| | | | |  | | By Sam Sutton | Presented by Citi | 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.
| | Economists expect the Labor Department to report today that the U.S. added 190,000 jobs in May. In normal times, that’s a good-to-very-good number. These aren’t normal times. It’s “Are we in a soft landing?” time. And in “Are we in a soft landing?” time, economists must question how solid growth in the labor market might belie weaknesses that are of serious consequence to Federal Reserve Chair Jerome Powell and other monetary policymakers. For instance, there are now signs that the labor market might be close to its so-called breakeven point, which means it’s much softer than what the monthly jobs report might suggest, said Ernie Tedeschi, the former chief economist for President Joe Biden’s Council of Economic Advisers who is now with Yale's Budget Lab. The breakeven point refers to the number of jobs the economy must add to keep pace with a growing number of workers. When those are aligned, the unemployment rate stays flat. When job growth drops below the breakeven point, it climbs. The unemployment rate has been creeping closer to 4 percent over the last year. While that’s still near historic lows, the fact it is climbing at all is unusual given the strength of monthly jobs totals, according to Tedeschi. “It's like a murder trial,” Tedeschi told MM. “There's a lot of circumstantial evidence” that the labor force is bigger than we thought. (Possibly due to growing immigrant populations or weak response rates to Labor Department surveys.) “The only way we can be absolutely sure about this is when there’s an independent estimate of the population, and we only do that every 10 years with the decennial census,” Tedeschi said. “We’re going to have to wait.” Ok, so what? If the labor market is softer than the headline number suggests, it raises the risk that the Fed might be slow to cut interest costs. That would likely cause unemployment to rise, risking the soft landing that Powell hopes to achieve. There are other signs that the economy is slowing down. The Commerce Department lowered its estimates for first-quarter gross domestic product growth to an annual rate of 1.3 percent last week. Real disposable income growth has tapered off and the PCE index – the Fed’s preferred inflation gauge — showed cooler consumer spending in April. Both labor costs and production levels are starting to moderate, Bloomberg reported on Thursday. In a recent research note, Martha Gimbel, another CEA alum who’s now executive director at the Yale Budget Lab, noted that the trajectory of the employment rate among prime-age workers (ages 25-54) has started to stall. While that rate remains above pre-pandemic levels, historically, it’s usually a sign that a recession is coming. The only time that didn’t occur was when then-Fed Chair Alan Greenspan pulled off a soft landing in the mid-1990s. “This is not to say the sky is falling. This is not to say that we are going into a recession tomorrow,” Gimbel told MM. “This looks similar to what you would see if you were going into a recession, and to what we saw in the 1990s,” she added. “We can't say right now [if] it's one or the other.” IT’S FRIDAY — Have a great weekend and, as much as it pains me to say it as a Warriors fan, best of luck to the Mavs fans out there. Give me a call, shoot me a DM, or send tips and suggestions to me at ssutton@politico.com or @samjsutton.
| | A message from Citi: Over one-third of suppliers reported focusing on nearshoring in 2023. With global flows and geopolitics continuing to change, supply chain resilience has proven to be critical – and as a result, nearshoring is gaining further momentum. Many companies are executing nearshoring strategies to diversify their supply chains, reduce risks associated with distant manufacturing hubs, and move production closer to their end-consumers. Learn more in the Citi GPS Report, The Future of Global Supply Chain Financing. | | | | | | The Labor Department will release the jobs report for May at 8:30 a.m. … The Financial Stability Oversight Council and the Brookings Institution’s AI conference continues at 9 a.m. … The CFPB holds a meeting by teleconference of its Academic Research Council at 12:45 p.m. … First in MM: Barr to make $1M transfer to the NRCC — Rep. Andy Barr, one of the lead candidates to replace retiring House Financial Services Chair Patrick McHenry as the top Republican on the panel, will write a $1 million check to the NRCC next week, Eleanor Mueller scoops. Barr plans to announce the transfer at House Republicans' weekly meeting on Wednesday morning, according to an aide granted anonymity to discuss closed-door conversations. The $1 million, along with another $20,000 contributed this week, will bring him up to $1.83 million in NRCC dues paid this year. The move makes Barr and Rep. French Hill, another top contender for the job, the two members who have contributed most to the NRCC. Hill is first with $1.89 million paid in NRCC dues this year, according to a second aide granted anonymity to share internal data collected Thursday.. Reps. Bill Huizenga and Frank Lucas, who have also entered the running, have paid $515,747 and $56,000, respectively. Huizenga contributed another $56,300 this week, a third aide said, which will bring him to a total of $572,047. All four have been ramping up their fundraising in recent months as they look to convince their colleagues to give them the top job on the committee that oversees Wall Street, the Federal Reserve and more. Though cash is a key part of the equation, other factors like their relationships with leadership, policy chops, and ability to work across the aisle are expected to weigh heavily. The Wolverine Economy — The Biden-era economic boom has benefited cities like Detroit, write Claire Jones and Eva Xiao for The FT. But the economy’s resilience has largely helped those who were already better off, which means the president will have to perform well in the city’s wealthier suburbs if he wants to keep Michigan blue. Really rolls off the tongue — The European Central Bank’s decision to slash rates by a quarter of a percentage point has ushered in a new era on Wall Street. “The new outlook is closer to ‘less high for longer,’” writes Jon Sindreu for The Wall Street Journal. Brian Armstrong Q&A — Coinbase has bankrolled much of the crypto industry’s lobbying and advocacy efforts around Washington. But as former President Donald Trump courts crypto users, CEO Brian Armstrong told Jasper Goodman that he won’t be offering an endorsement in the presidential race.
| | | | 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. | | | | | | | | First in MM: Warren sets sights on FHLBs — Sen. Elizabeth Warren is pushing the Biden administration’s top housing regulator to crack down on the Federal Home Loan Banks, the government-sponsored lenders that drew scrutiny in Washington last year after it emerged that they’d lent tens of billions of dollars to three crypto-friendly banks that later failed. The Federal Housing Finance Agency should “change the membership requirements for the FHLBs, ending the current absurd state of affairs where, in recent years, nearly half of FHLB members have not originated a single mortgage,” Warren said in a letter to FHFA Director Sandra Thompson Thursday. She also called on the FHFA to “immediately” propose a rule to clarify the FHLBs’ mission will support housing and community development – “not simply to prop up failing banks.” She requested a briefing from Thompson by June 20 on the effort. FHFA spokeswoman Lydia Holt said the agency is “committed to strengthening the FHLBanks' connection to their public purpose of providing liquidity and supporting housing and community development,” and would “respond directly to Sen. Warren.” — Katy O’Donnell
| | | | A message from Citi:   | | | | | Treasury’s AI push — As investment in artificial intelligence startups accelerates, Treasury Secretary Janet Yellen is asking for public input on the technology’s “significant risks,” Michael Stratford reports. FSOC in December for the first time identified AI as a potential vulnerability to the stability of the financial system. Trenton Makes — SEC Enforcement Director and former New Jersey Attorney General Gurbir Grewal testified about Sen. Bob Menendez’s alleged attempts to pressure his office on an active criminal case, Ry Rivard reports. Menendez, at that point one of the most powerful politicians in the state, “didn’t like how this matter was being handled by our office and wanted it handled differently,” Grewal testified during the senator’s corruption trial on Thursday. Another one — The American Securities Association is suing the SEC to obtain documents related to the agency’s investigation into the use of unmonitored communication channels on Wall Street, Declan Harty reports.
| | A message from Citi: Over one-third of suppliers reported focusing on nearshoring in 2023.
With global flows and geopolitics continuing to change, supply chain resilience has proven to be critical. As a result, many companies are finding it more relevant to execute a nearshoring strategy, shifting their manufacturing and production operations closer to their primary markets. Benefits associated with nearshoring include helping to diversify supply chains, bolster resilience, and reduce risks associated with distant manufacturing hubs.
Explore this and other supply chain trends in the Citi GPS Report, The Future of Global Supply Chain Financing. | | | | | Former Commerce Secretary and White House Chief of Staff William Daley has joined the clean energy and manufacturing tax credits platform Crux as a senior adviser.
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