We reached out to Ullmann last night to ask for clarification about that passage — in particular, how Yellen sought to scale back the bill if not by urging her colleagues to shrink its size. We haven't heard back. And in case you're wondering : According to Ullmann's book, Yellen eventually embraced the plan after determining the risks of doing too little were greater than the risks of doing too much — a point she made repeatedly last year. INDIVIDUAL INCOME TAX PAYMENTS ON PACE TO REACH RECORD LEVEL — WSJ's Richard Rubin and Amara Omeokwe: "An unprecedented gush of income tax revenue is flowing into the federal government, driven in part by investors and business owners, and the size and speed of the increase has surprised even the nation's fiscal-policy experts. "Individual income tax collections are poised to reach $2.6 trillion, or 10.6% of the economy in the fiscal year that ends Sept. 30, according to the Congressional Budget Office. That is up from 9.1% in 2021 and would mark a record in the 109-year history of the tax, topping the war-tax receipts of 1944 and the dot-com boom of 2000."
| | | | 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. | | | | | | | | RAIMONDO ON CHINA TARIFF RELIEF — "I will say it depends on what we're talking about and what kinds of products," Commerce Secretary Gina Raimondo said Sunday on CNN's "State of the Union," of the prospects for easing Trump-era tariffs on China. "There are other products, you know, household goods, bicycles, et cetera, and it may make sense. And I know the president is looking at that." THE DOWNSIDES OF 'FRIEND-SHORING' — WSJ's Paul Hannon: "Advocates think "friend-shoring," as the trend is nicknamed, can protect access to vital raw materials and components, drawing on lessons learned during the Covid-19 pandemic that saw shortages of semiconductors and some other components threaten vital industries. But many economists fear restricting trade and direct investment to political allies could undo decades of gains from globalization, including raised incomes for hundreds of millions in the developing world and lower prices in the West.
| | | | A message from Grayscale:   | | | | | | 401(k)OIN – Sam Sutton writes: "There's a brewing legal battle over recent Labor Department guidance urging retirement fiduciaries to exercise 'extreme care' before giving employees the ability to buy crypto through their retirement accounts. "ForUsAll, which builds crypto investment products for company-sponsored 401(k) plans, is suing DOL in federal court on the grounds that the March 10 guidance is actually a formal rule – and therefore a violation of the Administrative Procedure Act. The San Francisco-based startup is also claiming that the department exceeded its authority by specifically identifying crypto as an investment could run plan administrators afoul of fiduciary standards. "DOL has warned that retirement plan administrators could be investigated if they open up their plans to highly-volatile crypto investment options, including Bitcoin, which ForUsAll CEO Jeff Schulte claims has forced roughly a third of his clients to hit pause on crypto 401(k) options. "'DOL has taken action that has directly impacted our business,' he said in an interview on Friday, later adding that the department is 'trying to ban cryptocurrency as an asset class.' "Notably, federal officials have been wary of some of the representations ForUsAll executives have made in describing their interactions with the department. "In an interview last month, Labor Department Acting Assistant Secretary Ali Khawar said there are incongruities in ForUsAll's public statements suggesting that DOL had 'worked something out with them, and we're totally happy with it.' (In a March 25 blog post, ForUsAll Co-founder and CIO David Ramirez praised the DOL guidance and said the company had incorporated the department's feedback into the design of its crypto retirement products.) "'We've been very clear with them that … we have concerns about their product as well,' Khawar said. 'This is not a situation where, you know, we've worked something out with them, and we're totally happy with it.'"
| | | The fate of the world's biggest bond market is hanging largely on a single question: Has inflation in the US already peaked? — Bloomberg's Liz McCormick and Michael Mackenzie A run of mixed economic data is dragging on the U.S. dollar, stalling a rally that has rippled through the economy and financial markets. — WSJ's Julia Ambra-Verlaine Tesla CEO Elon Musk said on Saturday that the electric vehicle maker's total headcount will increase over the next 12 months, but the number of salaried staff should be little changed, backtracking from an email just two days ago saying that job cuts of 10% were needed. — Reuters Only one broad stock sector has provided consistent returns over the last year: old-fashioned fossil fuel, and the companies that extract, refine, sell and service it. — NYT's Jeff Sommer
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*based on AUM as of June 2022 | | | | | | | Follow us on Twitter | | | | Follow us | | | | |
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