State of the Fed Presented by U.S. Bank

STATE OF THE FED — So this is finally the week. Sources tell MM to look for an announcement on Thursday, though plans are not totally set yet. It’s very likely to be current Fed governor Jay Powell, as we first reported on Oct. 19th, well before anyone else. But as of the weekend, this still wasn’t 100 percent confirmed. People close to the matter said President Trump could STILL pull a late surprise. But if he does, they said it’s more likely to be Kevin Warsh than John Taylor.

The reason for this is that senior administration officials argued (evidently successfully) to Trump that while Taylor is a rock star economist and monetary policy expert, he might not be the steady hand you’d want at the helm during a potential crisis. Powell may not be the world’s most exiting chair but he is viewed as the safest pick outside of Janet Yellen. That’s where Warsh comes in.

If Trump decides at the last second that he wants a splashier pick that would satisfy more conservatives, Warsh could be the guy. And he worked at the Fed during the financial crisis, so presumably could be counted on if for whatever reason we hit the skids hard again.

Still, as of this writing, Powell remains the very likely pick. He wouldn’t be able to take part in any announcement early in the week, given the FOMC meets Tuesday and Wednesday. That would push the announcement to Thursday.

WHAT POWELL MEANS — Cap Alpha’s Ian Katz: “We already know that … Powell … has been aligned with Chair Janet Yellen on slowly raising interest rates. … In general, we think Powell as chairman would hold many views in common with Randy Quarles, the new vice chairman for supervision. Their agreement would facilitate the softening of some Fed rules …

“Powell clearly has a more deregulatory bent than say, Yellen or Stanley Fischer. But he isn’t as lenient as the Treasury report on banking regs that was released in June. At a congressional hearing that month Powell called the Treasury’s recommendations a ‘mixed bag.’”

BIG: HOME BUILDERS DITCH TAX BILL — POLITICO’s Lorraine Woellert: “The National Association of Home Builders on Saturday accused House Speaker Paul Ryan of abruptly reversing course on a mortgage tax credit proposal and announced it would oppose the tax-reform proposal that GOP lawmakers expect to unveil on Wednesday.

“The about-face by the housing-industry lobbying group strips Republicans of a powerful ally. Tax breaks for homeowners have long been one of the flashpoints of any attempt to rewrite the nation's tax laws. ‘All the resources we were going to put into supporting are now going to go into opposing the plan,’ NAHB Chief Executive Officer Jerry Howard told POLITICO.” Read more.

TRUMP APPROVAL SINKS — The economy is growing pretty nicely at around 3 percent. The stock market keeps notching new highs. And yet President Trump’s approval rating keeps sinking. Via NBC/WSJ: “Thirty-eight percent of Americans say they approve of … Trump’s job performance, his lowest job-approval rating since taking office, according to a new NBC News/Wall Street Journal poll.

“58 percent of Americans disapprove of his job performance. The approval rating of 38 percent, down five points since September, contrasts with the president’s previous low in approval: 39 percent in the May NBC News/Wall Street Journal poll. The drop for Trump has come from independents (who shifted from 41 percent approve in September to 34 percent now), whites (who went from 51 percent to 47 percent) and whites without a college degree (from 58 percent to 51 percent).” Read more.

TAX REFORM 101: How does our tax system really work? Who pays what—and how does it all add up? And how does the America tax system compare to international competitors? POLITICO’s new explainer video series has you covered. Tax Reform with Bernie Becker is the first of an issue-based, animated video series that pairs expert reporters with Pulitzer Prize-winning cartoonist, Matt Wuerker, to provide you with a new way of digesting the news. Click HERE to watch.

Jay Powell remains likely as Fed nominee. | AP Photo | Andrew Harnik/AP

GOOD MONDAY MORNING — Welcome to what could be a crazy Halloween week with charges expected from Robert Mueller, the Fed pick, the big tax bill reveal and who knows what else. Email me on [email protected] and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on [email protected] and follow her on Twitter @AubreeEWeaver.

THIS MORNING ON POLITICO PRO FINANCIAL SERVICES — Zachary Warmbrodt on the Treasury Department’s review of financial regulations and how it’s teed up a big win for Prudential Financial. To get Morning Money every day before 6 a.m., please contact Pro Services at (703) 341-4600 or [email protected].

A message from U.S. Bank Banks must do more and better to reverse systemic inequality. At U.S. Bank, that starts by committing $116 million to address social and economic inequities and elevating Black voices and Black-owned businesses. Because we’re small enough to care – and big enough to make a difference. Learn more.

DRIVING THE WEEK — Mueller charge expected Monday morning … Fed chair pick expected on Thursday … House Ways and Means slated to release first draft of their tax cut bill on Wednesday … Trump leaves for a 12-day Asia trip on Friday … FOMC on Wednesday not expected to make any change to rates or outlook

Senate Banking on Wednesday at 10:00 a.m. has a nomination for Scott Garrett to lead the Export-Import Bank. This one isn’t a slam-dunk because corporate America and some more moderate GOP senators despise this pick of an Ex-Im opponent to lead the bank … House Financial Services at 2:00 p.m. Wednesday has a hearing on data security …

GOP WILLING TO DO ANYTHING ON TAXES — POLITICO’s Brian Faler: “House Republicans are so desperate for a win on taxes that they’re agreeing to proposals that would have caused internal party warfare just a year or two ago. They’re considering forgoing a big cut in the top income tax rate on the rich, offering moderate-income Americans so many tax breaks that many would be excused from paying taxes entirely and passing a potentially 1,000-page tax bill few have seen within a matter of weeks. …

“It’s an open question whether Republicans will be as flexible when party leaders release their entire tax bill, due Nov. 1, and everyone can see exactly who will be the losers under their plan. They already have some internal battles … But for now, once-controversial proposals are barely causing a stir, a sign lawmakers are willing to move beyond their party’s orthodoxy on taxes and into a more freewheeling debate on how to rewrite the code” Read more.

PROPERTY TAX REVOLT QUELLED? — POLITICO’s Toby Eckert and Colin Wilhelm: “House tax writers' decision to allow an itemized deduction for state and local property taxes in their reform plan could be a step toward quelling a revolt against the plan by Republican lawmakers from high-tax states.

“Ways and Means Chairman Kevin Brady (R-Texas) announced the change on Saturday, an apparent concession in a hard-fought battle that led 20 House GOP lawmakers to vote against the budget bill — the vehicle for a tax overhaul — last week. Some of those lawmakers also threatened to withhold their votes from the tax-reform bill, which House leaders plan to release on Wednesday, unless their concerns were addressed” Read more.

WHO NEEDS TAX CUTS? — NYT’s Gina Chon: “It turns out that the United States economy is doing just fine without tax cuts. Initial estimates show the economy expanded at an annual rate of 3 percent in the third quarter, despite the effect of Hurricanes Harvey and Irma. An increase in goods made but not sold helped, but so did global growth and healthy corporate earnings. Protectionist policies could put the trend at risk.

“Third-quarter growth was a pleasant surprise after economists projected expansion of 2.5 percent. Growth in consumer spending, which makes up two-thirds of economic output, slowed to 2.4 percent but is expected to rebound as the effects of the hurricanes fade. And rising inventories contributed just over 0.7 percentage point to growth, in what could be a sign that companies think consumer demand will warm up.” Read more.

HOW TO GET THERE— Chris Smith, former GOP chief of staff for House Ways and Means and Treasury under President George W. Bush, in a Hill op-ed: “To evaluate the plan’s political viability, let me suggest a simple three-part test based on who pays less, who pays more, and who breaks even. In terms of who pays less … in political terms, the answer must be individual taxpayers and families…

“In 1986, to make the tax-reform math work, corporations ended up paying higher taxes in order to cover tax reductions for individual Americans. Today, poll after poll shows that Americans — both Democrats and Republicans — believe that corporations pay too little in taxes, and that lowering the corporate tax rate is among the voters’ lowest priorities for tax reform.” Read more.

BUSINESSES PUSH WORKERS TO MOBILIZE — WSJ’s Theo Franics: “In the parking lot outside Elliott Equipment Co.’s manufacturing plant here last month, more than a hundred employees gathered in front of a banner-bedecked truck, its raised boom flying an American flag 30 feet overhead, to hear from the company’s chief executive and the local congressman. Among the topics: the future tax rate for S corporations.

“As Congress and the White House move this week to overhaul the federal tax code, companies of all sizes are preparing for what will likely be the most consequential business lobbying effort in years. In the process, they are mobilizing one of their most potent tools — their employees.” Read more.







WALL STREET BANKS RAKE IN BUMPER FEES — FT’s Joe Dennison and Eric Platt: “Wall Street banks are having a strong year underwriting and selling riskier loans, with the volume so far this year already surpassing the whole of 2016. …

“Nine of the 10 largest lenders in the business — including Bank of America Merrill Lynch, JPMorgan Chase, Goldman Sachs and Barclays — have already surpassed 2016 activity, according to Bloomberg data. BofA maintained its top position, although it has fallen behind JPMorgan in terms of fee generation in the U.S., separate data from Dealogic showed.” Read more.

CHINA’S PROPERTY MARKET KEEPS ROCKING — Bloomberg: “Nowhere on Earth is wealth being created faster than in China’s mainland property market. The collective net worth of the country’s richest developers has rocketed upward since the start of the year, adding $44.3 billion to the fortunes of seven real estate tycoons.

“As China’s regulators move to tame a frenzied property market, investors are betting that the largest companies will squeeze out smaller competitors and extend their dominance in a consolidating industry.” Read more.

DID A BANK GET OFF EASY IN MORTGAGE-CRISIS SETTLEMENT? — NYT’s Gretchen Morgenson: “In January, prosecutors concluded one of the last multibillion-dollar settlements related to the 2008 mortgage collapse. The deal, with Credit Suisse, required the bank to pay $2.48 billion to settle allegations that its securities unit had misled buyers of home-loan bundles it had sold between 2005 and 2007.

“Credit Suisse also agreed to provide $2.8 billion worth of financial relief to troubled borrowers under the settlement by forgiving or modifying mortgages and helping to finance affordable housing projects across the country. When they announced the $5.28 billion deal, prosecutors cited it as evidence that the United States government can and will ride herd on large financial institutions if they engage in misconduct.” Read more.

EVERYBODY WANTS TO INVEST LIKE BUFFETT. WHAT DOES IT TAKE? — Bloomberg’s Ainslie Chandler: “A few years ago, private equity managers were growing tired of sitting on the sidelines, watching Warren Buffett’s Berkshire Hathaway make landmark investments in Kraft Heinz and BNSF Railway. They wanted to get in the game. To play, they would need to give themselves lots of time—decades, in fact—and as near-to-permanent capital as they could muster. Ambitious buyout firms bet that by raising long-­duration funds, they would finally have the patient capital to do those eye-watering megadeals they’d been coveting.

“So a few of the biggest names in the industry, Carlyle Group, Blackstone Group, and KKR, set about building their long-­duration private equity businesses, hiring teams and raising multibillion-­dollar funds (or forming long-life partnerships) to buy companies that are projected to perform well over a longer time frame than the short hold period of a standard buyout fund.” Read more.

New regulatory ad — Per release: “[O]n Halloween eve, Americans for Limited Government is going to release an ad to encourage President Trump to take action and remove Obama-era ‘zombie’ regulators that are still wreaking regulatory havoc on the lives of Americans and the economy.

“The ad cites Consumer Financial Protection Bureau Director Richard Cordray and Federal Housing Finance Agency Director, Mel Watt. It also calls on President Trump and his Administration to repeal or freeze Obama-era regulations” See the ad, which will air on Fox and Friends in D.C. (so you know who might see it.)

BANNON THREATENS SINGER — Axios’ Jonathan Swan: “In a Friday night phone call, President Trump's former chief strategist and enforcer Steve Bannon told Trump he was going "off the chain" to destroy Paul Singer, a New York hedge fund billionaire who is one of the most influential donors to the Republican Party.” Read more.

DO NOT MISS — This super juicy read on a totally unchained John Boehner, via POLITICO’s Tim Alberta.

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