Morning Consult Finance: Fed’s Powell Says Recession Is ‘Certainly a Possibility’
 

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June 23, 2022
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  • Federal Reserve Chair Jerome Powell told the Senate Banking Committee that a recession is “certainly a possibility” following the central bank’s move to raise interest rates, adding that inflation could continue to surprise policymakers and that Fed officials will be on the lookout for “compelling evidence” of a turnaround in consumer prices. When asked by Sen. Elizabeth Warren (D-Mass.) if higher interest rates would bring down gas or food prices, Powell said he didn’t think so. (The Washington Post)
  • Under a proposed class-action settlement agreement filed in federal court, the Biden administration agreed to cancel federal student loan debt  for approximately 200,000 borrowers who said they were defrauded by their colleges, but whose applications for relief went without review by the Education Department for years. The move could erase at least $6 billion in student loan debt. (Politico)
  • JPMorgan Chase & Co. will lay off or transfer more than 1,000 workers in its home-lending divisions, according to people familiar with the matter. About half of those will be let go, and half moved to other divisions, the people said, as rising mortgage rates dampen loan demand. (Bloomberg)
  • Consumer Financial Protection Bureau Director Rohit Chopra said the agency will be proposing rules in the coming months to reduce the amount banks are able to charge for late fees on credit card payments, which currently account for billions of dollars in industry earnings. A 2009 federal law that allows banks to raise late fees at the rate of inflation has caused concern among regulators as the country sees record increases in prices. (The Wall Street Journal)
 

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What Else You Need to Know

General
 

Biden’s top trade negotiator defended China tariffs as an important source of leverage.

Ana Swanson, The New York Times

The Biden administration has come under pressure to ease tariffs as a way to help deal with inflation.

 

Senators Ask Powell to Alter Fed-Pick Process to Boost Diversity

Catarina Saraiva, Bloomberg

Democratic senators led by Bob Menendez urged the Federal Reserve to take a more active role in the selection process of the heads of its regional banks so that more diverse candidates would be considered.

 

Small Businesses Plead With SEC to Show Restraint on Climate Rules

Richard Vanderford, The Wall Street Journal

While larger companies gave the SEC’s climate proposal mixed reviews, comment letters from small business groups had a tone closer to existential dread

 

Computer chip subsidies face a make-or-break moment in Congress

Jeanne Whalen and Marianna Sotomayor, The Washington Post

Proponents are racing to salvage a bipartisan measure that would provide $52 billion for domestic chip production.

 

Companies Brace for Impact of New Forced Labor Law

Ana Swanson, The New York Times

Billions of dollars could be at stake as a law banning imports of some products from China goes into effect.

 
Fiscal Policy
 

IRS has backlog of 21.3 million paper tax returns, watchdog says

Jeff Stein, The Washington Post 

More than 21 million paper tax returns are still waiting for processing by the Internal Revenue Service, as the tax agency struggles to swiftly disburse refunds to American households, according to a watchdog report released Wednesday.

 

Congress Unlikely to Heed Biden’s Call for Three-Month Suspension of Gas Tax

Tarini Parti et al., The Wall Street Journal

President Biden called for a three-month suspension of federal gasoline and diesel taxes—a move that is unlikely to have the support needed to pass in Congress and one economists and business leaders say would do little to address record-high gas prices.

 

White House adviser: Gas tax holiday no ‘silver bullet’ to lower prices

Brad Dress, The Hill

A top White House adviser on Wednesday said the Biden administration’s proposal to suspend the federal gas tax was not a “silver bullet” but stressed it was a temporary solution along with other measures to help Americans’ wallets.

 

Who gains from pausing the gas tax? Probably not drivers — or Biden

Tanya Snyder, Politico

Even if Congress was in a mood to cooperate with Biden’s plan, most studies show that only a small portion of the savings from halting the tax would make its way to consumers.

 

Harvard economists say Biden’s gas tax holiday is a bad idea—but something else could work better

Will Daniel, Fortune

President Biden is set to call for a three-month suspension of the federal gasoline tax on Wednesday, but Harvard economists, including Jason Furman, are warning the results might not be what he’s looking for.

 

Lawmakers Advance Bill Curbing Land-Deal Tax Breaks

Richard Rubin, The Wall Street Journal

A bipartisan group of lawmakers said it hopes to complete legislation to curb tax breaks for land-rights deals this year, but as the bill advanced Wednesday, lawmakers relinquished a crucial element—a provision that would deny deductions back to December 2016.

 
Economy and Monetary Policy
 

Fed Paper Finds Elevated Probability of Recession

Nick Timiraos, The Wall Street Journal

The U.S. economy faces elevated risks of a recession over the next one to two years due to rising imbalances in markets for goods and services, including labor, according to a new research paper from a Federal Reserve economist.

 

Why the Fed Is Risking a Recession

Jeanna Smialek, The New York Times

Home sales are flagging and the rest of the economy is expected to slow, maybe sharply, as rates increase. Why is the Federal Reserve doing this?

 
Banking
 

Powell says regional banks decide who gets master accounts

Kyle Campbell, American Banker

Senators pressed Federal Reserve Chair Jerome Powell on Wednesday morning to bring more transparency into the central bank’s process for granting access to its payments system.

 

Inside Citi’s plan to deploy 4,000 new tech hires to tighten up its back-office and digitize its businesses

Reed Alexander et al., Insider Premium

One senior Citi exec is hoping a slew of incoming technologists can help bolster the bank’s tech and operations following a 2020 blunder that cost the nation’s fourth-largest bank $500 million.

 

US banks take a hit from discounted corporate bond sales

Joe Rennison, Financial Times

Protracted market downturn forces underwriters to accept lower prices

 

Warning signs emerge for neobanks: ‘Doomed to not survive’

Penny Crosman, American Banker

Ominous signs have been appearing for challenger banks. A recent study by consulting firm Simon Kucher found that of the 400 neobanks in the world, less than 5% are breaking even.

 
Financial Products and Investments
 

Big Changes to 401(k) Retirement Plans Get Closer With Senate Vote

Richard Rubin and Anne Tergesen, The Wall Street Journal

Americans could wait longer to start emptying retirement accounts and face fewer restrictions on emergency withdrawals under a bill advanced unanimously Wednesday by the Senate Finance Committee.

 

Investors Balk at Tough Climate Proposals: 2022 Proxy Voting Roundup

Dieter Holger, The Wall Street Journal

U.S. companies faced a record number of shareholder votes on environmental and social issues this year, but investor support was lukewarm for proposals calling for more ambitious climate targets.

 

The big risk to equities now is earnings, not valuations

Ian Harnett, Financial Times

Investors have probably seen only the first phase of this bear market in stocks.

 

Quant hedge funds profit from cryptocurrency turmoil

Laurence Fletcher, Financial Times

Computer-driven trading has allowed some managers to predict and bet on price falls.

 
Housing and GSEs
 

House Democrats release bill boosting HUD funding by 17 percent

Katy O’Donnell, Politico Pro

House Democrats would boost funding for the Department of Housing and Urban Development by 17 percent, according to text released Wednesday of their fiscal 2023 spending bill.

 

Republicans seek delays to housing bills, citing inflation

Brendan Pedersen, National Mortgage News

Lawmakers on the House Financial Services Committee clashed over the role of government investment in down-payment assistance and other housing programs on Wednesday with Republicans signaling a deep resistance to new spending programs until inflation recedes.

 

Cost of Owning a Home Surges Above the Cost of Renting One

Gregory Schmidt, The New York Times

A new report shows that having a mortgage is far more expensive than having a lease, a disparity that is helping to cool a red-hot housing market.

 

Investors’ Housing Bets Are on Shaky Foundations

Carol Ryan, The Wall Street Journal

Big property investors turned into homebodies during the pandemic. Rising interest rates will make it harder for them to keep sheltering in housing. Just as some home buyers are still willing to pay record prices, investors continue to plow large sums into residential property.

 

Rents to rise for more than a million New Yorkers in rent stabilized apartments

Alison Kosik, CNN

The NYC Rent Guidelines Board (RGB) has given the green light to allow landlords in New York City to hike rents on more than one million rent stabilized apartments. The move comes as rents in New York City hit a record high in May for the fourth consecutive month.

 
Financial Technology
 

US Fed Evaluating SEC’s Position on Digital Assets Custody, Powell Says

Jesse Hamilton, CoinDesk

The SEC’s directive that customers’ digital assets may need to be treated as belonging to an exchange’s balance sheet has banking regulators scratching their heads about how it’ll work.

 

Binance.US Eliminates Spot Trading Fees on Bitcoin

Vicky Ge Huang, The Wall Street Journal

Cryptocurrency exchange Binance.US said it is eliminating fees on spot bitcoin trading for all customers. The move announced Wednesday by Binance.US, the U.S. affiliate of the world’s largest crypto exchange, effectively allows customers to trade spot bitcoin for the U.S. dollar, tether, USD Coin and Binance USD—or vice versa—without paying spot trading fees.

 

Do Kwon’s Crypto Empire Fell in a $40 Billion Crash. He’s Got a New Coin for You.

Alexander Osipovich and Jiyoung Sohn, The Wall Street Journal

Do Kwon used swagger and a cultlike Twitter following to build a cryptocurrency empire that collapsed last month in a $40 billion crash. Now, despite angry investors, government investigations and a crypto-market downturn, the South Korean entrepreneur is attempting a comeback.

 

Crypto Broker Voyager Digital Says Three Arrows Capital Hasn’t Repaid $666 Million in Loans

Vicky Ge Huang, The Wall Street Journal

Crypto broker Voyager Digital Ltd. said it may issue a notice of default to Three Arrows Capital Ltd. if the crypto hedge fund fails to make a loan repayment by June 27.

 

Should You Buy Now, Pay Later? Tread Carefully.

Brian X. Chen, The New York Times

Afterpay, Apple and other financial tech companies are popularizing installment plans for paying off shopping splurges. These programs can also cause confusion and a loss of control.

 
Opinions, Editorials and Perspectives
 

The US Economy Is Headed for a Hard Landing

Bill Dudley, Bloomberg

If you’re still holding out hope that the Federal Reserve will be able to engineer a soft landing in the US economy, abandon it.  A recession is inevitable within the next 12 to 18 months.

 

Stakeholder Capitalism Isn’t Working as Planned

Virginia Postrel, Bloomberg

Wouldn’t it be nice if companies cared less about profits and more about the social good? It’s popular to think so. Stakeholder capitalism is fashionable. Shareholder capitalism is not.

 

Biden Is Practically Engineering a Recession

David R. Henderson and Casey B. Mulligan, The Wall Street Journal

Most discussion about the possibility of recession focuses on the Federal Reserve’s monetary policies. But there are also factors on the supply side of the economy that may tip the U.S. economy into a recession. Among them are the tax and regulatory policies of the Biden administration.

 
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