THE TICKER

President Trump's bid to put his stamp on the Federal Reserve faces a key test today. Judy Shelton, his controversial choice to join the central bank’s seven-member board, is appearing before the Senate Banking Committee for a make-or-break confirmation hearing.

Shelton has set off alarms among economists — and some Senate Republicans — for advocating a return to something akin to the gold standard, arguing to end federal deposit insurance for banks and questioning the value of the Fed’s independence from political pressure. (Read some of her more inflammatory quotes here.)

To earn a thumbs-up from the panel's 13-12 Republican majority, she needs to finesse those positions. So far, Shelton is not primed to offer a full-throated argument for the Fed’s independence. Per her prepared testimony, she will tell the committee, “Along with the political independence and operational autonomy granted to the Federal Reserve comes an obligation to be wholly accountable both to Congress and to the public.”

The question of insulating the Fed from political pressure is particularly sensitive. Trump continues pushing the central bank to lower interest rates — violating a quarter-century-old norm against weighing in on monetary policy — most recently tweeting an attack on Federal Reserve Chair Jerome Powell as he testified Tuesday on Capitol Hill. Powell has steadfastly ignored Trump’s taunts. But his term atop the central bank expires in 2022, and Fed watchers believe the president if reelected could look to tap Shelton to replace him.

Her appeal for Trump is no mystery. It is “clear that Shelton wants to politicize the Fed, because she explicitly said she wants to,” Post columnist Catherine Rampell writes. “In an op-ed last fall, she argued that the Fed should ‘pursue a more coordinated relationship' with the White House.” As one of 12 voting members of the Federal Open Market Committee that sets the benchmark interest rate, Shelton would have limited leverage to pull central bank policy toward Trump’s preferred approach; but as chair, she could exert considerably more influence.

Against that backdrop, it was striking Wednesday that Powell heard a bipartisan chorus of encouragement for defending the Fed's independence during his own appearance before the banking panel. “Stay independent,” Sen. John Kennedy (R-La.) told him.

Shelton has secured support from Banking Chair Mike Crapo (R-Idaho) and Sen. Kevin Cramer (R-N.D.), whose opposition helped scuttle the nomination of businessman Herman Cain last year. 

Other GOPers on the banking panel are also inclined to support Shelton, says Derek Tang, an economist with LH Meyer. 

“But if she performs poorly at the hearing, it could derail her nomination,” he says, pointing to another Trump administration pick, Marvin Goodfriend, who saw his Fed candidacy unravel after a poor showing before the committee. “It’s really a question of how her question-and-answer session goes. Both Republicans and Democrats will have some pointed questions for her.”

Sen. Richard Shelby (R-Ala.) suggested to Politico’s Victoria Guida that senators will be looking to hear her current views rather than fixing on past positions. And Sen. Mike Rounds (R-S.D.) told Guida he had a “good visit” with Shelton “about her previous discussions and so forth, and I thought she understood her role.” 

The White House has paired Shelton’s nomination with that of Christopher Waller, research director for the St. Louis Fed, who is expected to earn wide support. 

Recent Fed nominees have all drawn some bipartisan support. And Senate Republicans have demonstrated a rare willingness to stand up to the Trump administration on its Fed nominees, declining to advance the president's last four picks. 

But in a sign that Shelton reflects the new, broader polarization in Washington, her confirmation looks primed to split the Senate along party lines.

Indeed, while the New York Times editorial board argues Shelton’s nomination “amounts to an attack on the Fed’s congressional mandate,” their counterparts at the Wall Street Journal contend that criticism itself should count in Shelton’s favor. 

“If Senators harbor even a sliver of doubt over whether Ms. Shelton’s critics know what they’re doing,” the Journal’s ed board writes, “that’s all the more reason to confirm her as a distinctive voice in such crucial debates.”

MARKET MOVERS

Stocks hit record highs. Reuters's Stephen Culp: "All three major U.S. stock averages reached record highs on Wednesday as news that the dreaded coronavirus could be running out of steam kept buyers in the ring. Technology shares led the broad-based rally, which set the S&P 500 and the Nasdaq up for their third consecutive all-time closing highs. The Dow last had set a closing record on Feb 6.

“The Dow Jones Industrial Average rose 228 points, or 0.78% to 29,503.82, the S&P 500 gained 18.08 points, or 0.54%, to 3,375.83 and the Nasdaq Composite added 71.65 points, or 0.74%, to 9,710.59. Of the 11 major sectors in the S&P 500, all but consumer staples were in the black, with energy, consumer discretionary and communications services enjoying the largest percentage gains.”

Coronavirus update: New classification method leads to jump in case count. The Post: "China revised the total case numbers in Hubei province by an additional 15,000 — and raised the death tally by 242 — after it took into account cases in which doctors are allowed to diagnose patients based on clinical methods. The National Health Commission said Thursday the new case total for the country is 59,804, with 1,367 deaths.

“Beijing also used Thursday’s political shake-up to oust the head of its office overseeing Hong Kong, following months of turmoil in the semiautonomous financial center. Japan said 44 more people have tested positive for the new coronavirus on board the quarantined cruise liner Diamond Princess, bringing to 218 the number of passengers and crew confirmed as infected.”

Economic toll in China mounts. Per Bloomberg News: “Car sales in China plunged to fresh lows in January as the coronavirus kept buyers away from showrooms, intensifying the gloom hanging over the industry. Sales to dealerships fell 20% to 1.61 million cars last month, the China Association of Automobile Manufacturers said. That’s the biggest monthly drop since January 2012.”

Central bankers adopt cautious approach. WSJ's Nick Timiraos: “Over two days of hearings on Capitol Hill, Federal Reserve Chairman Jerome Powell offered an upbeat assessment of the U.S. economy while warning of risks to global supply chains from production shutdowns in China. Mr. Powell, during testimony Wednesday before the Senate Banking Committee, also cited the prospect of a hit to tourism and exports and financial markets as ways the virus could dent U.S. economic growth. ‘We’ll begin to see it in economic data coming up fairly soon. It’s too uncertain to even speculate about what the level of that will be,’ said Mr. Powell.”

China’s coronavirus outbreak will likely dampen U.S. economic growth in the first quarter, according to a survey of economists by The Wall Street Journal.
WSJ

2020 WATCH

— Sanders ascent puts economic plans in focus: “Some allies of Sen. Bernie Sanders are beginning to map out how he might govern and what his administration could look like if he wins the presidential election — a once inconceivable concept for many congressional Republicans and Democrats who regard his ideas as impractical,” my colleague Jeff Stein reports.

“Independent advisers in contact with Sanders’s campaign are informally speculating about who could be tapped to lead key agencies such as the Treasury Department, what legislation would be prioritized and which executive orders Sanders would approve amid congressional resistance to his agenda ... Sanders (I-Vt.), who won the New Hampshire Democratic primary Tuesday night after a top showing in Iowa last week, has proposed more than $50 trillion in federal spending and vast new government mandates — including a national rent-control standard and a ban on exporting crude oil — that have until recently been far outside the Democratic mainstream.”

Some of the people on Sanders's team and those who have his ear, per Jeff:

  • Three former aides to former Senate Majority Leader Harry Reid: “Who had a knack for holding the line during public debates while also cutting deals with Republicans at opportune times.”
  • Long-time advisers like: “Warren Gunnels, who has served as an aide to Sanders for more than two decades, is viewed as one of the most crucial voices in stewarding his economic policy agenda.”
  • Economists: “Darrick Hamilton of Ohio State University on economic and jobs policy, Tara Raghuveer of the People’s Action network on housing policy, Sarah Anderson of the Institute for Policy Studies on business taxes and Carol Zabin of the University of California at Berkeley on Sanders’s Green New Deal proposal." 

Sanders sharpens focus on Mike Bloomberg. Appearing on CNN, he accused the billionaire former New York Mayor of trying to buy the election. “When people understand that in our democratic society, we have an individual worth some $60 billion who in an unprecedented way is literally trying to buy the elections. He didn't compete in Iowa, where all the Democratic candidates did, nor in New Hampshire, nor in Nevada, nor in South Carolina. He didn't hold town meetings, talk to people, answer questions. All he did was take a small part of his $60 billion, put it into TV commercials, and I guess that can get you votes.” See him here:  

Bloomberg is avoiding direct engagement, for now. From my colleague Michael Scherer: "Bloomberg, who has been dominating the airwaves unchallenged in many states, said Wednesday that he does not want to engage directly with his rivals at the moment. He is not, however, above more oblique references. ‘We don’t need a revolution. We want evolution,’ he told a mostly white crowd of hundreds at a rally in Tennessee on Wednesday, a nod to Sanders. ‘And we need a nominee who can deliver it.’"

But liberal scrutiny is coming for him. A report from the Associated Press — detailing Bloomberg's 2008 view that anti-redlining laws caused the housing market collapse — dominated talk on lefty Twitter on Wednesday night. 

As Bloomberg said at a September 2008 forum at Georgetown University, per the AP's Brian Slodysko: "It all started back when there was a lot of pressure on banks to make loans to everyone. Redlining, if you remember, was the term where banks took whole neighborhoods and said, ‘People in these neighborhoods are poor, they’re not going to be able to pay off their mortgages, tell your salesmen don’t go into those areas.’” Here's video: 

— Why most unions are on the sidelines for now: “Organized labor could potentially turn the 2020 presidential election — if only it made up its mind,” my colleague Eli Rosenberg reports.

“Unions are front and center this campaign season, having hosted a dozen or so forums and town hall meetings with the Democratic hopefuls ... But one typical fixture of an election season has been largely absent: union endorsements. The major national and international unions have refrained from endorsing anyone so far, treating the political scrum with more circumspection than in previous years … Endorsements from small unions and local chapters of the national unions have been rolling in, however, with their hands free to weigh in after the major unions saw the consequences of a top-heavy approach in 2016.”

  • Part of the reason national unions are quiet is what happened last time: “In 2015, many of the country’s largest unions, more often aligned with Democratic candidates than Republican ones, made their picks [for Hillary Clinton] well before the primary season began … But this year, none of those big unions have endorsed a candidate yet, in part because so many drew fire from rank-and-file members who embraced [Sanders] last time around.
Joe Biden is hoping a TV blitz will help him bounce back from disappointing finishes in Iowa and New Hampshire.
CNBC
Democratic presidential hopeful Amy Klobuchar raised $2.5 million in four hours after her third-place finish in the New Hampshire primary, her campaign said on Wednesday, a boost as she prepares for upcoming contests in Nevada and South Carolina.
Reuters

TRUMP TRACKER

TRADE FLY-AROUND:

— Pentagon set to back Huawei restrictions: “The Pentagon is poised to reverse its opposition to a proposal that would further crack down on U.S. exports to blacklisted Chinese telecommunications firm Huawei, according to five people familiar with internal deliberations,” Politico's Adam Behsudi reports.

“The change in position would allow a rule first proposed by the Commerce Department to advance, making it harder for U.S. companies to get around an effective export ban that already applies to Huawei. The issue [was the subject of a meeting] among deputy-level officials from Commerce, Defense and other departments. Cabinet-level officials, including Commerce Secretary Wilbur Ross, Defense Secretary Mark Esper and Treasury Secretary Steven Mnuchin are expected to meet on Feb. 28 to discuss the rule and how to proceed with other export-control issues related to China." 

— U.S. weighing WTO power play: “The U.S. is weighing a plan to increase its long-standing ceiling on tariffs in a move meant to trigger a renegotiation of relationships with fellow World Trade Organization members and step up its assault on the global trading system,” Bloomberg News's Bryce Baschuk and Jenny Leonard report.

".... U.S. Trade Representative Robert Lighthizer is now mulling a plan to reset American tariff commitments at the WTO by threatening to increase the tariff ceilings -- or bound rates -- agreed to by previous administrations over decades of negotiations, according to people familiar with the discussions ... The new discussions, though, are part of a broader effort under way inside the administration to look at other ways it could shake up the global system and address their view that its core -- the WTO -- is rotten.” 

JSW Steel’s billion-dollar plan for Making American Steel Great Again depended on tariff exemptions. Two years later, they haven’t materialized.
Bloomberg Businessweek

TRUMP WATCH:

— House Democrats want Secret Service records on Trump Organization payments: “The House Oversight Committee asked the Secret Service to provide a full accounting of its payments to [Trump’s] private company after The Washington Post revealed that the Secret Service had been charged as much as $650 per night for rooms at Trump clubs,” my colleagues David A. Fahrenthold and Jonathan O'Connell report.

“In a letter to the Secret Service, signed by Chair Carolyn B. Maloney (D-N.Y.) and Rep. Jackie Speier (D-Calif.), the committee asked for records of payments to Trump properties, and copies of contracts between the Secret Service and Trump clubs. Last week, The Post reported that the Secret Service had been charged nearly $400 and as much as $650 per night for rooms at Trump’s Mar-a-Lago Club in Florida, and charged $17,000 a month for a cottage that agents used at Trump National Golf Club Bedminster in New Jersey. [Trump] still owns his companies. These payments show he has an unprecedented — and largely hidden — business relationship with his own government." 

— Education Dept. probing Harvard, Yale over foreign money: “The Education Department opened investigations into Harvard and Yale as part of a continuing review that it says has found U.S. universities failed to report at least $6.5 billion in foreign funding from countries such as China and Saudi Arabia, according to department materials viewed by The Wall Street Journal,” the WSJ's Kate O’Keeffe reports.

“The investigations into the Ivy League schools are the latest in a clash between U.S. universities and a coalition of federal officials including law enforcement, research funders such as the National Institutes of Health, and a bipartisan group in Congress that has raised concerns about higher-education institutions’ reliance on foreign money, particularly from China ... The department described higher-education institutions in the U.S., in a document viewed by the Journal, as 'multi-billion dollar, multi-national enterprises using opaque foundations, foreign campuses, and other sophisticated legal structures to generate revenue.' ”

POCKET CHANGE

— Boeing still struggling with future for 737 Max: Boeing Co is unlikely, for several years, to hit the monthly 57-unit production rate it had targeted for the 737 MAX preceding the grounding of the jet due to delays in regulatory approval, Chief Financial Officer Greg Smith said,” Reuters's Tracy Rucinski reports.

“Boeing was building 52 MAX aircraft per month before the plane was grounded last March following two fatal crashes, which slowed production rates and ultimately spurred an output freeze beginning in January this year. U.S. approval for the 737 MAX to fly again is now expected by mid-year and Boeing has said it could slowly resume production before the plane is allowed back in the air … The company’s suppliers have been shedding jobs and capacity to cope with the production halt. While that staves off chaos, aerospace executives worry the industry might be unable to ramp up factories quickly enough when the plane wins approval to fly again.”

  • Meanwhile, the company fired a mid-level executive following embarrassing emails: The executive “was in charge of pilots who wrote internal email messages between themselves that have embarrassed the aerospace company as it struggles to get the 737 MAX jetliner flying again, according to people familiar with the matter,” the WSJ's Andrew Tangel and Andy Pasztor report. “Cooper didn’t send or receive the messages, the latest batch of which Boeing disclosed to lawmakers and the news media in January, this person said. Those messages show Boeing employees mocking airline officials, aviation regulators and even their own colleagues. In one, an employee said the 737 MAX had been ‘designed by clowns, who in turn are supervised by monkeys.’ ”

— BP promises big environmental overhaul: “BP says it will slash its own greenhouse gas emissions to net zero by 2050 and gradually shift its investments into energy projects that do not emit carbon dioxide,” my colleague Steven Mufson reports.

“The world’s fifth-largest oil-and-gas company said Wednesday it would cut the carbon content of its products by 50 percent by 2050 by selling energy that does not come from fossil fuels or by offsetting oil-and-gas production with tools that capture carbon dioxide. It also said it would install methane measurement equipment at all of its processing sites by 2023 to reduce leaks … The plan would change the focus of the 110-year-old company. And the amount of carbon dioxide emissions BP intends to eliminate would roughly equal the emissions of Britain." 

— Kohl's to lay off 250 workers amid restructuring: The news follows a “dismal holiday season,” CNBC's Lauren Thomas reports.

— Bayer tries to have it both ways over Roundup: “Bayer AG faces an extraordinary challenge as it tries to settle tens of thousands of claims that its Roundup weedkiller causes cancer: The product remains on the shelves, making it almost impossible to put the litigation to rest forever,” the WSJ's Laura Kusisto, Ruth Bender and Jacob Bunge report.

“Experts have said Bayer is in an unusual position compared with other companies that have faced multibillion-dollar lawsuits over their products. To end mass-tort litigation, other companies generally have discontinued or altered their products or added warning labels — all of which are problematic for the German pharmaceutical and agricultural company … Bayer is moving closer to a settlement potentially totaling $10 billion, people familiar with the matter said, making it one of the most complex and costly corporate litigation cases ever.” 

— Activist shareholders pledge to push Dimon on climate: Shareholder activists focused on climate issues vowed to press proxy battles with JPMorgan Chase & Co after getting a cold reception from the top Wall Street bank, even though Chief Executive Jamie Dimon has vowed to protect the environment,” Reuters's Ross Kerber and Elizabeth Dilts Marshall report.

“Activists, including the As You Sow Foundation, Trillium Asset Management and Boston Trust Walden, said they had received notices that the bank has asked for regulatory permission to skip votes at its spring annual meeting on proposals such as reporting on greenhouse gas emissions tied to its lending. JPMorgan’s position creates reputational risks at a time when clients and investors want banks to help slow the rate of a global rise in temperature, according to a joint statement from the activists.” 

MONEY ON THE HILL

— GOP lawmaker pushes CalPERS probe over China ties: A U.S. Republican lawmaker urged California to fire the chief investment officer of its public pension fund, the nation’s largest, citing what he called the CIO’s ‘long and cozy' relationship with Beijing, and assailed the fund’s investments in Chinese companies," Reuters's Alexandra Alper reports.

“In a letter to California Governor Gavin Newsom, U.S. Representative Jim Banks of Indiana said Yu Ben Meng, the CIO of California Public Employees’ Retirement System (CalPERS), should at least be investigated … CalPERS CEO Marcie Frost defended Meng in a statement. ‘This is a reprehensible attack on a U.S. citizen. We fully stand behind our Chief Investment Officer who came to CalPERS with a stellar international reputation,’ she said.” 

— Deficit surges 25 percent in FY 2020: “The sea of red ink is getting deeper and deeper in Washington, with the federal government already racking up a budget deficit that is averaging close to $100 billion a month,” CNBC's Jeff Cox reports.

“Treasury Department data released Wednesday show the shortfall at $389.2 billion in the first four months of fiscal 2020. That’s a 25 percent gain over the same period last year and already about 40 percent of the total deficit for fiscal 2019.” 

CHART TOPPER

LPL Financial's Ryan Detrick shares this chart suggesting we may be in the middle of a long-running era of new market highs:

DAYBOOK

Today:

  • The Senate Banking Committee holds a confirmation hearing, mostly notably on Fed nominees Judy Shelton and Christopher Waller
  • The Labor Department releases the latest CPI
  • PepsiCo, Kraft Heinz, Yeti Holdings, AIG, Roku and Nvidia are among the notable companies to report their earnings.
  • HHS Secretary Alex Azar testifies in front of the Senate Finance Committee about Trump’s budget

Friday:

  • The Commerce Department releases the latest data on retail sales

THE FUNNIES

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