Top Stories

  • The New York Federal Reserve unusually clarified the remarks of the bank’s president, John Williams, saying  Williams didn’t mean to suggest that the Fed would make a large interest rate cut when it meets at the end of July and that his comments were “academic.” At an economic conference, Williams said that policymakers should “take swift action when faced with adverse economic conditions” and that they should “keep interest rates lower for longer.” (The Wall Street Journal
  • Treasury Secretary Steven Mnuchin said that lawmakers have agreed to “top line” spending numbers for 2020 and 2021 and on a two-year debt limit increase, but major issues such as spending cuts and the conflict over money-raising measures that the administration wants to implement remain unsolved. President Donald Trump also hasn’t signed off on any agreement, according to multiple lawmakers. (The Washington Post
  • The Bank of England couldn’t get former head of the U.S. Fed Janet Yellen, along with Raghuram Rajan, an economic professor at the University of Chicago and former governor of the Indian central bank, to apply for the Bank of England governorship, according to a person close to the process. Several people close to the process said potential candidates haven’t wanted to wade into the politically difficult Brexit process. (Financial Times)

Chart Review

Events Calendar (All Times Local)

07/24/2019
House Financial Services Committee hearing: “The Next Megabank? Examining the Proposed Merger of SunTrust and BB&T” 10:00 am
07/25/2019
House Financial Services Committee hearing: “Examining the Use of Alternative Data in Underwriting and Credit Scoring to Expand Access to Credit” 10:00 am
View full calendar

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General

The Economy Looks Solid, but the Fed Plans to Cut Rates Anyway. Here’s Why.
Neil Irwin, The New York Times

This will be no ordinary interest rate cut. The Federal Reserve is planning to cut rates at its policy meeting at the end of the month even though the United States economy, by most available evidence, is doing perfectly fine.

What Christine Lagarde Brings to the ECB: Flexibility
Josh Zumbrun and Bojan Pancevski, The Wall Street Journal

For seven hours, European finance ministers in a windowless room argued over how to keep a government-debt crisis from infecting eurozone economies, and the meeting threatened to fall into disarray. Then Christine Lagarde stood up to speak.

U.S., China Trade Negotiators Talk for Second Time Since Truce
Bloomberg

U.S. and Chinese senior officials spoke by phone this week, the second call since the late June summit at which the two sides agreed to a truce in their ongoing trade conflict.

More than 50 major companies, from Apple to Nintendo, pull production from China because of the trade war
Taylor Telford, The Washington Post

Throughout the trade war, President Trump has frequently claimed the conflict would force companies to pull their production out of China and move it to the United States. More than a year into it, he’s been proved half-right.

St. Louis Fed’s James Bullard Sees No Need for Larger Rate Cut
Nick Timiraos, The Wall Street Journal

Federal Reserve Bank of St. Louis President James Bullard said he would support a quarter-percentage-point cut in the central bank’s benchmark short-term rate at its July 30-31 meeting and doesn’t think a larger cut at that meeting is needed. Because financial markets already expect a quarter-point cut, some analysts have said the Fed might consider a larger, half-point move to address concerns around slower global growth, trade uncertainty and muted inflation.

Mnuchin appears to be first treasury secretary to intervene in Congress’s request for private tax returns, memo says
Jeff Stein, The Washington Post

The Trump administration cannot point to another example of a treasury secretary intervening in a congressional request to release taxpayers returns, according to a Treasury Department letter released by a Democratic senator on Thursday. Treasury Secretary Steven Mnuchin has repeatedly blocked House lawmakers’ demands that the Internal Revenue Service turn over six years of President Trump’s personal and financial tax returns, a battle that is headed to federal court.

No change to US dollar policy ‘as of now’, says Treasury chief
Mamta Badkar et al., Financial Times

US Treasury secretary Steven Mnuchin on Thursday said there was “no change” to Washington’s stance on the dollar “as of now”, amid mounting speculation over whether the Trump administration will act to weaken the dollar. Mr Mnuchin said the US “could consider” a change to its dollar policy “in the future” but there was no change at present.

U.S. Stock Futures Edge Up; Dollar Rebounds: Markets Wrap
Laura Curtis, Bloomberg

U.S. equity futures held modest gains and Asian stocks climbed as investors digested the latest corporate earnings as well as fresh clues on monetary policy. European shares erased an advance amid political uncertainty in Italy.

Banking

Bernie Sanders’s years-long feud with Goldman Sachs’s former CEO is now part of his campaign
Emily Stewart, Vox

Sen. Bernie Sanders (I-VT) has made no secret of his disdain for the big banks and the “millionaires and billionaires” who run them — so of course it makes sense for him to be feuding on Twitter with the former CEO of Goldman Sachs. Lloyd Blankfein traded barbs with Sanders after the senator added Blankfein to his “anti-endorsements list,” a sort of who’s who of powerful people who have criticized Sanders. 

Sluggish loan growth hurts profits at Capital One
Kevin Wack, American Banker

Profits at Capital One Financial were hampered during the second quarter by loan growth that failed to keep pace with rising expenses. The McLean, Va.-based company reported net income of $1.6 billion, which was down 17% from the same period a year earlier.

Big banks cash in on consumers
Courtenay Brown, Axios

The flush U.S. consumer is lifting profits for the big banks, busily pouring free cash into savings and checking accounts while spending on credit cards and borrowing money to buy homes.

Financial Products and Investments

Warren has a plan for Wall Street — and Wall Street isn’t panicking
Ben White, Politico

Elizabeth Warren has another plan — this time to take on Wall Street and reshape the role of finance in the American economy. And Wall Street isn’t panicking as she climbs in the polls.

Options Clearing Corp readies plan to boost capital
Philip Stafford, Financial Times

The US’s Options Clearing Corp is putting the finishing touches on a long-awaited new plan to boost its capital, risking unhappiness among customers and shareholders as it tries to shore up its balance sheet. The Chicago clearer expects to file a revised plan to the Securities and Exchange Commission, the US markets watchdog, by the end of the month, according to John Davidson, chief executive of the OCC. 

Wall Street Trading Costs to Surge as New Rules Hit Derivatives
Jennifer Surane, Bloomberg

Wall Street’s heavyweights are prepping their clients for bad news: Some trades are about to get a lot more expensive.

Blackstone caps last quarter as partnership with profit jump
Mark Vandevelde, Financial Times

Blackstone beat expectations for distributable earnings and recorded an “unprecedented” surge in assets under management to $545bn in its final quarter as a publicly traded partnership. The world’s biggest private equity firm has amassed a $150bn warchest of undrawn capital to spend on new deals.

Housing and GSEs

Minneapolis public housing official tapped to lead New York City Housing Authority
Marissa Evans, Minneapolis Star Tribune

After two years directing the Minneapolis public housing agency, Greg Russ is taking on the biggest challenge in his 46-year career: running the New York City Housing Authority. Starting next month, Russ will take over as CEO of the nation’s largest public housing system, home to 400,000 low-income New Yorkers. 

Taxes

Mnuchin Says ‘No Commitment’ on Possible Capital Gains Tax Break
Saleha Mohsin and Laura Davison, Bloomberg

The Trump administration hasn’t committed yet to index capital gains to inflation, Treasury Secretary Steven Mnuchin said, even as White House officials continue to pursue the plan for a tax break that would largely benefit the wealthy.

Morgan Stanley’s rich clients withdrew a surprising amount from accounts to pay their taxes
Hugh Son, CNBC

Morgan Stanley’s rich clients may have gotten surprised by their tax bills this year. The bank’s wealth management business was hit by an unexpectedly high outflow of deposits in the second quarter, which covers the April tax filing season, according to Chief Financial Officer Jonathan Pruzan.

Mortimer Caplin, Tactful but Tough Tax Collector, Dies at 103
Sam Roberts, The New York Times

Mortimer Caplin, who as Internal Revenue commissioner in the early 1960s was credited with making taxpaying more tolerable for the majority of Americans who do so voluntarily and tougher for the rest to avoid or evade, died on Monday at his home in Chevy Chase, Md. He was 103. His death was confirmed by his son Lee.

Financial Technology

Lawmakers hint at regulatory models for Facebook cryptocurrency
Jim Saksa, Roll Call

House members suggested Wednesday that Facebook Inc.‘s proposed cryptocurrency could be deemed an exchange-traded fund, a currency or a commodity, all of which could require some degree of regulatory oversight. “What we’re struggling with is: What are you?” said Democratic Colorado Rep. Ed Perlmutter summing up a four-hour House Financial Services Committee grilling of a company executive about the proposed cryptocurrency known as Libra.

Facebook’s Libra Currency Could Threaten the Global Financial System. Here’s How
David Z. Morris, Fortune

This week, both the Senate Banking Committee and the House Financial Services Committee grilled Facebook’s David Marcus, head of the Libra cryptocurrency project. Lawmakers bluntly laid out a variety of doubts about the Libra proposal, including whether the system could prevent money laundering, and whether Facebook should be trusted to collect transaction data, given its shoddy history of handling user information.

Opinions, Editorials and Perspectives

‘No Match’ Letters Leave Employers With Few Options
Tom Manzo, Morning Consult

Donald Trump was supposed to reduce the cost of running a business. Thanks to a recent policy change from his Social Security Administration (SSA), the president is in competition with California state legislators to make staffing the company I run more difficult.

Congress can solve the cannabis banking conundrum now
Rob Nichols and Jim Nussle, Fox Business

With the number of states legalizing cannabis Opens a New Window.  in some form continuing to grow, it’s understandable that Americans with differing views would want to debate whether it’s time to reform the nation’s marijuana laws. As representatives of the credit union and banking industries, we aren’t focused on the legalization debate. Instead, we are trying to solve a pressing practical concern caused by the ongoing conflict between state and federal cannabis laws — what to do with the money.

Deficit Man and the 2020 Election
Paul Krugman, The New York Times

I’ve seen a number of people suggest that the 2020 election will be a sort of test: Can a sufficiently terrible president lose an election despite a good economy? And that is, in fact, the test we’d be running if the election were tomorrow.

Research Reports

How Do Large Banks Manage Their Cash?
Jeffrey Levine and Asani Sarkar, Liberty Street Economics

As the aggregate supply of reserves shrinks and large banks implement liquidity regulations, they may follow a variety of liquidity management strategies depending on their business models and the interest rate differences between alternative liquid instruments. For example, the banks may continue to hold large amounts of excess reserves or shift to Treasury or agency securities or shrink their balance sheets. 

Morning Consult