| | | | |  | | By Victoria Guida and Declan Harty | | 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.
| | For the past few years, investors have been hyper-focused on Federal Reserve Chair Jerome Powell as he clamped down on the economy to fight inflation and then began to ease off. Next year, market intrigue will be focused elsewhere: on Donald Trump. The stock market has been frothy even as investors have lowered their expectations for how much further interest rates will go down, with the S&P 500 soaring 27 percent this year. Fed officials are all but certain to reduce rates again this afternoon, but as of Tuesday, the majority of investors were pricing in just one or two more cuts in 2025. That is, they’re not pinning their hopes on considerably lower borrowing costs. They’re just optimistic about the outlook for the economy and corporate profits under Trump. At the same time, there is also considerable uncertainty around the incoming administration’s policies, which will have sweeping implications for growth (tax cuts and deregulation might feed economic activity, while tariffs could crimp it), as well as for inflation (Trump’s trade and immigration policies run the risk of reigniting price spikes). “The nightmare scenario for Trump and the Fed is that the Fed begins to matter again next year as an inflation fighter,” said John Fagan, co-founder of Markets Policy Partners and the former markets head at the Treasury Department. Wall Street is undeniably riding high in the wake of Trump’s win last month. A record percentage of consumers expect stocks to rise over the next year, according to the Conference Board’s latest survey, and shares are already very expensive by historical standards – with forecasted price-to-earnings ratios reaching levels only seen twice since 1985. More speculative investments are booming, too. The global cryptocurrency market has climbed more than 20 percent in the last month alone to a value of $3.77 trillion. (And as Strategas Research Partners’ Jason Trennert pointed out on Monday: “Some dude just bought a banana taped to a wall for 6 million bucks … and then he ate it.”) But the high-flying times could quickly come to an end next year if the Fed were to reverse course, said Richard Bernstein, chief executive officer of Richard Bernstein Advisors. Bernstein told MM that he believes there is an “agonizingly slow realization” taking place today that the economy is plenty strong. “Let’s say we’re right and the nominal economy is much stronger than people think — that instead of 2 percent growth and 2 percent inflation, we have 3 percent growth and 3 percent inflation, or 3 percent growth and 4 percent inflation,” Bernstein said earlier this month. “Long-term interest rates will be higher, and the Fed will get an itchy trigger finger to raise rates.” But though stock valuations are high, they could continue to rise. Michael Feroli, chief U.S. economist at JPMorgan Chase, told MM that the market is “priced to perfection” — so if anything goes wrong, stocks will react. “It doesn’t have to mean it’s a bubble that’s going to pop because there is a case to be made that earnings will continue to be strong,” he said. “You can paint a scenario that would justify these types of valuations. We have had pretty optimistic expectations for the economy realized … so it’s not like something you can just dismiss out of hand.” It’s WEDNESDAY — Sam’s taking a well-deserved vacation, so send MM tips to vguida@politico.com.
| | A message from Capital One: Capital One recently announced our historic, five-year, $265 billion community benefits plan in connection with our proposed acquisition of Discover to advance economic opportunity and financial well-being. This plan is twice as large as any other community commitment developed in connection with a bank acquisition and demonstrates that the combined Capital One and Discover will create an opportunity to provide more lending, investment, and services for underserved communities than either institution would undertake individually. Important information: CapitalOneDiscover.com | | | | | Wednesday … November housing starts and building permits data is out at 8:30 a.m. … The Peterson Institute for International Economics hosts a discussion on the BRICS bloc at 9 a.m. … The SEC meets at 10 a.m. to consider the budget of the Public Company Accounting Oversight Board … The CFTC meets at 10 a.m. … Senate Finance has a hearing on the nominations of James Coughlan, Halie Craig and William Kimmitt to be members of the U.S. International Trade Commission at 10 a.m.… The Fed will release its interest rate decision at 2 p.m. …. Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. … The Joint Economic Committee has a hearing on “Trade Wars & Higher Costs: The Case Against Trump's Tariffs” at 2:30 p.m. … Bessent back on the Hill — Trump’s Treasury pick, Scott Bessent, will hold another round of meetings with senators today as he looks to continue to build support for his nomination next year, Michael Stratford reports. On Bessent’s calendar today, according to a Trump transition spokesperson: Sens. Mitch McConnell (R-Ky.), Lisa Murkowski (R-Alaska), Ted Cruz (R-Texas), James Lankford (R-Okla.), Michael Bennet (D-Colo.), Maggie Hassan (D-N.H.), and Elizabeth Warren (D-Mass.), according to a Trump transition spokesperson. Congress: We have the text — Lawmakers have finally dropped bill text to fund the federal government into March, tying it to “more than $100 billion in disaster aid and a slew of last-ditch policy bills as lawmakers prepare to leave town for the holidays,” Jennifer Sholtes and Katherine Tully-McManus report. The bill text included several China-related provisions, such as restrictions on outbound investment, as Eleanor Mueller reports. The provision, Eleanor adds, “would give the president discretion over whether to enforce sanctions and prohibitions on U.S. investment in certain Chinese technologies.” “By acting now, we send a strong message that the United States will continue to lead the charge in implementing common-sense measures to preserve peace and uphold American leadership,” House Speaker Mike Johnson said in a statement.
| | | | You read POLITICO for trusted reporting. Now follow every twist of the lame duck session with Inside Congress. We track the committee meetings, hallway conversations, and leadership signals that show where crucial year-end deals are heading. Subscribe now. | | | | | First in MM: Waters, Blunt Rochester to release rental legislation — House Financial Services ranking member Maxine Waters and Sen.-elect Lisa Blunt Rochester will introduce a bill today that would take a first step toward a national registry of rental properties, Eleanor reports. "As affordable housing supply remains out of reach and rental prices continue to rise, now is the time to ensure there is market transparency and accountability,” Waters told MM. Specifically, their measure would direct HUD to study the need for such a registry, as well as how much creating one would cost, according to a summary shared with MM. Incoming chairs tease crypto approaches — Sen. Tim Scott, who is in line to chair Senate Banking, and Rep. French Hill, who is in line to chair House Financial Services, on Tuesday previewed how they will approach legislating on crypto in a GOP-controlled Washington, Eleanor reports. "He and I have such a good working relationship," Scott said of Hill at the Blockchain Association's policy summit, pointing to previous collaborations on issues like housing. "It's such a synergistic opportunity." Scott said he's already mapping out how to put his own stamp on digital assets policy. "I think there will be some changes recommended from industry and from our committee" to House Republicans' bill this Congress overhauling crypto regulation, Scott said. He added that he plans to follow through on pledges to create a digital assets subcommittee — and that he's already talking to moderate Democrats like Sen. Mark Warner (D-Va.) about how to move forward without Senate Banking ranking member Elizabeth Warren (D-Mass.), who has been outspoken about the use of crypto in illicit finance. French, who took the stage with current House Financial Services Chair Patrick McHenry after Scott, underscored the importance of going through Congress instead of the administration. "I appreciate the irrational exuberance," but "you do it best through law," Hill said. He highlighted the importance of winning over congressional Democrats even though Republicans will control the House and Senate. "Chairman McHenry, from the very beginning, said ... 'Hold the door on trying to make this partisan,'" Hill said. "I'll have that same tone going into the 119th Congress, and we need to work to keep it that way."
| | | | A message from Capital One:   | | | | | No vote for Crenshaw — Senate Banking Chair Sherrod Brown has scrapped plans to advance nominees for the SEC and the Financial Stability Oversight Council, Eleanor reports. — SEC Commissioner Caroline Crenshaw’s renomination drew the particular ire of the crypto industry. Stand with Crypto, the nonprofit advocacy group, said that 107,000 emails were sent to senators opposing Crenshaw’s renomination over the last week. Gerry! Gerry! Gerry! — Rep. Gerry Connolly beat out Rep. Alexandria Ocasio-Cortez to become the top Democrat on the Oversight Committee in a closed-door caucus vote Tuesday morning, our Nicholas Wu and Daniella Diaz report. Tech’s powerful new ally — The incoming chair of the Financial Services Committee has tried to woo Silicon Valley — and it’s starting to pay off, Jasper Goodman and Eleanor reports. Brown speaks on Senate floor for the last time — Outgoing Senate Banking Chair Sherrod Brown delivered an at-times emotional farewell speech Tuesday centered on what he called "true populism," Eleanor reports. "True populism is essentially about the dignity of work — putting workers at the center of all we should be doing," Brown said. "For half a century, the stock market soared, executive compensation exploded, and corporate profits have risen dramatically," but "workers' wages have been comparatively flat — and costs keep going up." He added that "until we solve the fundamental problem ... our work in this body, my work as a private citizen come January — that work is unfinished." He ended his remarks with a pledge that "it's not, I promise you, the last time you'll hear from me."
| | SVB fallout — The FDIC unanimously voted to sue the former leaders of Silicon Valley Bank, accusing them of mismanagement that led to the bank’s sudden March 2023 collapse, our Michael Stratford reports. CRA comes to nonbanks in New York — New York’s top financial regulator on Tuesday released new proposed rules that govern how nonbank mortgage companies lend to underserved communities, Michael reports.
| | | | POLITICO Pro's unique analysis combines exclusive transition intelligence and data visualization to help you understand not just what's changing, but why it matters for your organization. Explore how POLITICO Pro will make a difference for you. | | | | | | | | Consumer spending still humming — U.S. retail sales were up more than expected in November, with households increasing their purchases of motor vehicles and online merchandise, Reuters reports. Will Trump open the door for more high-skilled immigrants? — Silicon Valley is hoping to nudge the Trump administration toward more visas for high-skilled workers, NYT reports. Is the market “toppy”? — WSJ markets columnist James Mackintosh points to the reasons why there might be trouble ahead for stocks.
| | Sean Oblack is now head of public affairs at Early Warning, the company behind Zelle and Paze. He spent the last decade doing communications at The Clearing House trade association and its successor, the Bank Policy Institute.
| | A message from Capital One: Capital One’s community benefits plan, as part of our proposed acquisition of Discover, announces a commitment of over $35 billion supporting affordable housing for low- and moderate-income communities and individuals, representing a nearly 30% increase over our planned activities, as well as over $5 billion supporting solutions to challenges LMI communities face, including employment, food accessibility, healthcare, education, and public infrastructure.
Important information: CapitalOneDiscover.com | | | | | | | Follow us on Twitter | | | | Follow us | | | | |
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