| | | | |  | | By Zachary Warmbrodt | | Presented by |  | | | 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 economists are trying to answer a big question that MM keeps returning to: Why is the post-Covid U.S. economy so much stronger than that of other wealthy nations? In a new report, the Fed researchers point to structural factors — in this case, labor flexibility and business dynamism – as potential key reasons why U.S. economic output has returned to pre-pandemic trends while things look flatter in Canada, the U.K. and the euro area. The report acknowledges many other ingredients are also in play, including Russia’s invasion of Ukraine and U.S. industrial policy. The economists who drafted the research include Francois de Soyres, Joaquin Garcia-Cabo Herrero and Nils Goernemann. To set the table, the Fed economists say it’s hard to pin down the extent to which fiscal policy differences have played a role. One clearer differentiator might be monetary policy. The U.S. economy is somewhat more insulated from swings in borrowing costs, thanks to the prevalence of fixed-rate mortgages and less reliance on the banking system. The big answers may lie in more foundational aspects of the U.S. economy and how they responded to pandemic policy moves. The researchers’ findings echo what MM has heard from business leaders about what’s making the U.S. look appealing from the perspective of foreign investors. The Fed economists find that a major component of the economic output gap between the U.S. and its peers can be traced to labor productivity. For context behind it, they point to Covid policies in the U.K. and euro area that kept workers attached to their jobs, which helped prevent bigger spikes in unemployment, but may have also prevented a greater reallocation of labor compared to the U.S. Muted activity abroad may also be an extension of weaker aggregate demand, with firms retaining employees but not producing goods and services up to their maximum potential. The other structural factor is the business environment here. The U.S. has seen a surge in the creation of new firms in the wake of Covid, unlike the euro area. The U.S. has also notched fewer bankruptcies. “In the U.S., strong fiscal policy, lower pass-through from monetary policy, and [a more] flexible labor market may have all contributed to supporting a new wave of firm creation over the past three years,” the Fed economists write. What’s next? Per a new report out today, economists surveyed by the National Association for Business Economics are raising their U.S. growth and inflation forecasts from what they expected in February. Their median forecast now calls for inflation-adjusted GDP growth to be 2.4 percent this year, up from 2.2 percent in their previous outlook survey. They expect PCE inflation in the fourth quarter to be 2.6 percent, approaching the Fed’s 2 percent target, but 0.5 percent points higher than forecast three months ago. That also means a smaller dose of Fed rate cuts this year — half a point instead of three-quarters, according to the survey. You can read more of the findings here. Happy Monday — Send tips to zwarmbrodt@politico.com.
| | | | A message from the Council of Federal Home Loan Banks: Our nation’s economic health depends on a safe and secure financial system comprised of thousands of local lenders able to serve their customers successfully through all market conditions. Our nation needs the Federal Home Loan Banks. Day in and day out, for more than 90 years, we have been a dependable and crucial funding partner for financial institutions large and small, supporting community lenders who in turn support local businesses, households, and families. | | | | | Monday … Fed Governor Christopher Waller gives opening remarks at a Fed conference on the international role of the dollar at 9 a.m. … Fed Vice Chair for Supervision Michael Barr discusses monetary policy and regulation at the Atlanta Fed’s financial markets conference at 9 a.m. … Fed Vice Chair Philip Jefferson gives a speech on the U.S. outlook and housing at the Mortgage Bankers Association’s secondary and capital markets conference at 10:30 a.m. Tuesday … Treasury Secretary Janet Yellen is in Germany … Waller discusses the economic outlook at the Peterson Institute at 9 a.m. … Barr speaks on bank regulation and supervision to the Director and Executive Regional State Member Bank Conference at 11:45 a.m. … The Senate Permanent Subcommittee on Investigations holds a hearing on Zelle fraud at 2:30 p.m. … House Rules considers crypto and CBDC bills at 4 p.m. Wednesday … NAR releases existing home sales data for April at 10 a.m. … House Financial Services Chair Patrick McHenry speaks at the Investment Company Institute’s leadership summit at 10:10 a.m. … Goldman Sachs chief economist Jan Hatzius and Bank Policy Institute chief economist Bill Nelson discuss the Fed and financial stability at the American Enterprise Institute at 1 p.m. … The Fed releases FOMC meeting minutes at 2 p.m. Thursday … Yellen is in Italy for G7 meetings … SEC Chair Gary Gensler speaks at the ICI leadership summit at 8:30 a.m. … The U.S. Census releases new home sales data for April at 10 a.m. … Friday … Waller gives a speech on “R*” at the Reykjavik Economic Conference at 9:35 a.m. … The University of Michigan releases final consumer sentiment data for May at 10 a.m.
| | | | 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. | | | | | | | | | Big banks poised for victory — The WSJ reports that the Fed and other regulators are “moving toward a plan” that would significantly reduce a planned hike in capital requirements for the biggest U.S. banks. Officials are still negotiating, and it could be “late this year” before a plan is ready. Yellen’s push on Russian assets — Per Michael Stratford, Yellen at the G7 finance ministers meeting in Italy this week will press U.S. allies to tap immobilized Russian assets to help fund Ukraine. U.S. officials have floated a proposal to use profits from the assets to back a loan. The hope is for G7 leaders to make a decision when they meet in June. China retaliates — The FT reports that China is launching an anti-dumping probe of chemical imports from the U.S., EU, Japan and Taiwan. The move follows a Biden administration decision last week to hike China tariffs. China’s “narrow investigation” into chemicals highlights its limited ability to respond, according to the FT. In related news, Victoria Guida has a new column digging into Washington’s trade endgame with China in the Trump era. First in MM: Behind the Realtor downfall — The news nonprofit NOTUS is out with an inside look at what led to the meltdown at the National Association of Realtors and the warning signs that were missed. Reporters Maggie Severns and Byron Tau interviewed more than 20 current and former staff and members and dug through court records, internal documents, nonprofit filings and campaign finance reports. Among their findings: Few at NAR recognized the peril that antitrust lawsuits would hold for the organization, and only a small number of staff were working on the issue.
| | | | A message from the Council of Federal Home Loan Banks:   | | | | | The other big crypto vote — As MM previewed Friday, the House this week will vote on landmark legislation that would divide crypto trading oversight between the SEC and the CFTC. But that’s not all. The House will also take up legislation from Majority Whip Tom Emmer that would restrict the Fed from issuing a central bank digital currency. While the GOP-led bill isn’t likely to have legs outside of the House this year, it marks the clearest signal yet that political forces are likely to hold back the launch of a U.S. CBDC in the foreseeable future. Anti-CBDC sentiment is a growing force on the right, amid privacy and civil liberty concerns as well as crypto industry lobbying. The vote will likely resonate internationally as other countries ramp up CBDC projects. “If this were to become law, the U.S. would be the only country in the world to ban a central bank digital currency,” said the Atlantic Council’s Josh Lipsky. “Meanwhile its peers in Europe, the U.K., and Japan are all moving forward.” First in MM: More crypto cheerleading for House bill — The Blockchain Association is out with a letter today from 56 crypto companies supporting the crypto regulatory revamp on the House floor this week, Eleanor Mueller reports. The letter follows a similar one sent by the Crypto Council for Innovation last week. Blockchain Association CEO Kristin Smith said in an interview that the legislation isn’t perfect but that "politically, it's a very important vote for the crypto industry." "It really sends a signal to the agencies that the way they've been operating isn't working and that even if it doesn't result in a new law in the short term, it could result in regulatory change in the short term,” she said. Waters launches crypto offensive — House Financial Services ranking member Maxine Waters and Reps. Stephen Lynch and Sean Casten will hold a briefing for members this afternoon on the crypto legislation, Eleanor reports. An invite shared by an aide warns of the bill's "major consequences and spillover effects to the traditional securities market." American University's Hilary Allen, Duke University's Lee Reiners, Better Markets' Cantrell Dumas and Americans for Financial Reform's Mark Hays are slated to speak.
| | | | JOIN 5/22 FOR A TALK ON THE FUTURE OF TAXATION: With Trump-era tax breaks set to expire in 2025, whoever wins control of Congress, and the White House will have the ability to revamp the tax code and with it reshape the landscape for business and social policy. Join POLITICO on May 22 for an exploration of what is at stake in the November elections with our panel dissecting the ways presidential candidates and congressional leaders are proposing to reshape our tax rates and incentives. REGISTER HERE. | | | | | | | | | First in MM: A CFPB warning shot — The CFPB is offering backup to Democratic state attorneys general who say national banks are stonewalling their investigations into possible violations of state consumer protection laws, Michael reports. CFPB Director Rohit Chopra writes in a new letter to New York Attorney General Letitia James that large banks that refuse to comply with inquiries from states could run into trouble with his agency. The CFPB will consider a large bank’s failure to cooperate with state authorities as a “risk factor” in its own supervision that in some cases could trigger an “immediate examination,” Chopra warned in his letter, which was obtained by POLITICO. Chopra also said the CFPB is setting up a new process for states to notify the consumer bureau when national banks refuse to respond to their inquiries. He said the CFPB would use that information to decide whether to launch its own federal consumer protection investigation or possibly team up with state authorities. James and other Democratic attorneys general in December asked the OCC and CFPB for help in getting national banks to submit to their state requests. Senate Democrats have urged the OCC to take similar action. A spokesperson for the OCC declined to say whether the agency had responded to the requests. Banks have urged the OCC to fight state efforts to boost oversight over national banks. The American Bankers Association and state banking organizations earlier this month urged the OCC to defend its oversight of national banks “against encroachment by state authorities" and to preserve "essential powers of national banks amid a range of harmful and often conflicting state laws.” In related news, Chopra says the bureau will be “firing on all cylinders” after the Supreme Court agreed to keep its funding structure intact. The CFPB plans to expand its enforcement office by nearly 40 percent, renew a push on cases stalled by litigation and develop new regulations on credit markets. Gensler aide exits — Declan Harty reports that Heather Slavkin Corzo, a top adviser to SEC Chair Gary Gensler, will leave the agency. She joined the SEC from the AFL-CIO in 2021. Corey Klemmer, who has been serving as Gensler’s counsel on corporation finance, will succeed her as his policy director.
| | | | A message from the Council of Federal Home Loan Banks: Our nation’s economic health depends on a safe and secure financial system comprised of thousands of local lenders able to serve their customers successfully through all market conditions. Our nation needs the Federal Home Loan Banks. For more than 90 years, we have been a dependable and critical funding partner for financial institutions large and small, supporting community lenders who in turn support local businesses, households, and families.
The FHLBanks are also key supporters of affordable housing and community development initiatives. Since 1990, we have contributed more than $8 billion in affordable housing grants, and in 2024 alone, we expect to provide approximately $1 billion in support. We are one of the largest sources of private funding for affordable housing in the country. Working with thousands of members and housing partners, the FHLBanks play a crucial role in the economic health of our communities, delivering measurable impact and, most importantly, hope. | | | | | | | Follow us on Twitter | | | | Follow us | | | | |
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