Top Stories

  • In a final essay published posthumously, former Federal Reserve Chairman Paul Volcker said President Donald Trump’s attacks on the Fed are a “matter of great concern” since the central bank is “carefully designed to be free of purely partisan attacks.” Volcker urged the current members of the Federal Reserve and members of Congress who are responsible for oversight of the central bank to protect the Fed’s ability to act free of “partisan political purpose.” (Financial Times)
  • Both the United States and China are trying to delay tariffs scheduled for Sunday, negotiating over a potential Beijing purchase of U.S. farm products that Trump has insisted on for a trade deal. Negotiators from both sides said they don’t have a hard deadline to complete talks. (The Wall Street Journal)
  • Letters from the Internal Revenue Service three years ago to 3.9 million Americans saying they recently paid a fine for not having health insurance may have saved an estimated 700 lives, according to a new working paper from three Treasury Department economists. For every 1,648 Amrericans between the ages of 45 and 64 who received a letter, which offered tips on how to enroll for coverage, one fewer death occurred compared to those who did not receive one. (The New York Times)

Chart Review

Events Calendar (All Times Local)

12/11/2019
CFTC Market Risk Advisory Committee Meeting 9:30 am
12/12/2019
FDIC Board Meeting 2:00 pm
View full calendar

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General

How the Fed lifted Trump’s 2020 prospects
Ben White and Victoria Guida, Politico 

Jerome Powell spent 2019 as one of President Donald Trump’s favorite punching bags, the unhappy recipient of dozens of angry tweets blaming him for anything and everything wrong with the U.S. economy. He regularly endured rumors that Trump would try to fire him.

Fed Is Likely to Leave Rates Alone, and Markets Wonder What’s Next
Jeanna Smialek, The New York Times

 The Federal Reserve is expected to leave interest rates unchanged at its final meeting of the year on Wednesday as officials wait to see how the economy fares after they cut rate three times in 2019. The Fed chair, Jerome H. Powell, and his colleagues made an aggressive shift this year. 

Revised Trade Pact Set for Likely Approval by Congress in 2020
Natalie Andrews et al., The Wall Street Journal

A new U.S. trade deal with Mexico and Canada gained backing from House Democrats, setting the agreement on course for likely ratification by Congress in 2020 and marking a victory for President Trump after months of negotiations to modify it. Mr. Trump ran for office in 2016 on a pledge to remake or blow up the North American Free Trade Agreement, and his administration used a combination of pressure tactics and closed-door negotiations to win support for an amended version of the agreement from Democratic lawmakers, labor unions and Mexican officials.

‘We ate their lunch’: How Pelosi got to ‘yes’ on Trump’s trade deal
Megan Casella, Politico

Nancy Pelosi sat Mexico’s top trade negotiator and foreign minister down in her office and gave the two men an ultimatum. It was late September, and Democrats feared Mexico was not going to implement labor protections mandated by the new North American trade agreement. 

After year of living dangerously, Fed likely to signal time to lay low
Howard Schneider, Reuters

The U.S. Federal Reserve holds its last policy meeting of 2019 on Wednesday, having completed a year-long U-turn that saw it abandon a tightening cycle and lower borrowing costs three times in response to the global trade war. The policy shift has slashed officials’ forecast for the U.S. central bank’s benchmark overnight lending rate over 2020 to a level half what it was when Fed Chairman Jerome Powell took the reins in February 2018.

Trump is reshaping U.S. trade policy, but not at the scale he long promised
David Lynch, The Washington Post

President Trump on Tuesday celebrated a negotiating breakthrough that paved the way for congressional approval of a new North American trade deal, one of the main goals of his presidency. The compromise with House Speaker Nancy Pelosi (D-Calif.) over labor rights in Mexico comes as the president and his chief negotiator Robert E. Lighthizer strive to complete a more limited accord with China, just five days before U.S. tariffs are scheduled to hit Chinese goods.

U.S. Futures, Stocks Drift Before Fed; Bonds Climb: Markets Wrap
Yakob Peterseil, Bloomberg

U.S. equity futures drifted with stocks before the Federal Reserve’s final policy decision of the year and amid lingering uncertainty over the progress of trade negotiations between America and China. Treasuries advanced.

Banking

This Is What Racism Looks Like in the Banking Industry
Emily Flitter, The New York Times

Jimmy Kennedy earned $13 million during his nine-year career as a player in the National Football League. He was the kind of person most banks would be happy to have as a client.

Deutsche paints gloomy picture at investor gathering
Arno Schuetze, Reuters

Deutsche Bank (DBKGn.DE) pared back its revenue growth target on Tuesday, highlighting the tough task facing Germany’s biggest lender to revive its fortunes against a gloomy economic backdrop. Deutsche’s management gave a presentation to investors on its restructuring which aims to shift the bank away from Wall Street to its home market of Germany as it seeks to draw a line under years of scandals and heavy losses.

Financial Products and Investments

BlackRock strives for moral high ground with Wiseman firing
Richard Henderson, Financial Times

Larry Fink champions company’s culture even if it means losing a potential successor.

Betsy DeVos Overruled Education Dept. Findings On Defrauded Student Borrowers
Cory Turner, NPR News

Documents obtained by NPR shed new light on a bitter fight between defrauded student borrowers and U.S. Education Secretary Betsy DeVos. These borrowers — more than 200,000 of them — say some for-profit colleges lied to them about their job prospects and the transferability of credits. 

Housing and GSEs

VA loans are becoming more popular, driving an increase in Ginnie Mae’s support of housing market
Ben Lane, HousingWire

Ginnie Mae, the government agency that issues mortgage bonds backed by Federal Housing Administration and Department of Veterans Affairs loans, now insures more than $2.1 trillion in mortgages. That figure has increased by more than $1 trillion in the last decade, and according to recently released data from Ginnie Mae, much of that increase has been driven by a rise in VA loans.

Taxes

Private debt collectors working for the IRS raked in a record $213 million in back taxes this year
Andrew Keshner, MarketWatch

Debt collectors working for the Internal Revenue Service recouped nearly $213 million in owed taxes this year, the largest recovery since the program’s restart several years ago, according to recently released numbers. The fiscal year 2019 results are more than double the $82 million in revenue raked in a year before and well beyond the $6.5 million collected in fiscal year 2017.

Financial Technology

Goldman Taps Startup to Explore Quantum Computing
Sara Castellanos, The Wall Street Journal

Goldman Sachs Group Inc. has teamed up with a quantum-computing startup to explore how the nascent technology could be used to speed up financial calculations and artificial-intelligence-based decision making. The bank worked with Palo Alto, Calif.-based startup QC Ware Corp. for three months earlier this year to understand the limitations of current quantum-computing technology, said Paul Burchard, a managing director at Goldman’s research-and-development division.

Opinions, Editorials and Perspectives

Steel Tariffs Are Reviving Forgotten U.S. Communities
Jeff Ferry, Morning Consult

Media commentators often criticize the Trump Administration’s steel tariffs. But the evidence from around the United States shows that the steel tariffs are working. They are delivering jobs and an economic boost to many long-forgotten towns and cities throughout the country.

Return of the Tax Games
The Editorial Board, The Wall Street Journal

Impeachment suggests a hopelessly partisan Washington, but sometimes this is more for show. Republicans and Democrats are working together behind the scenes to fleece taxpayers with another burst of special-interest tax subsidies before they leave for the year. In a rare moment of wisdom or confusion, Congress let its annual package of tax handouts expire at the end of 2017. This “extender” bill, as it’s called, is Congress’s usual way of slipping repeat tax perks to such favored friends as Nascar track proprietors, racehorse owners and green-energy outfits.

Research Reports

The Consumption Response to Trade Shocks: Evidence from the US-China Trade War
Michael E. Waugh, The National Bureau of Economic Research

This paper provides evidence on the consumption effects of trade shocks by exploiting changes in US and Chinese trade policy between 2017 and 2018. The analysis uses a unique data set with the universe of new auto sales at the US county level, at a monthly frequency, and a simple difference-in-difference approach to measure the effect of changes in trade policy on county-level consumption.

Morning Consult