News: Give a little, take a little

Friday, May 19, 2023

Give a little, take a little

May 19, 2023

Presented by U.S. Bank

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.

NEW YORK — It was a beautiful day in Washington and New York City and it seemed like everyone was in a pretty good mood about where things stand on the debt limit.

Anita Dunn, a veteran Democratic operative and one of President Joe Biden’s closest advisers, struck a conciliatory note in front of an audience of Wall Street financiers on Thursday. The onetime SKDK executive told conference goers that — if there’s a deal to be had before the June 1 deadline — “everybody is going to have to give a little.”

“The question is: what do you give?” she said.

After leaving the stage, Dunn ignored a question about whether concessions on spending cuts could alienate progressive lawmakers. As she made her way to the door of the green room, former Trump communications director and hedge fund executive Anthony Scaramucci — the conference’s host — greeted her outside by joking that he’d be “there for you” should she run for office in 2028.

So, to answer Dunn’s question, what’s the White House willing to give? Negotiators are signaling concessions on work requirements that would further restrict access for the Temporary Assistance for Needy Families emergency aid program, our Meredith Lee Hill reports.

Perhaps that’s why House Speaker Kevin McCarthy sounded optimistic at a press conference earlier in the day, telling reporters he “see[s] a path” to a deal. And McCarthy isn’t the only one who’s feeling bullish that this will get done on time.

“What we saw today — which is really helpful — were the comments that Speaker McCarthy made earlier this morning,” Sen. Kyrsten Sinema told your host. “It sends a message to markets — it sends a message to all the folks around the country – that we can get this done.”

The Arizona independent has often leveraged her role as a key swing vote to extract meaningful concessions on landmark legislation from Biden and the Democrats with whom she caucuses. Asked what she made of the fiscal cuts that have been floated in negotiations, Sinema said she wasn’t interested in “talking about the particulars.”

“The best thing to do is to allow [those talks] to percolate and continue operating forward in good faith,” she said.

Sinema’s office gave MM a first look at a bill she has introduced with Sen. Joni Ernst (R-Iowa) — dubbed the Fiscal State of the Nation Act — to require the U.S. Comptroller General to provide an audited financial statement on federal programs to the House and Senate Budget Committees each year.

“I've long said that playing chicken with the full faith and credit of the United States is wrong, and that America has a duty to pay its debts,” she said. One reason she’s dropping the bill now, she said, is because it will instill “fiscal responsibility” in Congress “rather than just waiting for the debt limit for people to freak out.”

She also praised two of Biden’s designees in the debt limit fracas, Steve Ricchetti and Office of Management and Budget Director Shalanda Young.

“Steve Ricchetti and I have negotiated so many packages together,” Sinema said. “And Shalanda Young? I mean, she's the smartest person in the building, and everyone knows it. She knows appropriations in and out.”

IT’S FRIDAY — We hope you have a wonderful, default-free weekend. Send tips, gossip and suggestions to Sam at ssutton@politico.com and Zach at zwarmbrodt@politico.com.

A message from U.S. Bank:

At U.S. Bank, we think of ourselves as a neighborhood bank in thousands of neighborhoods across America even though we’re the fifth largest bank in the nation. From supporting veterans to helping more Americans finance their dreams, U.S. Bank is truly small enough to care, and big enough to make a difference. Learn More.

Driving the Day

The big meeting — Treasury Secretary Janet Yellen’s closed-door meeting with bank CEOs at the Bank Policy Institute on Thursday stuck to the talking points. A readout from Treasury said Yellen “reaffirmed the strength and soundness of the U.S. banking system” while emphasizing “the urgent need for Congress to address the debt limit.” There would be “real and severe consequences of default for the banking system and the domestic and global economy” if Congress doesn’t act, according to the department.

Meanwhile, new research from MSCI suggests that the market now thinks the odds of default have fallen. Researchers at the firm peg the implied probability of a U.S. default at 3.7 percent as of market close on May 17, down from 4.3 percent on May 11. The percentage is calculated based on credit default swap spreads from S&P Global Market Intelligence.

Fear of the big banks — Our Katy O’Donnell: “Senate Democrats on Thursday warned regulators against allowing big banks to grow even bigger, saying the trend was posing a threat to the financial system. New regulations to police the industry could backfire by undermining smaller lenders, Sen. Jon Tester of Montana cautioned, pointing to rules developed in the aftermath of the 2008 global financial crisis.”

— Tester and Senator Thom Tillis (R-N.C.) are also calling on Biden to appoint an independent investigator to further probe what led to the collapse of Silicon Valley Bank, First Republic Bank and Signature Bank.

GET READY FOR GLOBAL TECH DAY: Join POLITICO Live as we launch our first Global Tech Day alongside London Tech Week on Thursday, June 15. Register now for continuing updates and to be a part of this momentous and program-packed day! From the blockchain, to AI, and autonomous vehicles, technology is changing how power is exercised around the world, so who will write the rules? REGISTER HERE.

Fed File

“Hike, hold or skip?” — Bloomberg’s Catarina Saraiva and Rich Miller: “Federal Reserve officials are sounding increasingly split over whether to raise interest rates at their meeting next month or pause their credit tightening campaign. A compromise some have suggested: a skip, where they put off a rate increase next month only to return to it at their following meeting in July.”

Another headache for Powell — The WSJ’s Nick Timiraos: “Washington’s debt-limit impasse could soon force officials at the Federal Reserve to revisit a crisis-management playbook they put together during similar fights a decade ago … The Fed’s options include buying Treasurys shunned by investors because of the risk of a delayed payment or allowing banks to pledge defaulted securities as collateral for loans from the central bank, according to the transcript of an October 2013 conference call.”

DON’T MISS POLITICO’S HEALTH CARE SUMMIT: The Covid-19 pandemic helped spur innovation in health care, from the wide adoption of telemedicine, health apps and online pharmacies to mRNA vaccines. But what will the next health care innovations look like? Join POLITICO on Wednesday June 7 for our Health Care Summit to explore how tech and innovation are transforming care and the challenges ahead for access and delivery in the United States. REGISTER NOW.

In the markets

The debt ceiling and public pensions — Market volatility around the debt limit — even if the U.S. avoids a default — still risks upsetting long-term investment strategies at state and local retirement systems that manage the savings of millions of America’s public workers.

Many pension systems start to game out their long-term investment strategies in June, around the close of their annual fiscal year, Goldman Sachs managing director Elizabeth Burton said on a panel at the same SALT iConnections conference attended by Dunn on Thursday. Their allocation plans – which determine how much they invest in illiquid products managed by private equity firms and hedge funds — are influenced by sharp swings in the stock market.

“Let's say – theoretically — that there is a massive sell-off. Let’s say it’s even 20 percent,” Burton said. “While it might be a short-term issue with the debt ceiling, the one, three, five and seven-year allocations are a long term issue.”

— Our James Bikales: “New Mexico Gov. Michelle Lujan Grisham warned Thursday that debt ceiling negotiations could have a ‘chilling effect’ on states’ economic growth and climate change efforts.”

Shakeup at Lazard — The WSJ’s Cara Lombardo, Laura Cooper, Ben Dummett: “Longtime Lazard Chief Executive Ken Jacobs is preparing to step down, people familiar with the matter said, as the storied investment bank seeks to revive its fortunes.”

They were coming from California — Our Andrew Atterbury: “Walt Disney Co. officially called off plans Thursday to develop a $1 billion complex in Orlando as the entertainment giant continues to clash with Florida Gov. Ron DeSantis.”

No slowdown? — Reuters’ Siddharth Cavale and Aishwarya Venugopal: “Walmart Inc raised its annual sales and profit targets on Thursday as shoppers snapped up its low-priced groceries and other essentials.”

A message from U.S. Bank:

Crypto

Shakiness around stablecoins — Our Eleanor Mueller: “House Republicans and Democrats on Thursday held firm to clashing visions for how to regulate stablecoins, indicating a tough road ahead for legislation once considered the lowest-hanging fruit on crypto.”

A message from U.S. Bank:

At Minnesota-based U.S. Bank, community is everything.

Alongside banking services, U.S. Bank helps its over one million small business customers access programs to help them manage unique challenges.

With the aim of increasing home ownership, U.S. Bank has provided more than $951 million in affordable housing lending and helped fund nearly 30,000 affordable housing units.

And in honor of those who have served, U.S. Bank regularly donates mortgage-free homes, vehicles, and home repairs to military veterans. In 2021, the bank launched Operation Always Remember, giving veterans gift cards for gas, clothing, and restaurants.

U.S. Bank. Small enough to care, and big enough to make a difference. Learn More.