| | | | |  | | By Kate Davidson | Presented by Sallie Mae® | 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. KEEP IT 100 — It seems like just yesterday we were asking, "Is 50 the new 25?" (Actually it was May 2, which is wild.) Ten weeks later, the prospect of the Federal Reserve raising rates by a full percentage point at their July 26-27 meeting is within the realm of possibility, at least according to markets. Yesterday's scorching hot consumer price index report, showing headline inflation rose 9.1 percent in June, led to a dramatic shift in expectations in federal-funds futures markets. As of Wednesday night, they saw an 82.7 percent chance that Fed officials will raise rates by 100 basis points this month, according to CME Group. That's up from just 7.6 percent on Tuesday, and zero a week ago. OK, but would they really? "We find the market probability high, but we do agree that there is a meaningful chance of this," Kevin Burgett, of LH Meyer Monetary Policy Analytics, said in a note Wednesday. Fed officials last month took the extraordinary step of pivoting just days before their policy meeting, going for a bigger rate hike than they had signaled after a disappointing May CPI report and (apparent) rise in inflation expectations. So it's not crazy to think they could once again go for a bigger increase, Burgett said. (The Bank of Canada became the first of the advanced economies to go for 100 with its surprise move on Wednesday.)
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Fed Chair Jerome Powell has said the Fed is looking for evidence that inflation is flattening out. | Drew Angerer/Getty Images | On the other hand, ratcheting up in response to another lousy report might set the expectation that the Fed would need to go even higher at their September meeting if the data continues to disappoint. And officials have emphasized that it's the overall path of rates that matters more than how big they go at any one meeting. They have options: "To strengthen the policy posture in response to this release, we think the FOMC would much prefer to adjust the signaling for September (and perhaps beyond) rather than do 100 this month," Burgett said. "For example, the FOMC could opt to keep July at 75 basis points with a strong presumption that the September hike, too, would conditionally be a third consecutive 75." A reminder: The Fed is closing in fast on its blackout period, when officials stay mum about potential policy moves before a meeting. At the moment, there are no Fed bigwigs scheduled to give public remarks before that period begins on Saturday, though we'll hear from Governor Chris Waller and a handful of regional Fed presidents. There's also more data to come between now and the meeting. So let's review what Powell has said Fed officials want to see: "Any guidance that we give is always going to be subject to things working out about as we expect," he said at his June 15 press conference. "And, in this particular situation, you know, we're looking for something specific, and that is progress on inflation … [I]nflation can't go down until it flattens out, and that's what we're looking to see. And if we don't see that, then that's the kind of thing that will—even if we don't see progress for a longer period, that could cause us to react." IT'S THURSDAY — Hang in, you're almost there! Victoria Guida will be your MM host tomorrow, so send her any Friday tips or story ideas at vguida@politico.com or @vtg2. And you can always reach me at kdavidson@politico.com or @katedavidson. See you back here on Monday!
| | A message from Sallie Mae®: Now, more than ever, students and families need help making informed decisions about planning and paying for college. Sallie Mae helps by offering free tools to help all students and families calculate college costs, evaluate financial aid offers, and discover and apply for scholarships. In fact, our scholarship search tool helped more than 24,000 students cover $67 million in college costs in 2020. At Sallie Mae, being responsible goes beyond responsible lending. That's why Sallie Mae makes sense. | | | | | | Producer price data released at 8:30 a.m. … Senate Banking hearing on export controls at 10 a.m. … Fed Governor Chris Waller speaks at 11 a.m. … NEC Director Brian Deese speaks at an Aspen Institute event at 3 p.m. TWEET OF THE DAY — San Francisco Fed President Mary Daly told NYT's Jeanna Smialek Wednesday evening that a full percentage-point increase is in the range of possibilities, but she's still leaning toward 75 basis points.
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Twitter | ONE HOPEFUL SIGN FOR THE FED ON INFLATION — Our Victoria Guida: "Wage gains for American workers are beginning to slow , threatening one of the few positive trends for the economy since the pandemic. But that could be good news for the nation's labor force. The government on Wednesday reported that inflation soared 9.1 percent in June — the biggest 12-month jump since November 1981. Prices rose across the board, but not because of salary increases, which have actually leveled off in recent months." — Hot dogs, cookies, electricity: Which prices rose the most in June? WSJ's Gwynn Guilford has the details. — Also: Rents rose in the U.S. last month at the fastest pace since 1986, per Bloomberg's Matthew Boesler and Prashant Gopal. AND ONE MORE GOVERNOR TO THE FED BOARD — The Senate voted 66-28 to confirm consumer advocate Michael Barrfor the Fed's top regulatory job, Victoria reported. Why it matters: "The Fed's Washington-based board has been without a point person on bank regulation since October, during an especially risky moment for the financial system as lenders deal with soaring inflation, rising interest rates and disruption caused by the war in Ukraine." — Welcome to the central bank! Better Markets' Dennis Kelleher has some suggestions for how Barr should hit the ground running. SEC ROLLS BACK CURBS ON PROXY ADVISERS — Our Katy O'Donnell: "The Securities and Exchange Commission on Wednesday voted to rescind two Trump-era rules restricting firms that advise shareholders on how to vote in corporate elections." GLOBAL TAX DEAL HITS CRITICAL PHASE — Our Brian Faler: "After breaking an impasse in talks to create a new global 15 percent minimum tax on the biggest corporations, [the Biden administration] now needs to hold up its end of the bargain and get Congress to approve changes to the U.S. tax code to bring it in line with the accord … "The administration's best chance to do that is through the reconciliation package Democrats are now trying to resurrect … Failing to act would not only be a huge embarrassment for the administration. It would also increase the risk that other countries walk away from the effort altogether. Or it could lead to the opposite: Other countries could plow ahead with the plan and use it, as they would be allowed, to punish U.S. companies with higher taxes." EMERGENCY HOUSING VOUCHERS ARE GOING FAST — Bloomberg's Kriston Capps: "Most of the emergency housing vouchers created for people in crisis as part of the federal pandemic relief effort are now spoken for, an outcome that the White House is touting as a win in its efforts to combat homelessness. … Senior housing officials say this is the fastest uptake of any federal voucher program ever undertaken."
| | | | A message from Sallie Mae®:   | | | | | | HOW THREE ARROWS CAPITAL BLEW UP AND SET OFF A CRYPTO CONTAGION — Bloomberg's Justina Lee, Muyao Shen and Ben Bartenstein: "Su Zhu and Kyle Davies turned 3AC into the most important hedge fund in crypto, but they bet everything on prices only going up." — Meanwhile, Crypto lender Celsius Network LLC filed for bankruptcy protection a month after halting withdrawals, WSJ's Alexander Gladstone, Vicky Huang and Soma Biswas reported. "The chapter 11 filing follows weeks of market speculation about Celsius, which built itself into one of the biggest cryptocurrency lenders on a pitch that it was less risky than a bank, and with better returns for its customers."
| | | DEAR JAY LETTER — Victoria again: "Senate Banking Chair Sherrod Brown is leading a push for the Federal Reserveto further tighten up its new ethics standards that were implemented after investing scandals led to the resignation of three top central bank policymakers. Brown and four other Democratic senators in a letter Wednesday to Fed Chair Jerome Powell praised the central bank's move in February to strengthen its conflict-of-interest policies for senior officials." A BLAH BEIGE BOOK — WSJ's Rina Torchinsky: "Several parts of the countryshowed signs of slowdown in recent weeks and price increases remained significant as the U.S. economy continued to modestly expand, the Federal Reserve said in a report." THE FED ISN'T ALONE — Bloomberg's Chris Anstey: "Central banks across the globe are speeding up interest-rate hikes, seeking to crush an inflation surge partly of their own making. Wednesday saw Canada's central bank hike a greater-than-expected full percentage point following two half-point moves, South Korea raise by a half point after several quarter-point moves, and New Zealand increase by a half point for a third straight meeting."
| | | | INTRODUCING POWER SWITCH: The energy landscape is profoundly transforming. Power Switch is a daily newsletter that unlocks the most important stories driving the energy sector and the political forces shaping critical decisions about your energy future, from production to storage, distribution to consumption. Don't miss out on Power Switch, your guide to the politics of energy transformation in America and around the world. SUBSCRIBE TODAY. | | | | | | | | Stephen Sandora has joined Mastercard as director of federal government affairs. Sandora was previously an aide to Rep. Patrick McHenry (R-N.C.) on the House Financial Services Committee. He also worked at the Treasury Department and for Sen. Shelley Moore Capito (R-W.Va.) Kleber Santos has been promoted to be CEO of consumer lending at Wells Fargo. Santos has served as the company's head of Diverse Segments, Representation and Inclusion since November 2020. Yasmin Radjy has been named the next executive director of Swing Left, the liberal group focused on engaging grassroots Democrats, our Zach Montellaro reported . Radjy was most recently senior adviser for recovery program outreach at the Treasury Department.
| | | The G-20's financial watchdog said on Wednesday that commodity markets should be closely monitored, since energy and metal prices swings like those triggered by Russia's invasion of Ukraine potentially pose an "outsize" hit to the global economy. — Reuters' Huw Jones Deepening fears about the health of the global economy have shoved the euro down to parity against the US dollar for the first time in 20 years. — FT's Katie Martin and Nikou Asgari The worst oil-supply crisis in decades is showing tentative signs of easing as flagging economic growth weighs on demand for crude while sanctions on Russia are having less impact on oil production than expected, the International Energy Agency said Wednesday. — WSJ's Will Horner
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