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Powell threads the needle

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Federal Reserve Chair Jay Powell was a man with a clear but difficult mission Wednesday: Signal that the Fed will soon slow the pace of rate increases, but make clear that rates may end up higher than previously thought.

Mission accomplished, analysts told MM. Our Victoria Guida has some of the takeaways:

“Incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected,” Powell said at the post-meeting press conference.

Victoria writes: “This remark was a message for investors: Don’t get too excited at the prospect of the Fed raising rates at a slower pace. Central bank officials are even less optimistic about inflation than they were before and now think that rates will have to go higher than they had projected in September. That means its main policy rate could go to as much as 5 percent.”

An unexpected twist: Officials made a couple of key changes to their post-meeting statement, using it as an important communications tool for the first time in months, said Bank Policy Institute chief economist Bill Nelson, a former Fed staffer.

“The two changes seemed to be designed to be somewhat offsetting,” Nelson said, with one sentence suggesting they may take rates higher than previously expected, but the other signaling they may slow the pace to account for the cumulative effects of rate increases so far.

But if markets initially rallied on the 2 p.m. statement — suggesting a dovish interpretation — Powell made sure they came back to Earth by the end of the presser, emphasizing repeatedly that the Fed had a long way to go before pausing rate hikes.

“It seems likely to me that he had folks on the committee who were concerned about the continued pace of tightening and wanted to signal slowing, but others determined that that signal not be taken as any kind of a dialing back of their determination to reduce inflation,” Nelson said. “So it felt like it was a statement designed to build a consensus and be relatively neutral.”

IT’S THURSDAY — Happy Jobs Day Eve. Hang in there. Have a tip, story idea or feedback to share? Let us know: [email protected] and [email protected].

Jobless claims and productivity data will be released at 8:30 a.m. … CFTC Commissioner Kristin Johnson will give a fireside chat at a Financial Markets Association event at 11:10 a.m.

TWITTER CRINGE — File this under embarrassing: The White House on Wednesday had to delete a tweet from its official Twitter account suggesting a huge increase in Social Security benefit checks next year is the result of “President Biden’s leadership.”

Prominent economists and policy wonks from both parties excoriated the White House on Twitter and flagged the tweet as missing important context — first, the increase is an annual cost-of-living adjustment, required under a law that’s been in place since the Nixon administration. Second, benefit payments are rising 8.7 percent next year because they’re based on the rate of inflation, which is near a four-decade high. (Not good!) So yeah, in that sense, one could argue — as some did on Twitter — that the president’s policies are responsible for the big price increases driving up benefits in 2023.

“I’m genuinely not sure there was a dumber way for us to keep the focus on Social Security than that tweet,” one administration official told MM.

White House spokeswoman Karine Jean-Pierre said at a briefing Wednesday that the tweet was incomplete and didn’t include appropriate context.

We’re told the tweets aren’t vetted by Treasury, the National Economic Council or the Council of Economic Advisers in advance — they’re sent by the White House digital strategy team. Where would they have gotten such an idea? Maybe from the president:

“On our watch, for the first time in 10 years, seniors are getting the biggest increase in Social Security checks, period,” Biden told voters in Florida Tuesday night. (He said something similar earlier that day, and in remarks at a fundraiser in Philadelphia last week.)

Maybe it’s time to get some policy folks in on the messaging war.

CRYPTO POLICY WARS DRAW NIGH — From Sam: “Banks are preparing for a fight as GOP leaders ready policies to boost crypto startups vying to compete with Wall Street … If Republicans prevail in November, [Rep. Patrick] McHenry is set to be the most tech-focused chair in the history of the Financial Services Committee, a prospect rattling Wall Street groups that have typically held significant influence over Republicans’ financial regulatory agenda. It could also put him at odds with congressional leaders on competing committees that are moving quickly to put their own stamp on crypto regulation.

“‘The same folks that created these cryptocurrencies and stablecoins to be outside of the traditional financial system are now trying to get them shoehorned into the system,’ said Paul Merski, executive vice president for government relations at the Independent Community Bankers of America, which warned McHenry and other lawmakers that early versions of the bill wouldn’t keep crypto risks from spilling into the financial sector.”

More from McHenry: The North Carolina Republican also signaled that there’s considerable appetite within his caucus to grill financial execs on ESG and climate-related strategies. “We have significant market participants that have an outsize power on how capital’s allocated. And we want to make sure that we understand how they’re using that power. … Is it something that’s good for the U.S. economy or is it something we think is long-term bad for the U.S. economy?” he told Zach Warmbrodt and Sam.

FIRST IN MM: ANOTHER DAY, ANOTHER GENSLER LETTER — In a letter first shared with Morning Money, Sen. Pat Toomey (R-Penn.) and McHenry are joining the chorus of lawmakers from both sides of the aisle warning about the SEC “rushing to enact too many rules, too quickly” under Chair Gary Gensler.

The Republicans’ concerns come in the wake of a recent report from the Wall Street regulator’s own internal watchdog that highlighted how the uptick in rulemaking activity was straining staff. In the letter, Toomey and McHenry cited the report’s findings to say “this is no way to run an agency.”

Gensler has pushed back on worries over the clip at which the SEC is turning out new rules, pointing to what former chairs have done while at the agency. Better Markets recently found that 29 rules had been finalized during Gensler’s 18 months, as of late October. By comparison, 118 final rules were enacted during former Chairman Jay Clayton’s three and a half years at the agency.

GENSLER PRESENTS: LIQUID SWORDS — Our Declan Harty: “SEC commissioners voted 3-2 along party lines to issue draft rules that would impose new liquidity risk management requirements on open-end funds. The changes are designed to improve the fund industry’s resilience in periods of heightened redemptions, in part by forcing funds to hold more assets that can be easily traded.”

More coverage of the Fed meeting

WSJ’s Nick Timiraos: Powell signaled the Fed plans to keep raising rates, though possibly in smaller increments.

Bloomberg’s Katherine Greifeld and Vildana Hajric: “Jerome Powell’s Federal Reserve did something Wednesday it hadn’t done for months: say something dovish. Investors had all of 30 minutes to celebrate.”

Reuters’ Michael Derby: Powell “acknowledged on Wednesday the U.S. central bank’s latest ethics stumbles and said it was working hard to make sure it meets its new, very stringent standards.”

MAYBE THAT’S WHY THE VIBES ARE AWFUL — Our Brittany Gibson: “Two-thirds of voters believe the economy is in a recession, despite new data released last week showing that the economy grew in the third quarter by a healthy annualized rate of 2.6 percent, according to the latest POLITICO/Morning Consult poll.”

THE ECONOMY HITS THE ENVIRONMENT — Our Josh Siegel: “Renewable energy growth fell to its lowest level in three years in the third quarter due to rising costs, supply chain disruptions and the dearth of solar panels because of the lingering trade fight over equipment imports from Asia, according to data released Wednesday from the American Clean Power Association.”

FSOC WARNED ABOUT INTERCONNECTEDNESS — Coindesk’s Ian Allison obtained the financials of Alameda Research, a crypto trading firm owned by FTX founder Sam Bankman-Fried, which the billionaire has characterized as being separate from his digital exchange: “That balance sheet is full of FTX – specifically, the FTT token issued by the exchange, which grants holders a discount on trading fees at its marketplace … it shows Bankman-Fried’s trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto.”

CRYPTO IS ABOUT FREEDOM (TO BUY A BANK) — Bloomberg’s Anna Irrera: “Binance Holdings Ltd. founder and CEO Zhao ‘CZ’ Changpeng … is considering targets including banks as the boundary between the digital-asset industry and traditional finance blurs.”

Julie Kozack has been named director of strategic communications at the International Monetary Fund. Kozack is currently a deputy director in the European Department, where she oversees the IMF’s work on Ukraine. She was previously deputy director of the Western Hemisphere Department and lead negotiator for Argentina on its latest program.

Senior Russian military leaders recently had conversations to discuss when and how Moscow might use a tactical nuclear weapon in Ukraine, contributing to heightened concern in Washington and allied capitals. — NYT’s Helene Cooper, Julian E. Barnes and Eric Schmitt

[Li Qiang], whom Mr. Xi appointed last month as China’s new No. 2, is known inside the country as a pro-business pragmatist unafraid to push the boundaries of Communist Party rule. Party insiders say he’s also a loyalist who will implement Beijing’s policies effectively and aggressively when needed. The question as Mr. Li steps into his new role is, which side will predominate? — Keith Zhai and Chun Han Wong

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