| | | | |  | | By Victoria Guida | | | 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.
| | As Federal Reserve officials gather for their final interest rate decision of the year, the backdrop is striking: This is as good an ending to 2023 as anyone could’ve realistically imagined for the economy. Unemployment is still below 4 percent. Inflation has cooled to 3 percent. The economy grew at an annualized rate of 5.2 percent in the third quarter. The ratio of job openings to unemployed workers has basically come back down to pre-pandemic levels, and wages are growing faster than prices. And all of that is occurring after the Fed raised its policy rate from near zero to above 5 percent in a year and a half. If you’d predicted all of that would happen simultaneously, people would have laughed in your face. Consider that the Fed in March 2023 expected to end the year with GDP growth of 0.4 percent, a 4.5 percent unemployment rate and 3.3 percent inflation. The outcome so far is even more positive than what was projected by optimistic economists forecasting a soft landing, like Goldman Sachs’ chief U.S. economist, David Mericle. “Is this the best case scenario? It’s arguably better than what just about anyone thought in 2022,” he said. Mericle’s prediction was that the central bank could slow growth enough to cool job growth, wage growth and inflation without actually causing a recession. “That really hasn’t been the story in 2023,” he said. “GDP [growth] is actually quite strong,” but inflation has been coming down anyway. He and others attribute that phenomenon to the fact that the supply of goods and services has surged, lessening the need to decrease consumers’ demand for those things. Supply chains have untangled, and people have returned to the labor force in droves, particularly immigrants. Demand for workers has also cooled but without causing a spike in layoffs. Nick Bunker, director of North American research at the job site Indeed, said that’s likely the case because there’s less competition for already employed workers. “Overall, hiring has gone down, but there’s been a shift in the composition in who’s getting hired away from already-employed people and towards people out of work,” he said. All these data points have given the Fed confidence to hold rates steady for the time being, a stance they’re expected to continue in today’s decision. Of course, the economy is a fickle and unpredictable beast. Who knows if something else in the financial system will break, with defaults rising on office space mortgages and risks lurking in private credit. Given the strength of the economy, the Fed might hold rates at high levels for a while yet, putting more pressure on households and businesses with a higher debt burden. “Things have gone really, really well right now, but that doesn’t mean that the touchdown of the landing couldn’t go wrong,” Bunker said. “There’s always a chance the landing gear doesn’t open.” And there are also long-term structural issues, particularly housing affordability, that are an understandable drag on people’s daily lives. Still, it’s nice to have some good news. IT’S WEDNESDAY — What questions do you have for Federal Reserve Chair Jerome Powell today? As always, send tips and suggestions to Victoria at vguida@politico.com, Sam at ssutton@politico.com and to Zach at zwarmbrodt@politico.com.
| | A message from Mastercard: Small businesses are the backbone of our communities, and Mastercard understands that every business has unique needs. Alongside partners, Mastercard supports small business owners with innovative and tailored tools, resources and solutions. With Mastercard, small businesses can connect to capital, technology, financial tools and more, to help grow and protect their business every step of the way. Learn more about how Mastercard supports small businesses at mastercard.us/smallbusiness. | | | | | | The Producer Price Index for November will be released at 8:30 a.m. … House Financial Services has a subcommittee hearing on Iran sanctions at 9 a.m. … The CFTC holds an open meeting at 9:30 a.m. … The SEC holds an open meeting on its central clearing rule at 10 a.m. … House Energy and Commerce has a hearing on the economic impact of AI at 10 a.m. … Powell holds his post-Federal Open Market Committee meeting press conference at 2:30 p.m. China panel calls for outbound investment crackdown — The House's bipartisan China Select Committee voted Tuesday to approve an array of recommendations that would crack down on outbound U.S. investments in China. The non-binding guidance, issued in a 53-page report Tuesday, calls on Congress to direct the Federal Reserve to "stress-test U.S. banks for their ability to withstand a potential sudden loss of market access to" China and assess "the impact on U.S. financial markets of potential U.S. and allied sanctions against PRC financial firms in the event of a conflict." The committee's report also calls for new restrictions on outbound U.S. investments in critical Chinese sectors. Scoop — Victoria and Zach report that the Treasury Department is hiring Jeanette Quick, a top official at California’s business oversight agency, to be deputy assistant secretary for financial institutions policy. Quick was praised as a "top notch" hire by her Republican predecessor Jared Sawyer, now a partner at Rich Feur Anderson. "She understands the policy landscape from multiple vantage points, and will bring a tremendous work ethic to the role. Treasury will be well served," Sawyer said. First in MM: Crypto group targets Brown — A pro-crypto nonprofit group is launching a six-figure ad buy in Ohio designed to pressure Senate Banking Chair Sherrod Brown, an industry skeptic who’s facing a tough reelection campaign, and SEC Chair Gary Gensler, Washington’s chief crypto antagonist, Jasper Goodman reports. The group, called the Cedar Innovation Foundation, said the ads are the first of what will be "a multi-million dollar effort to fight misinformation and politically motivated attacks on Americans' right to participate in the crypto and blockchain ecosystem.” It is a tax-exempt dark money organization, so we don't know where its funding comes from. You can watch the ads here and here. The campaign is the latest attempt by the crypto industry to influence the 2024 election as it seeks regulatory reforms that would legitimize digital assets. Several pro-crypto super PACs are ramping up influence efforts and Coinbase, the largest U.S. crypto exchange, has launched a grassroots advocacy movement that hosted a presidential town hall in New Hampshire on Monday. Brown said in a statement that he "will never bow to special interests or industry pressure, no matter how well-funded by dark money from shady sources." The SEC did not respond to a request for comment.
| | | First in MM — Our Eleanor Mueller scoops that Sen. Joni Ernst (R-Iowa) plans to introduce a bill today that would step up penalties on federal workers who commit sexual assault in the wake of reports of workplace misconduct at the FDIC. The so-called CREEPS Act would apply to both employees and contractors. Ernst's office says she has not received a response from the FDIC since requesting more information on the allegations against the agency. Wagner bows out of HFSC race — Rep. Ann Wagner (R-Mo.) won’t be vying to replace Rep. Patrick McHenry (R-N.C.) at the helm of House Financial Services, Eleanor reports. “We may be looking at some leadership positions and some other avenues, but certainly not in financial services,” Wagner, the capital markets subcommittee chair, said in an interview Tuesday. “I love capital markets, it's been just my goal to get this gavel; I think it's the meat and potatoes of the Financial Services Committee.” Senate Banking Republicans eye housing, more in '24 — GOP members of the Senate Banking Committee met off the floor Tuesday afternoon to strategize for the coming year, Eleanor reports. Top priorities include oversight of the Basel III proposal and the FDIC allegations, Sens. J.D. Vance (R-Ohio), Mike Rounds (R-S.D.), and others leaving the room said. A Senate GOP aide said members also discussed pushing for a housing-related hearing with testimony from the regulators, as well as a markup of ranking member Tim Scott (R-S.C.)'s ROAD to Housing Act. Narrower measures like Rounds' rural housing legislation would get rolled into that package, the aide said.
| | Another one — Wall Street’s legal onslaught against the rush of new rules coming out of the Gensler-led SEC is finally coming to bear after almost three years of saber rattling from the world of high finance, our Declan Harty reports. On Tuesday, a trio of three hedge fund groups, including the Managed Funds Association, challenged the SEC’s new disclosure rules for short selling and securities lending. The groups allege that they clash with one another and violate administrative law, claiming that the agency didn’t properly consider their combined impact.
| | | | A message from Mastercard:   | | | | | The Influence(r) Game — The endless fight between merchant groups and the payments industry over a credit card swipe fee bill led by Sens. Richard Durbin (D-Ill.) and Roger Marshall’s (R-Kansas) took another swing into the world of social media influencers on Tuesday, Sam reports. The Merchants Payments Association, which represents retailers, published a memo that the Electronic Payments Coalition distributed to influencers with talking points on how the bill would kill credit card reward programs. It also included rules for receiving payment in exchange for their posts. The watchdog group Accountable.US has also published reports on the financial services industry’s social media influence campaign. “I suppose they were also shocked when they found out there was gambling in Casablanca,” said EPC spokesperson Nick Simpson, who confirmed the memo had been distributed by an EPC vendor. “It’s no different than the similar memo I am sure MPC sent out to the influencers they are working with.” The MPC denied that it’s working with influencers to support the legislation, which would force banks to make credit cards usable across at least two networks — one of which can’t be Visa or Mastercard. “We are not paying anyone,” said Stephanie Martz, chief administrative officer and general counsel at the National Retail Federation (an MPC member). “We are not paying anyone. We work with grassroots organizations, and those are people who have skin in the game. It’s not made-up astroturf.” At the movies — The romantic comedy "Chick Flick” directed by Louise Linton, the wife of former Treasury Secretary Steven Mnuchin, was released on Tuesday. — Daniel Lippman
| | Closer — The November consumer price index landed squarely in line with expectations, reinforcing the narrative that inflation is cooling even as the labor market holds steady. That is the exact outcome the Biden administration has been hoping for, though housing and medical care prices are still climbing. “To me a soft landing is the economy continues to grow, the labor market remains strong and inflation comes down. And I believe that’s the path we’re on,” Treasury Secretary Janet Yellen said Tuesday at The WSJ’s CEO Council Summit. — In a year-end memo, National Economic Council Director Lael Brainard attributed the progress on inflation to rebuilt supply chains, labor force participation increases and stronger productivity. — Robert Shapiro for Washington Monthly: “Why Biden’s Good Economic News Hasn’t Helped Him Politically—So Far”
| | Donor moves — Crypto investor Mike Novogratz, a former Biden donor, is hosting a fundraiser for the president’s Democratic primary challenger Rep. Dean Phillips (D-Minn.), CNBC’s Brian Schwartz reports. The taxman eats first — Bloomberg Law’s Steven Church: “US officials will take money away from victims of the fraud-tainted crypto firm FTX Trading Ltd. unless a judge rejects the government’s demand for $24 billion in unpaid taxes, the bankrupt company said in a court filing.” Kiosk rules — The California Department of Financial Protection and Innovation has finalized rules for crypto kiosks and ATMs, which require operators to get licensed by July 1, 2025.
| | A message from Mastercard: Whether it’s setting up shop online, accepting digital payments, or boosting cybersecurity readiness, Mastercard connects small businesses with the support they need to help reach their goals. With Mastercard, small businesses can connect to capital, technology, financial tools and more, to help grow and protect their business every step of the way. And as part of Mastercard’s community, small business owners can hone their skills and learn new ones to help build, manage, and grow their enterprises. Small businesses are the backbone of our communities, and Mastercard understands that every business has unique needs. By helping business owners reach their goals, we’re helping make our economy stronger together. Learn more about how Mastercard supports small businesses at mastercard.us/smallbusiness. | | | | | | | Follow us on Twitter | | | | Follow us | | | | |
