For Wall Street, the most important news of the week is happening in Washington D.C., not Singapore. The Federal Reserve is all but certain to raise America’s benchmark interest rate a quarter point today to 1.75 percent to 2 percent. That’s already baked into market expectations, and it will likely cause credit card, mortgage, auto and small business loans to rise slightly in the coming days.
What investors and economists are really watching for are hints of the Fed’s playbook going forward – and whether the central bank will add its voice to the chorus of world leaders denouncing President Trump’s trade policies.
The Fed has been cautious about outright criticism of any U.S. president or Congress since the central bank is an independent agency that tries to stay apolitical -- but that might change today. Trump’s tariffs are seen by many as the top threat to the U.S. economy, especially if a full-blown trade war erupts.
A trade war is looking more likely after the G-7 meeting over the weekend left Trump threatening even more tariffs on America’s allies. Those would be on top of the $50 billion more in tariffs he’s vowed to put on China later this month and the existing steel and aluminum tariffs on numerous nations, including Canada and much of Europe. Now other nations are firing back with tariffs on U.S. goods.
The harshest Fed criticism so far of Trump’s trade actions came from John Williams, the head of the San Francisco Fed who is about to take over as president of the New York Fed. He told a Spanish newspaper in April, “if the conflict increases there will be less growth, more inflation and lower quality of life all over the world.”
The Fed will have two options to subtly (or not-so-subtly) warn Trump to calm down on trade. The first is for the Fed to put a line in its official statement -- slated to be released at 2pm EST -- that mentions trade as a headwind. The second is for Fed chair Jerome H. Powell to say something during his press conference, which begins at 2:30pm and will almost certainly include questions from reporters on the global trade turmoil.
Beyond trade and the expected rate hike, analysts will attempt to answer a key question: Will the Fed undertake one or two more rates hikes in 2018? The Fed has been predicting just one more hike after Wednesday, but the central bank’s meeting minutes for March and May show the committee is sharply divided on this issue. It would only take one person to change their mind to tip median projection to two increases.
The Fed will also release its latest projections for economic growth, inflation, unemployment and interest rates at 2 p.m. EST along with the policy statement. In March, the Fed lifted its forecast for growth to 2.7 percent this year and 2.4 percent next, largely because of the expected impact of last year's GOP tax cuts. It’s not the 3 percent-plus growth Trump wants (and the Fed thinks the boost will fade by 2020), but it’s a noticeable uptick.
A majority of economists are now predicting growth close to 3 percent and two more rate hikes, which would make a total of four this year. The United States hasn’t had a year with four rate hikes since 2006. There’s an entire generation of young traders on Wall Street who haven’t experienced a rate hike scenario like this before.
Then again, there hasn’t been a U.S. president this willing to erect trade barriers since Herbert Hoover partnered with Congress to put tariffs on about every import during the Great Depression.
Everyone is trying to figure out how to adjust -- and what’s next.
(Meanwhile, stocks are edging up ahead of today's Fed meeting, the AP reported as of 6:30 a.m.: "Futures for the Dow are up 0.1 percent and those for the S&P 500 are 0.2 percent higher. European indexes are up, with Germany’s DAX gaining 0.2 percent and Britain’s FTSE 100 0.3 percent higher. The dollar, meanwhile, is edging up as well, gaining 0.1 percent against the yen, to 110.52 yen.")
PROGRAMMING NOTE: Tory Newmyer is on vacation and this newsletter is operating on an abbreviated schedule. We'll publish -- with excellent Post guest hosts from our business and political staffs -- on Tuesdays, Wednesdays and Thursdays through June 25.
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— AT&T-Time Warner merger gets approval. The Washington Post's Tony Romm and Brian Fung: “A federal judge approved AT&T’s $85 billion purchase of Time Warner on Tuesday, handing the telecom giant a massive victory that could hamstring U.S. regulators seeking to block big corporate mergers. The case – one of the most closely watched antitrust trials in decades – is viewed as a bellwether for other deals waiting in the wings. From Comcast’s potential bid for 21st Century Fox to CVS’s acquisition of Aetna, massive corporations increasingly have been seeking to expand their reach by buying up companies in different lines of business. The judge’s decision, which is allowing AT&T to merge with Time Warner without conditions, shows the federal government may struggle to rein in such mergers. ... In handing down his ruling, federal judge Richard Leon said that the Justice Department failed to provide sufficient proof that the deal would harm competition or consumers, telling a packed courtroom that the government’s economic analysis 'rested on improper notions.'”
— This is a big deal. Remember that Trump originally opposed the deal (and that Time Warner owns CNN, which Trump is fond of bashing on Twittter for airing "fake news:" “'It’s too much concentration of power in the hands of too few,'” Trump said on the day the deal was struck in October 2016, according to my colleague Callum Borchers.Trump added that "if he were elected, his administration would block the purchase." Rudy Giuliani, who is representing Trump legally but has opined on a range of subjects in frequent TV appearances, "insisted last month that the president did not pressure the Justice Department to file the lawsuit that led to Tuesday’s ruling. 'He told me directly he didn’t interfere,' Giuliani told CNN. By then, however, Giuliani was doing damage control after appearing to let slip that Trump had, in fact, directed his administration’s opposition to the deal. 'The president denied the merger,' Giuliani had told HuffPost, suggesting Trump, rather than Attorney General Jeff Sessions, made the decision to sue."
Time Warner argued politics was behind the lawsuit, Variety reports: "Gary Ginsberg, Time Warner’s executive vice president, said in a statement that [Leon’s] “resounding rejection of the government’s arguments is confirmation that this was a case that was baseless, political in its motivation and should never have been brought in the first place. Executives at both companies broach the idea that the merger was singled out for antitrust enforcement because of [Trump’s] animosity toward Time Warner unit CNN. Makan Delrahim, the chief of the Antitrust Division, denied that the decision to file the lawsuit was influenced by the White House. Before the trial started, Leon declined AT&T’s motion to pursue a line of defense that would have allowed it to conduct discover on communications between the White House and the DOJ. Those questions, though, are likely to linger. The group Protect Democracy has been seeking access to the records through the Freedom of Information Act, but 83 pages have been withheld from public disclosure on the grounds that they “reflect the deliberative process of the Antitrust staff,” according to a letter that the DOJ sent to the group"
The New York Times's Cecilia Kang has the bigger picture: "What makes the AT&T decision noteworthy is that the deal was challenged even though it doesn’t share all the characteristics of horizontal integration.
— We still don't know whether joint U.S.-South Korea military exercises will be halted in the wake of the president's summit with North Korean leader Kim Jong Un. Trump had quite a bit to say about the results of the unusual meeting when he returned to Washington, proclaiming in a tweet that North Korea is "no longer a nuclear threat:"
Just landed - a long trip, but everybody can now feel much safer than the day I took office. There is no longer a Nuclear Threat from North Korea. Meeting with Kim Jong Un was an interesting and very positive experience. North Korea has great potential for the future!— Donald J. Trump (@realDonaldTrump) June 13, 2018
Before taking office people were assuming that we were going to War with North Korea. President Obama said that North Korea was our biggest and most dangerous problem. No longer - sleep well tonight!— Donald J. Trump (@realDonaldTrump) June 13, 2018
We save a fortune by not doing war games, as long as we are negotiating in good faith - which both sides are!— Donald J. Trump (@realDonaldTrump) June 13, 2018
More team coverage from Post reporters of the historic summit. From Karen DeYoung and David Nakamura: "An ebullient President Trump flew home Tuesday with what he called a 'very, very comprehensive' agreement with North Korea, even as lawmakers, analysts and allies congratulated the effort but questioned the substance of what had been achieved ... At a news conference in Singapore after nearly five hours of talks there with Kim, Trump said he 'knows for a fact' that North Korea means it this time and that Kim 'wants to do the right thing.' The work of putting meat on the bare bones of the agreement will begin quickly, he said, and 'once you start the process, it means it’s pretty much over.'
"Talks are to be led on the U.S. side by Secretary of State Mike Pompeo and, according to the agreement, a 'relevant, high- level' North Korean official. But no specifics of a future path were outlined. There was no mention of a declaration of North Korea’s nuclear assets, which normally precedes any arms control negotiation, or of timelines or deadlines."
— Larry Kudlow is soon expected back at work in the White House after suffering a "mild" heart attack, reports CNN: "The economist and former television host will be back to work at the White House 'soon," said Sarah Huckabee Sanders. "His doctors expect Larry will make a full and speedy recovery. We look forward to seeing him back at work soon. Larry and his wife Judy wanted to express heartfelt appreciation for all of the thoughts, prayers and well-wishes."
— Consumer prices go up. The Associated Press's Josh Boak: “U.S. consumer prices rose 0.2 percent in May, with surging gasoline costs driving much of the increase. The Labor Department said Thursday that the consumer price index climbed 2.8 percent last month from a year earlier, putting inflation on its fastest annual pace since February 2012. But core prices — which exclude the volatile food and energy categories — have risen a milder 2.2 percent over the past 12 months. Inflation remains relatively tame, although it has picked up sharply this year, in large part due to more expensive oil. Gasoline prices climbed 1.7 percent in May and jumped 21.8 percent from a year ago.”
— Oil production buffer could shrink. Reuters's Ahmad Ghaddar: “The oil industry will face the biggest squeeze on its spare production capacity in more than three decades if OPEC and its allies agree next week to hike crude output, leaving the world more at risk of a price spike from any supply disruption. Spare capacity is the extra production oil producing states can bring onstream and sustain at short notice, providing global markets with a cushion in the event of natural disaster, conflict or any other cause of an unplanned supply outage. That buffer could shrink from more than 3 percent of global demand now to about 2 percent, its lowest since at least 1984, if the Organization of the Petroleum Exporting Countries, Russia and other producers decide to increase output when they meet on June 22-23, U.S. bank Jefferies said.”
— Tariffs on Chinese goods may come this week. Politico's Adam Behsudi: “Trump is expected to impose tariffs on Chinese goods as soon as Friday or next week ... a move that is sure to further inflame tensions and spark almost immediate retaliation from Beijing. The administration on Friday is planning to publish a final list of Chinese goods that will take the hit. The aggressive stance calls into question the future of talks between the two trade powers, which took a friendly turn in the weeks leading up to the North Korea summit as the U.S. sought China’s help. China was seen as playing a key role in getting North Korean leader Kim Jong Un to the table with Trump, who has consistently linked his trade demands to Beijing’s willingness to help on North Korea.”
Corker is unimpressed with his fellow GOP senators. The Post's Erica Werner: “Senate GOP leaders blocked a vote Tuesday on legislation that would give Congress veto power over certain presidential tariffs — prompting Sen. Bob Corker (R-Tenn.) to accuse his Republican colleagues of being afraid to vote against ... Trump. '“Gosh, we might poke the bear” is the language I’ve been hearing in the hallways,' Corker, who authored the amendment in question, said in a fiery floor speech. 'We might poke the bear. The president might get upset with us as United States senators if we vote on the Corker amendment, so we’re going to do everything we can to block it,' said Corker, who is retiring at year’s end. The leadership move, which blocked Corker from including his legislation as an amendment on a pending defense bill, probably killed it for good — and with it, Congress’s best chance of taking any action to confront Trump on trade.”
Canadian PM Justin Trudeau must balance domestic politics and his dispute with Trump over trade. The New York Times's Ian Austen in Ottawa: "Trudeau is now caught in a tight spot between the unpredictable President Trump and the powerful Canadian dairy industry, the current target of Mr. Trump’s escalating trade threats. The prime minister’s challenge is how to manage both the most important Canadian ally and his own domestic politics ... 'Trudeau is in a very difficult place because the G-7 summit signals the approach the Trudeau government took to deal with the Trump administration has failed,' said Wesley Wark, a professor of public and international affairs at the University of Ottawa. 'The charm offensive has produced little of what the prime minister hoped.'"
— Canada still wants a bridge to Detroit. The Wall Street Journal's Kris Maher: “The U.S. and Canada are in the middle of an intensifying trade spat, but Canada is moving ahead with building a multibillion-dollar bridge to foster the flow of goods between the countries. For a U.S. company trying to stop the new bridge between Detroit and Windsor, Ontario, time may be running out. Last week, the Michigan Department of Transportation acquired the last residential property in the path of the proposed Gordie Howe International Bridge on the U.S. side. Canadian authorities say they will announce the bridge’s contractor within a few weeks, and construction is set to begin this year.”
— ZTE to resume trading. Reuters's Sijia Jiang: “ZTE Corp ... said trading in its shares would resume on Wednesday, ending a two-month suspension, after the Chinese telecommunications giant agreed to pay up to $1.4 billion in penalties to the U.S. government and radically overhaul its management. ... It also said in filings on Tuesday that it would work to resume operations as soon as possible after the ban gets lifted, and would republish its first-quarter financial results after assessing the impact of the ban and the settlement agreement.”
— Navarro apologizes for his comments on Trudeau. The Post's John Wagner: “Trump’s top trade adviser, Peter Navarro, apologized Tuesday for saying Canadian Prime Minister Justin Trudeau deserved “a special place in hell” for what he characterized as an effort to undermine Trump. 'My job was to send a signal of strength,' Navarro said at a conference in Washington hosted by the Wall Street Journal. 'The problem was that in conveying that message I used language that was inappropriate.' 'I own that, that was my mistake, those were my words,' he added.”
— McCabe's lawyers sue the Justice Department. The AP's Eric Tucker: “The Justice Department has repeatedly refused to provide former FBI Deputy Director Andrew McCabe with documents related to his firing, according to a lawsuit filed on his behalf Tuesday. The complaint says the Justice Department has publicly defended the firing yet failed to identify for McCabe the policies and procedures it followed before dismissing him. The department has withheld the information, McCabe’s lawyers allege, for fear that the materials could be used against them in any additional lawsuits. ... The case pits the career law enforcement official against a Justice Department that employed him for more than two decades.”
— Seattle council votes to repeal tax on big businesses. The Post's Jeff Stein: “The Seattle City Council on Tuesday voted to repeal a tax hike on large employers that it instituted less than a month ago, backing down from a plan fiercely opposed by Amazon.com and much of the city's business community. With Amazon and Starbucks funding a ballot challenge to repeal the tax, the city's Democratic council struck down the tax levy they approved about four weeks ago. Seattle Mayor Jenny A. Durkan (D) is expected to approve the repeal. The new tax would have raised $48 million annually to combat Seattle's homelessness and affordable housing crises.” (Amazon founder and chief executive Jeffrey P. Bezos is the owner of the Post.)
— Tesla announces job cuts. The Post's Danielle Paquette and Peter Holley: “Tesla announced Tuesday it plans to lay off as much as 9 percent of its workforce, a move that could eliminate thousands of the electric car maker's roughly 40,000 employees. In a companywide email, chief executive Elon Musk described the decision as a 'restructuring' and said it would affect only white-collar, salaried staffers — not the factory workers building the next fleet of Model 3 cars. 'Tesla has grown and evolved rapidly over the past several years, which has resulted in some duplication of roles and some job functions that, while they made sense in the past, are difficult to justify today,' Musk wrote.”
— Credit Suisse cuts jobs. Bloomberg News's Jan-Henrik Foerster and Ruth David: "Credit Suisse Group AG has been cutting senior investment-banking jobs as the Swiss bank reorganizes its European advisory business to boost profitability, according to three people with knowledge of the matter. Since February, the bank has let go about 26 directors and managing directors with responsibility for mergers and acquisitions and industry coverage, the people said, asking not to be identified as the decisions aren’t public. The cuts have mostly been focused on London, the people said.”
— Fed nominees advance in Senate. The Hill's Sylvan Lane: "The Senate Banking Committee on Tuesday approved ... Trump’s two most recent nominees to the Federal Reserve Board with bipartisan votes. The panel voted to recommend Richard Clarida to serve as the Fed’s vice chairman and Michelle Bowman to take the spot on the Fed’s board reserved for a community banker. The full Senate is expected to easily confirm Clarida and Bowman, two Republicans who fit the mold of Trump’s previous Fed and financial regulatory appointees.”
— SEC punishes Bank of America. WSJ's Dave Michaels: “Bank of America Merrill Lynch will pay over $15 million to settle claims that its traders lied about how much they paid to acquire mortgage bonds, allowing the bank to charge a higher price to clients buying securities. The sanction includes $10.5 million that must be returned to customers and a $5.2 million civil penalty, the Securities and Exchange Commission said Tuesday.”
— Credit Suisse gets a win in court. Reuters's Jonathan Stempel: “New York’s highest court on Tuesday curbed the state attorney general’s ability to fight fraud on Wall Street, awarding a victory to Credit Suisse Group AG ... as it tries to end an $11 billion lawsuit over risky mortgage securities. Reversing a lower court ruling, the state Court of Appeals said claims under the Martin Act, a 1921 law giving the attorney general broad power to pursue civil and criminal cases over securities fraud, must be brought within three years of the alleged wrongdoing, not six years.”
— FHFA proposes capital requirements for Fannie Mae and Freddie Mac. American Banker's Hannah Lang: “The Federal Housing Finance Agency on Tuesday proposed new minimum capital requirements for Fannie Mae and Freddie Mac that would only go into effect if the government ends its conservatorships of the two mortgage giants. The plan, which FHFA Director Mel Watt previewed in congressional testimony last month, would assess credit risk for different mortgage categories and include components for market risk and operational risk.”
— From The Post's Philip Bump, via Gallup: “How Americans follow Trump on Twitter:”
- Meeting of Federal Reserve’s Federal Open Market Committee.
- Comptroller of the Currency Joseph Otting testifies before the House Financial Services Committee.
- House Appropriations Committee markup of defense and financial services appropriations bills for fiscal 2019.
- House Financial Services Subcommittee hearing on securities law enforcement.
- The House Small Business Committee holds a hearing on “The Impact of Category Management on the Small Business Industrial Base.”
- The Brookings Institution holds an event on “Building a more dynamic and competitive economy.”
- Comptroller of the Currency Joseph Otting appears before the Senate Banking Committee tomorrow.
- The American Enterprise Institute holds an event on central banking and the regulatory state on June 18.
— From the New Yorker's Ellis Rosen: