| | | | |  | | By 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. Federal Reserve Chair Jerome Powell will head to the Hill for his semi-annual visit with lawmakers this morning. What message will he send to markets? Wall Street economists say: Caw-caw. “We are looking for some sort of reprise of the Jackson Hole meeting last year. Something very Vocker-esque, very direct, a ‘keep at it’ kind of message,” Yelena Shulyatyeva, a senior U.S. economist for BNP Paribas, said during a panel of top Wall Street economists at the Institute of International Bankers conference in Washington on Monday. “He will have to be really straightforward and direct and be somewhat more hawkish.” Remember: Powell sprinkled some dovish commentary into last month’s press conference announcing a quarter-point rate hike. Markets reacted accordingly, interpreting the central banker’s anticipation that disinflation in services sectors could come “soon” as a sign that the Fed could achieve the mythical soft landing – i.e., bringing down consumer prices with higher rates without pushing the economy into a recession. Alas, the economic data released over the following month has only reinforced Powell’s subsequent warnings that the path forward could be “bumpy.” More than 500,000 jobs were added to the economy in January. While a strong jobs report is undoubtedly good news for workers, labor costs — which Powell and other Fed officials say are a major contributor to inflation — aren’t easing as quickly as many had hoped. The latest readings from the consumer price index and the personal consumption expenditure index came in hotter than expected. Regional presidents like San Francisco’s Mary Daly and Atlanta’s Raphael Bostic, along with Fed Gov. Christopher Waller, are signaling that the central bank will need to continue pumping up rates to push down stubbornly high consumer prices.
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For months, markets scoffed at those types of warnings. Most investors were pricing in rate cuts for later in 2023 as recently as a month ago. Those expectations have now faded and, while Powell loath to make promises about what the future holds — each new tranche of data will change the central bank’s calculus — the question now is if those same investors heed a more hawkish Fed chair.
“The markets ignored everything that the Fed has told them in terms of ‘higher for longer’ for months. Will they eventually come around to recognize that this is going to be higher, much higher and for much longer? I hope so,” Mizuho Americas Chief Economist Steve Ricchiuto said during the panel. “At this juncture, I'm not very confident that the markets are going to want to start that conversation,” he added. IT’S TUESDAY — And it’s a very busy day in Washington. Have tips, gossip or scoops? Let Sam know at ssutton@politico.com and Zachary Warmbrodt at zwarmbrodt@politico.com.
| | | | A message from the Electronic Payments Coalition: CONVENIENCE STORES, NOT CREDIT CARDS, ARE RAISING COSTS FOR CONSUMERS: Corporate convenience store chains and their special interest allies are trying to trick Congress into believing that interchange rates on credit card transactions are increasing. The truth: it’s exactly the opposite. Over the last decade, retailers and merchants have received billions of dollars due to the Durbin Amendment—but haven’t lowered prices for consumers as they promised. Learn more. | | | | | | Powell testifies in front of Senate Banking at 10 a.m. … The Financial Stability Oversight Council’s Climate-related Financial Risk Advisory Committee (CFRAC) will meet at 11 a.m. … Rep. Andy Barr (R-Ky.) speaks at the IIB conference at 11:30 a.m. … Senate Banking will meet again at 2:30 p.m. for a hearing on the debt ceiling … Consumer credit report at 3 p.m. … THE FIRING LINE — From Zach: “Federal Reserve Chair Jerome Powell is getting a stark warning from top lawmakers as he prepares to testify on Capitol Hill this week: Back off the big banks.” “Big banks have been cultivating Capitol Hill allies as they try to head off what they fear will be a significant hike in the amount of funding they’re required to have to absorb losses during economic downturns. Big bank leaders were in Washington making the case as recently as last week.” “It’s clear the push is already getting traction. Sen. Tim Scott (R-S.C.), joined by nine other Republicans who will be in a position to grill Powell this week, told the Fed chair in a letter Friday that there’s no reason to hike capital requirements for the banks.” Financial services watchdogs pushed back. Better Markets President and CEO Dennis Kelleher on Monday sent a letter dinging the Republicans for their “preemptive strike.” Americans for Financial Reform’s Carter Dougherty and Renita Marcellin urged Powell & Co. to ignore the big banks’ “histrionics and strengthen capital requirements.” — With Senate Republicans keyed in on capital requirements, Senate Banking Chair Sherrod Brown’s (D-Ohio) opening statement will caution Powell on going too far with rate hikes. While “there are times when the Fed must act … We cannot risk undermining one of the successes of our current economy,” according to an excerpt from the Ohio Democrat’s remarks. “For the first time in decades, workers are finally – finally – starting to get a little power. Unemployment is at an historic low — 3.4 percent. That’s not just a number. That means Americans have more opportunity and options, even in places that haven’t seen a lot of that in recent years.” CRYPTO MINING — Sen. Edward Markey (D-Mass.), who chairs the Senate Environment and Public Works Subcommittee on Clean Air, Climate, and Nuclear Safety, will lead a hearing at 2:30 p.m. on a bill requiring large crypto mining businesses to report their greenhouse gas emissions to the EPA. The bill — which has been introduced by Rep. Jared Huffman (D-Calif.) in the House — would also task the EPA with performing an impact study on crypto-related emissions and electronic waste. Crypto miners were battered by a sharp contraction in digital asset markets over the last year. New York policymakers dealt those businesses another blow when New York Gov. Kathy Hochul signed legislation imposing a moratorium on new fossil fuel-fired operations.
| | | | DOWNLOAD THE POLITICO MOBILE 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. 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. DOWNLOAD FOR iOS– DOWNLOAD FOR ANDROID. | | | | | | | | TAILOR MADE — Our Victoria Guida: “The Federal Reserve’s top lawyer on Monday put banks on notice that the rulebook that applies to them might shift. Fed General Counsel Mark Van Der Weide suggested it was possible that the central bank could adjust the categories that determine which regulations a bank will face, depending on the size and scope of its activities.” CFTC’S ROMERO: BANKS HAVE POWER TO CHANGE CRYPTO — CFTC Commissioner Christy Goldsmith Romero urged bankers and investors at the IIB conference to push crypto businesses they work with to adopt internal controls that will safeguard customers and ward off collapse. Investors hold sway over these companies, she said, and “if you’re waiting for Congress to do something, you could be waiting a long time.” SEC’S PEIRCE: DOING NOTHING HAS A COST — With a couple of major exceptions, banks were largely spared in last year’s crypto market meltdown. But excising crypto firms from the financial system carries its own risk, SEC Commissioner Hester Peirce warned in a Q&A alongside Romero. It’s no surprise that some digital asset businesses “turn to a shady bank” when they’re pushed away from TradFi, she said. “You can’t have it both ways.” AI AT THE OCC — The Office of the Comptroller of the Currency is starting to explore how artificial intelligence could be integrated into the heady work of bank regulators, Senior Deputy Comptroller and Chief Counsel Benjamin McDonough said at IIB. “It’s not a question about when AI is going to become influential, it’s how quickly,” he said, adding that the OCC’s newly christened Office of Financial Technology is working to “stay on top of these things and ensure that the OCC is continuing to be able to be a leader here.” BLACK KNIGHT — Our Josh Sisco: “The Federal Trade Commission will vote on Thursday this week to challenge the $13 billion takeover of mortgage data company Black Knight by financial services giant Intercontinental Exchange, according to two people with direct knowledge of the matter.”
| | | | A message from the Electronic Payments Coalition:   | | | | | | RE-READ THE TOP — Bloomberg’s Michael Msika: “Morgan Stanley’s Michael Wilson, known for being one of Wall Street’s most bearish strategists, said he’s expecting stocks to rally in the short term.” I’M TELLING YOU FOR THE LAST TIME — WSJ’s Nick Timiraos: “The next economic downturn has become the most anticipated recession in recent U.S. history. It also keeps getting postponed.” THE DESANTIS PLAYBOOK — Ed Hammond and Felipe Marques: “JPMorgan Chase & Co. is expanding in Florida, opening branches in a state that’s seen an increased influx of Wall Street firms since the pandemic.” ANOTHER CRYPTO LAWSUIT — CoinDesk’s Nelson Wang: “FTX sister company Alameda Research has filed a lawsuit against crypto asset manager Grayscale Investments seeking injunctive relief to realize what it claims is over $250 million in asset value for the FTX Debtor’s customers and creditors, according to a press release.”
| | | | A message from the Electronic Payments Coalition: CONGRESS: OPPOSE HARMFUL CREDIT CARD ROUTING MANDATES: Despite vigorous lobbying attempts from corporate convenience store chains and their allies, credit card routing mandates are deeply unpopular—among both Democrats and Republicans. Credit card routing mandates hurt small businesses by increasing costs, weakening payment security, harming small financial institutions, reducing access to credit for those who need it the most, and ending popular credit card rewards programs. THE CHOICE IS CLEAR: CONGRESS MUST OPPOSE CREDIT CARD ROUTING MANDATES
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