| | | | |  | | By Victoria Guida , Kate Davidson and Sam Sutton | 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 . The Federal Reserve has been under criticism for underestimating how long elevated inflation would last — and has repeatedly raised its projections for how high it intends to raise interest rates. But behind the scenes, the Fed has marshaled an army of economists to find ways to better gauge the impact of the numerous shocks pounding the economy. The data is shifting so rapidly from month to month that Fed economists have had to come up with lots of new methods to get a sense of what's happening. Solid economic information arrives with a lag, and only on a monthly or quarterly or even annual basis. That has led to an increased focus on real-time data within the central bank, from surveying households to keeping tabs on freight prices to parsing granular information from companies like ADP and Equifax. The Fed board's research division had already begun to incorporate more private sector data in the years before Covid, but the pandemic accelerated the trend. And central bank officials have had to put in extra legwork to vet that information to make sure it's actually giving them clear signals that track with other less frequent and higher-quality sources. "Everything since the onset of the pandemic has an element of being something that is unprecedented," Beverly Hirtle, the head of research at the New York Fed, said in a recent interview with your guest MM host.
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Researchers at the New York Fed have increasingly focused on real-time economic data since the start of the pandemic. | John Minchillo/AP | Members of Hirtle's staff in 2020 began using a database of card transaction information from TransUnion-owned Verisk Analytics, which offered county-by-county spending data, to track Covid's economic effects in a granular enough way to see clear economic inequalities . "The fact that we have the data so geographically disaggregated let us, at every twist and turn of the pandemic, look at what was happening specifically in the areas that were most hard hit by the virus at the time," said Maxim Pinkovskiy, an economic research adviser in the New York Fed's household and public policy division. "We were able to very rapidly see how the economy was reacting or not to each subsequent wave, which is something we would not really have been able to do with coarser data." They also compiled a global supply chain index that provides a clearer barometer of whether production and shipping delays are getting better or worse, using data sources like freight costs and delivery times. That index has begun to be incorporated into Wall Street forecast models for inflation, adding a supply-side element to improve upon more basic Phillips Curve-type assumptions based around the job market. The hope is that these kinds of data supplements will help the Fed better navigate its fight against inflation and each subsequent wrinkle, from Russia's war in Ukraine to the potential for a breakdown in global financial markets as interest rates rise rapidly. The stakes couldn't be higher: the direction of the world's largest economy is basically up to the Fed. If the data isn't clear, then any wrong decisions on how high to jack up borrowing costs could have ramifications for years to come. IT'S WEDNESDAY — Have a tip, story idea or feedback to share? Send it to: kdavidson@politico.com and ssutton@politico.com .
| | | | NEW AND IMPROVED POLITICO APP: Stay up to speed with the newly updated POLITICO mobile app, featuring timely political news, insights and analysis from the best journalists in the business. With a fresh look and improved features, the sleek and navigable design offers a convenient way to access POLITICO's scoops and groundbreaking reporting. Don't miss out on the app you can rely on for the news you need, reimagined. Already a POLITICO app user? Upgrade today! DOWNLOAD FOR iOS – DOWNLOAD FOR ANDROID . | | | | | | | | Housing starts data released at 8:30 a.m. … Minneapolis Fed President Neel Kashkari speaks at 1 p.m. … Fed's Beige Book released at 2 p.m. … Chicago Fed President Charles Evans speaks at 6:30 p.m. FDIC FEES — Our Victoria Guida: "The Federal Deposit Insurance Corp. on Tuesday voted to increase the fees that banks pay for deposit insurance, despite fierce opposition from industry … Banks would pay 0.02 percentage points more for FDIC backing beginning in the first quarter of next year, which agency staff estimate could reduce banks' income on average by 1.2 percent." The bank lobby's protestations rankled progressives who say the FDIC's simply meeting its legal obligations. "The FDIC has a legal mandate to meet the 1.35 ratio, and they're going to increase premiums to do it. Once they get the [deposit insurance fund] up there, they can change the formula again. This shouldn't be a big issue," said Todd Phillips, a former FDIC staffer now at the Center for American Progress. IT'S UNFAIR — Our Katy O'Donnell: "The Treasury Department's Federal Insurance Office on Tuesday released a proposal to collect new data from property and casualty insurers to assess climate-related risk , triggering an immediate industry backlash." PAYPAL ON THE SPOT — After being briefed on the matter last week, GOP leaders from the House Financial Services and the Energy and Commerce committees have more questions about scuttled PayPal terms that would've fined users $2,500 for spreading misinformation. While PayPal said the policy was posted by mistake, lawmakers wrote that they're still concerned "that a user agreement that contemplates the restriction of free speech was uploaded and disseminated to PayPal users – even if in error," they wrote in a letter to the company on Tuesday. SMOKE (AND DIAMOND) FILLED ROOMS — NYT's Matina Stevis-Gridneff on the wheeling and dealing that has saved some Russia-reliant industries from having to adhere to sanctions. "The Belgians have shielded trade in Russian diamonds . The Greeks ship Russian oil unimpeded. France and several other nations still import Russian uranium for nuclear power generation." SUPERMARKET SWEEP — Bloomberg's Leah Nylen: "The Senate plans to hold a hearing next month on Kroger Co.'s planned $24.6 billion takeover of Albertsons Cos. Minnesota Senator Amy Klobuchar and Utah Senator Mike Lee, the top Democrat and Republican on the Senate Judiciary antitrust panel, expressed 'serious concerns about the proposed transaction' Tuesday and said the committee would host a November hearing on the deal."
| | | Top House Republicans are pressing SEC Chair Gary Gensler for more information about a recent technical issue that led the regulator to reopen comments on 11 rule proposals, including signature pieces of his agenda. — Declan Harty The Agriculture Department announced $800 million in debt relief that will reach thousands of distressed USDA farm loan borrowers — money that comes from the Inflation Reduction Act and would replace a previous program aimed at relieving debt distress that had become tied up in lawsuits. — Marcia Brown Millions of Americans could see a bump in their paychecks next year thanks to new inflation adjustments to the tax code. The size of the standard deduction will jump 7 percent next year to $27,700, the IRS announced Tuesday. — Brian Faler
| | | UTILITIES STUMBLE — WSJ's Hannah Miao: "Utility stocks are typically thought of as more stable than overall equity markets as providers collect steady checks from customers even when the economy slows … That trade has unraveled ." BIG SIGNAL — NYT's Jeanna Smialek: "Federal Reserve officials have coalesced around a plan to raise interest rates by three quarters of a point next month as policymakers grow alarmed by the staying power of rapid price increases — and increasingly worried that inflation is now feeding on itself." RECESSION WATCH — CNN's Matt Egan: "Stubborn inflation and the Federal Reserve's jumbo-sized interest rate hikes will drive the American economy into a 1990-style mild recession starting in the spring, Fitch Ratings warned on Tuesday."
| | | EUROPE'S ENERGY CRISIS HAMMERS CRYPTO — Our Bjarke Smith-Meyer: "EU governments should halt the energy-intensive process of 'mining' cryptocurrencies if demand for electricity exceeds supply, the European Commission recommended in a policy paper today. 'In case there is a need for load shedding in the electricity systems, the member states must also be ready to stop crypto-assets mining,' the Commission said" I MUST'VE MISSED YOUR TEXT — Bloomberg's Emily Nicolle, Tanzeel Akhtar, and Sangmi Cha: "Crypto fugitive Do Kwon, who faces charges in South Korea related to his collapsed stablecoin ecosystem, said he's cooperating with prosecutors but hasn't seen the arrest warrant issued for him."
| | | Brian Whitehurst is now head of regulatory affairs at the blockchain data firm Lukka. He was previously New York Assistant Attorney General for crypto and fintech regulatory compliance. Matthew Kulkin, a former director of the CFTC's Division of Swap Dealer and Intermediary Oversight, has joined WilmerHale as a partner in the law firm's securities and financial services group. Megan Booth has joined the Mortgage Bankers Association as associate vice president for commercial/multifamily policy. She most recently was senior vice president for policy at the Manufactured Housing Institute and is a National Association of Realtors alum. (h/t Daniel Lippman)
| | | | SUBSCRIBE TO 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 . | | | | | | | | New research from the Center for Global Development finds 18 countries are vulnerable to both a debt crisis and a food crisis , as a rising dollar has increased the cost of debt and drained foreign reserves, leaving little to cover increasingly expensive food imports. The Biden administration will release 15 million barrels of oil from the Strategic Petroleum Reserve in December in a bid to drive fuel prices down, senior Biden administration officials said Tuesday. — Our Ben Lefebvre US banks recorded significantly smaller losses tied to financing commitments for leveraged buyouts in the third quarter, after lenders globally marked down almost $2 billion three months earlier. — Bloomberg's Jill R. Shah | | | | Follow us on Twitter | | | | Follow us | | | | |
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