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A somber Powell: Markets have been on edge this week in anticipation of Federal Reserve Chair Jerome Powell’s Friday speech at the annual central banking retreat in Jackson Hole.

Last year, Powell used the speech to reassure Americans that high inflation would likely be temporary. This year, he’s expected to offer a darker message, our Victoria Guida writes: The fight against spiking prices is far from over.

From Victoria: “Powell’s optimistic words at the annual Jackson Hole conference in 2021 were followed by the biggest sustained surge in prices that the U.S. has seen in four decades. Since then, he has shifted gears and sharply stressed the Fed’s commitment to kill high inflation by jacking up interest rates.

“But many investors think the Fed might blink before then and are already expecting the central bank to begin lowering borrowing costs later next year as a possible recession looms. That has led market rates to fall and stock prices to rise from their June depths — the exact opposite of what the central bank wants to see as it aims to slow spending and investment.”

Fed Chair Jerome Powell walks with then-Bank of England Governor Mark Carney outside the Jackson Lake Lodge in 2019. | Amber Baesler/AP

Work cut out for him: “Now, as he returns to Jackson Hole in Wyoming, Powell needs to convince markets he means business when he addresses the landmark conference of economists on Friday. If he can’t, it could undermine the Fed’s effort to curb the price spikes, which have rocked the economy, dragged consumer sentiment to record lows, and damaged President Joe Biden’s approval ratings.

“‘There are no easy answers,’ said Torsten Slok, chief economist at private equity firm Apollo Global Management. ‘The Fed is very worried about sending the right signal.’”

Fraught communication: Victoria notes that the Fed’s quest to communicate with the public has had its ups and downs over the past year. As chairman, Powell has taken a good chunk of the blame.

“Chair Powell needs to reset market rates expectations, avoid the mishaps of last year, and start to repair the damaged credibility of the institution,” Mohamed El-Erian, chief economic adviser at Allianz, told Victoria.

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A glimmer of hope: “I do think we will hear [Powell] walk back a bit on the pessimism in the minutes about the risk of a recession,” said Adam Ozimek, chief economist at the public policy research firm Economic Innovation Group. “The data is not suggesting anything like a recession.”

IT’S THURSDAY — Victoria will be with you tomorrow bringing the latest from Jackson Hole, while Sam and Aubree wrap up the week from New York and Washington. Send them your tips, story ideas and feedback at [email protected], [email protected] or [email protected].

Second-quarter GDP revision and jobless claims data released at 8:30 a.m.

STUDENT DEBT RELIEF — The Biden administration announced it was canceling up to $10,000 of student debt for millions of people and up to $20,000 of debt for low- and middle-income borrowers who previously received a Pell grant, our Michael Stratford and Eugene Daniels reported.

We flagged some of the angst in MM last week over whether debt forgiveness, coupled with an extended repayment pause, would add to inflation pressures.

“Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless,” former Obama CEA Chair Jason Furman said on Twitter Wednesday.

Others defended the decision: “About half the 27.5 million US households with student debt are people who did not finish college,” said AFL-CIO chief economist Bill Spriggs. “Of those 13.9 million households, roughly 4.6 million will now be debt free. This isn’t about helping the privileged.”

A HOLE ON HOUSE FINANCIAL SERVICES — Rep. Carolyn Maloney’s(D-N.Y.) primary defeat Tuesday night also means the loss of a longtime senior Democratic member at House Financial Services, who in recent years has been a key advocate for more stringent laws around bank overdraft fees.

“It is exceedingly difficult to envision bank overdraft legislation becoming law in the next few years, but it will be noteworthy to see who takes the torch from her on bank overdraft issues,” said BTIG’s Isaac Boltansky. “Given that her overdraft bill has 60 cosponsors, there should be a long list of willing torchbearers.”

Jesse Van Tol, president of the National Community Reinvestment Coalition, on Wednesday said Maloney would be dearly missed and urged her Hill colleagues and agency staff to remember her example. “Carolyn Maloney understands that the financial industry should be helping Americans build wealth, not myopically focusing on their own profit sheets or on the highest-net-worth individuals and corporations they can find,” he said.

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From POLITICO’s Jordan Cairney and Kyle Cheney: “Multiple Democrats are already fighting to take Rep. Carolyn Maloney‘s top spot on the influential House Oversight Committee, less than 24 hours after her primary loss to Rep. Jerry Nadler.”

LONG COVID — We’ve discussed how long Covid cases might be affecting head-scratching labor data in the past. The Brookings Institution’s Katie Bach on Wednesday published new research that pegs the number of people who are out of work due to lingering Covid symptoms at between 2 million and 4 million — or 1.8 percent of the U.S. workforce. “This may sound unbelievably high, but it is not inconsistent with the experiences of comparable economies,” Bach wrote.

BLACK UNEMPLOYMENT — NYT’s Talmon Joseph Smith and Ben Casselman: “Black Americans have been hired much more rapidly in the wake of the pandemic shutdowns than after previous recessions. But as the Federal Reserve tries to soften the labor market in a bid to tame inflation, economists worry that Black workers will bear the brunt of a slowdown — and that without federal aid to cushion the blow, the impact could be severe.”

A CRISIS IN WAITING — From Bloomberg’s Will Wade and Mark Chediak: “Some 20 million across the country—about 1 in 6 American homes … have fallen behind on their utility bills. It is, according to the National Energy Assistance Directors Association (Neada), the worst crisis the group has ever documented.”

JEROME POWELL’S DILEMMA — WSJ’s Nick Timiraos: “To counter the impact of a decline in global commerce and persistent shortages of labor, commodities and energy, central bankers might lift interest rates higher and for longer than in recent decades—which could result in weaker economic growth, higher unemployment and more frequent recessions.

“The Federal Reserve’s current round of interest-rate increases, which economists say have pushed the U.S. to the brink of a recession, could be a taste of this new environment.”

Also: Hawkish Fed at Jackson Hole is poised to end dollar rally. (Bloomberg)

WHAT DOES CRYPTO BUY IN THE HAMPTONS? — Association for Digital Asset Markets CEO Michelle Bond was trounced in a GOP primary race to replace outgoing Rep. Lee Zeldin – a Long Island Republican who’s trying to unseat New York Gov. Kathy Hochul in November. Despite endorsements from Donald Trump Jr., Kimberly Guilfoyle and Sen. Ted Cruz – as well as a 2:1 cash advantage, some of which was self-funded – Bond secured just 27 percent of the vote in a loss to former Suffolk County Board of Elections Commissioner Nick LaLota.

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Bond’s role as one of the crypto industry’s top voices in Washington didn’t help her on the campaign trail.

“I had a lot of voters in the district saying ‘I’m so scared about how you earn your money,’” she said in an interview on Wednesday afternoon. “Crypto as an industry: We have a lot of work to do, guys. We have not educated the public.”

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Digital assets played a big role in propping up Bond’s campaign, which was supported by a network of super PACs that were seeded – both directly and indirectly – by her boyfriend Ryan Salame, a top executive at the Sam Bankman-Fried’s crypto exchange FTX. One of those groups, The Stand For New York Committee, spent roughly $850,000 on efforts to boost Bond and knock down LaLota in the weeks leading up to the primary. Salame is the group’s only donor on file.

Bond said there was no coordination between her campaign and outside groups.

“Given the close personal relationship between Mr. Salame and Ms. Bond, the utmost care and caution were taken to make sure all applicable laws were followed in establishing the Stand for New York Committee. The committee’s expenditures in Ms. Bond’s primary were made completely independent of her campaign and without any coordination,” the PAC said in a statement.

TETHER + TORNADO = …TROUBLE?  — WaPo’s Tory Newmyer and Jeremy Merrill: “Tether is not blacklisting accounts associated with Tornado Cash. So far, the U.S. government has not taken action.”

Corn tortillas, the staple of the Mexican lunch table, played a central role behind the rise in inflation to a 21-year high this month as the country nears what the central bank sees as the peak in consumer prices. — Bloomberg’s Maya Averbuch and Rafael Gayol

Compass has still never made an annual profit, but when the housing market started to cool down and the tech industry came back to earth this year, the lack of even a clear path toward profitability was laid bare — Vice’s Maxwell Strachan


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