| | | | |  | | By Victoria Guida and Zachary Warmbrodt | Presented by the Financial Services Forum | 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 officials won’t be lowering interest rates this afternoon, and now it’s looking like they won’t do it in June either. The timing for cuts could keep getting pushed back if inflation stays stubbornly around 3 percent and growth stays solid. That could be awkward for the central bank, Victoria writes in a column out today. If inflation resumes its downward trend – or if unemployment starts to spike — Fed officials are ready to ease off on interest rates. But if neither of those happens in time to lower rates in July, that could push the decision of whether to cut to September. In other words: just ahead of Election Day, drawing exactly the kind of political spotlight that the Fed hates to be in. But the rate dance has implications well beyond the election. The Fed might only gradually cut over the next couple of years, subjecting an economy that has been used to near-zero rates to a major repricing. That raises the chances that something could break and also reduces the incentive to invest in sectors offering a lower return. “There are many industries that work with a federal funds rate of 3.5 percent, but not 5 percent,” said Julia Pollak, chief economist at ZipRecruiter. Jim Pethokoukis, a senior fellow at the American Enterprise Institute, said he’s particularly concerned that it could dampen investment in key industries like biotechnology and space (though he noted that artificial intelligence seems to be getting capital regardless).
| | | | A message from the Financial Services Forum: National Small Business Week is our chance to show support for the small businesses that make up a crucial part of the U.S. economy. That means ensuring small businesses don't become collateral damage of federal regulations. Learn more. | | | On the other hand, a big question heading into Wednesday’s press conference with Fed Chair Jerome Powell is whether rates are really doing all that much to fight inflation, given the cheery stock market and steady clip of consumer spending. Mark Cabana, head of rates strategy at Bank of America Global Research, told MM that the Fed effectively eased borrowing costs late last year — first by not following through on an expected rate hike and then by suggesting that rate cuts were on the horizon. That’s been followed by exuberance in markets that have relieved some of the pressure on the economy. He also noted that business investment has been bolstered by new federal laws aimed at boosting the production of semiconductors and green energy, offsetting some of the weakness in other areas. “You haven’t seen as large of a slowdown in the investment side of the economy due to higher rates, and that’s essentially because the government is subsidizing investment,” he said. For now, the Fed is hoping that just keeping rates where they are and then gradually lowering them over the next couple of years will be enough to bring inflation back to 2 percent “over time,” which, according to their projections, means by 2026. Wage growth as measured by the employment cost index picked up in the first quarter of the year, which Powell and his colleagues will be watching closely as they try to figure out the path of inflation for labor-intensive industries. Skanda Amarnath, executive director of the worker advocacy group Employ America, said he’d be surprised if there isn’t further disinflation by the end of the year, given that real-time data suggest rent inflation will eventually drop. But “the notion that this keeps getting delayed is not crazy,” he added. “This stuff takes time.” It’s Wednesday — Send tips to zwarmbrodt@politico.com and keep up with Victoria at vguida@politico.com and @vtg2.
| | | | THE GOLD STANDARD OF FINANCIAL SERVICES POLICY REPORTING & INTELLIGENCE: POLITICO has more than 500 journalists delivering unrivaled reporting and illuminating the policy and regulatory landscape for those who need to know what’s next. Throughout the election and the legislative and regulatory pushes that will follow, POLITICO Pro is indispensable to those who need to make informed decisions fast. The Pro platform dives deeper into critical and quickly evolving sectors and industries, like financial services, equipping policymakers and those who shape legislation and regulation with essential news and intelligence from the world’s best politics and policy journalists.
Our newsroom is deeper, more experienced, and better sourced than any other. Our financial services reporting team—including Zach Warmbrodt, Victoria Guida and Declan Harty—is embedded with the market-moving legislative committees and agencies in Washington and across states, delivering unparalleled coverage of financial policy and the financial services industry. We bring subscribers inside the conversations that determine policy outcomes and the future of industries, providing insight that cannot be found anywhere else. Get the premier news and policy intelligence service, SUBSCRIBE TO POLITICO PRO TODAY. | | | | | | | | | Treasury makes its quarterly refunding announcement … FDIC and OCC officials testify on bank merger policy at a House Financial Services hearing at 10 a.m. … Acting HUD Secretary Adrianne Todman appears at House Appropriations at 10 a.m. … Job openings data for March is out at 10 a.m. … The FOMC releases its monetary policy decision at 2 p.m., followed by a press conference with Powell at 2:30 p.m. Prison, briefly, for CZ — A federal judge Tuesday sentenced former Binance CEO Changpeng Zhao to four months in prison for failing to wall off the world’s largest crypto exchange from money laundering, Declan Harty reports. It followed a settlement and guilty plea by Zhao in which the government said Binance aided terrorist networks, violated sanctions and facilitated human and narcotics trafficking. The billionaire’s sentence fell well short of the three years behind bars sought by the Justice Department. Better Markets CEO Dennis Kelleher blames the DOJ for striking a “weak, minimalist sweet deal” that left the judge little choice. DOJ wants more firepower — A day before Zhao’s sentencing, DOJ urged lawmakers to give prosecutors greater authority to punish financial firms and executives who facilitate money laundering, Declan reports. Assistant Attorney General Carlos Felipe Uriarte asked House Judiciary leaders to consider tying sentencing guidelines for the charges to the severity of the crimes and the risks they posed to the U.S. financial system. Such a move could strengthen future crypto crackdowns. Yellen vs. Summers — Treasury Secretary Janet Yellen knocked her predecessor Larry Summers for suggesting the Fed may need to hike rates, Michael Stratford reports. (Don’t forget the two have a history as competitors for Fed chair.) “He’s a person who’s been wrong in the past,” Yellen said during a House hearing. “He said that it would absolutely take a recession to bring inflation down, and that turned out to be a serious misjudgment.” A warning sign for ‘Bidenomics’ — The Conference Board said consumer confidence in April reached its lowest level since July 2022. Confidence declined among all age groups and almost all income groups, except for the $25,000-49,999 bracket. “[C]onsumers became less positive about the current labor market situation and more concerned about future business conditions, job availability and income,” Conference Board chief economist Dana Peterson said.
| | | | A message from the Financial Services Forum:   | | | | | What’s driving Schumer’s crypto push — Eleanor Mueller reports that persuasion by the crypto industry and New York’s top financial regulator, Adrienne Harris, helped nudge Senate Majority Leader Chuck Schumer to put his weight behind stablecoin legislation, according to fellow Empire State Democrats. Schumer wants to attach the bill and cannabis banking protections to FAA reauthorization, which is a noteworthy shift even if it likely won’t translate into law because of GOP resistance. The stablecoin plan would divvy up federal and state oversight of the tokens. House Minority Leader Hakeem Jeffries, another New York Democrat, said in an interview that "we are in regular communication with Adrienne Harris," whom he called "a very thoughtful leader in this area." "What she has to say does matter," Jeffries said. "We haven't come to a resolution at this point on the stablecoin issue yet — but it is a live issue, and we do hope to be able to find a way to get it over the finish line." It’s looking unlikely that Hill leaders will allow amendments to the FAA bill, which is a target for unrelated legislation because it’s one of the last must-pass items before the election. “There's a sense about the FAA bill that it has been delayed for so long and there's still moving parts in connection with the subject matter itself ... that they want to get it done without having to open the door to other amendments," Sen. Richard Blumenthal told reporters, per Jasper Goodman. Senate Commerce ranking member Ted Cruz said he hopes to see “a robust amendment process on the floor." Another pol joins Coinbase — The Los Angeles Times reports that Antonio Villaraigosa, the city’s former mayor, is joining the crypto exchange’s global advisory council. The group includes former Defense Secretary Mark Esper, former Sen. Pat Toomey and former Rep. Tim Ryan. New crypto bill — Reps. Drew Ferguson and Wiley Nickel introduced legislation that one crypto industry group says will “ease tax compliance” for digital asset mining and staking.
| | | | A message from the Financial Services Forum: Karen Kerrigan, President and CEO of the Small Business & Entrepreneurship Council, warns: "The small businesses that drive the U.S. economy and local economies throughout our nation are being hung out to dry as regulators ignore the underlying causes of recent bank failures. Lawmakers cannot stand by and allow these harmful policies to get rammed through to completion."
Basel III Endgame would make it harder for small businesses to secure loans. Without reliable access to credit, small business owners may struggle to pay their employees, buy goods, or run their businesses successfully. Washington needs to scrap Basel III Endgame and start over. | | | | | The GOP agenda — Rep. French Hill, a contender to succeed House Financial Services Chair Patrick McHenry, told a community banking conference that if Republicans win back control of Washington “we can roll back this horrible economic policy by the Biden administration.” He said one of his first priorities would be to undo a CFPB reporting rule for small business lending, Eleanor reports. In related news, Eleanor reports that Reps. Andy Barr and Scott Fitzgerald are pressing the Fed for details on its plans for overhauling bank merger reviews ahead of a Financial Services hearing on the issue today. Officials from the FDIC and OCC are set to testify. Cannabis and credit cards — The American Bankers Association says Congress should still pass cannabis banking protections even if DOJ loosens federal weed restrictions as was reported Tuesday … A coalition including the International Brotherhood of Teamsters, the Merchants Payments Coalition and the American Economic Liberties Project says lawmakers should enact legislation to curb credit card swipe fees despite a $30 billion proposed legal settlement that would cap the charges.
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