What you can see from Senate Banking today as crypto rolls

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To break – President Biden plans to name Federal Reserve Deputy Chairman Lael Brainard to lead the National Economic Council, filling a gap left by longtime economic advisers Brian Deese, Victoria Guida and Ben White reported late Tuesday night.

With inflation still raging, Brainard’s departure leaves a big hole at the Fed on payments, central bank digital currency and the Community Reinvestment Act. Brainard was also a potential leader for a softer approach to the labor market as the Fed considers when and how to end its rate hike campaign. All Fed-watching eyes will now turn to her replacement.

Gossip focuses on San Francisco Fed President Mary Daly, New York Fed President John Williams, former Obama adviser Betsey Stevenson and Morgan Stanley’s global chief economist Seth Carpenter, among others, according to people connected to the Fed and the White House. This parlor game is just getting started. — Victoria Guida

Senate Banking Committee certainly has a knack for timing.

The powerful committee will hear testimony at 10:30 a.m. Tuesday on how Congress should set rules for crypto markets, which lost about half their value over the past year. Following FTX’s collapse, stalwarts such as Gemini, Genesis, Kraken and now Paxos – the company behind global exchange Binance’s dollar-pegged stablecoin – are facing an onslaught of legal challenges that threaten their business.

The regulatory offensive, led by SEC Chairman Gary Gensler, has already created an existential crisis for the industry.

So what should you look out for during the hearing? Tim Scott and stablecoin policy.

Scott, the committee’s new ranking member, has mostly avoided crypto-political scrums until recently. The South Carolina Republican said earlier this month that he wants to develop “a bipartisan regulatory framework” for crypto. A Senate Banking Republican aide told MM on Monday that Scott’s opening statement and questions will likely focus on promoting innovation and protecting consumers.

The latter in particular may give an indication of where Scott can find common ground with the committee chairman Sherrod Brown (D-Ohio), an industry skeptic who last year asked Treasury Secretary Janet Yellen to help identify policy loopholes to address risks to consumers, investors and the financial system.

Senate Bank’s former top Republican, retired Sen. Pat Toomey of Pennsylvania, was a key ally of the crypto industry who often blasted regulators and Congress for not tailoring rules to accommodate startups. Your MM hosts will be watching closely to see if Scott — believed to be preparing a presidential bid — strikes a more neutral tone on digital asset policy than his predecessor.

Stablecoins — One area where we’ve seen bipartisan cooperation on crypto policy — albeit in the House — is around stablecoins, dollar-pegged digital tokens used to buy and sell cryptocurrencies.

Yellen and federal regulators have warned for more than a year that the businesses behind stablecoins could become a risk to the financial system if they remain unregulated. Those warnings will be top of mind for lawmakers after New York Department of Financial Services Superintendent Adrienne Harris on Monday, Paxos ordered to stop issuing Binance USD stablecoins. The company also faces a potential SEC enforcement action alleging that BUSD is an unregistered security. (Paxos “categorically disagrees” with that claim and is “prepared to litigate vigorously if necessary,” according to a statement).

Two of the committee’s witnesses — Duke Law School professor Lee Reiners and Linda Jeng, a former Fed official and Georgetown lawyer who directs global policy at the Crypto Council For Innovation — have submitted written testimony that delves into some of the trickier aspects of the stablecoin – the regulation. .

With House lawmakers plugging away at their own stablecoin bill, Tuesday’s hearing will offer an opportunity for Senate lawmakers to weigh in.

IT’S TUESDAY – Send your thoughts and news tips to Sam at [email protected] and Zach Warmbrodt at [email protected]. You can also find us on Twitter @samjsutton and @zachary

All eyes are on the Ministry of Labour’s consumer price index release at 08.30 this morning. The median forecast for annual overall inflation is around 6.2 per cent and that the core will come in at 5.4 per cent, which will signal a further decline in inflation. Shares climbed on Monday in anticipation of the data.

Beyond that … Yellen speaks at the National Association of Counties Legislative Conference at 9:45 followed by President Joe Biden at 11 … President of the World Bank David Malpass will participate in a panel on global trade at 10:30 a.m

CRYPTO UNITES WARREN, BANKS — Our Zachary Warmbrodt: “Sen. Elizabeth Warren labels herself the scourge of crypto. And she’s not doing it alone … Her burgeoning partnership with GOP lawmakers reflects broader forces poised to unite progressives and conservatives, watchdog groups and bankers, who share common cause in wanting to derail the unbridled growth of crypto.”

CHINA — Our Gavin Bade: “The uproar over a suspected Chinese spy balloon — and three other unidentified flying objects — has brought Beijing’s nascent charm offensive in Washington to an abrupt halt, emboldening Biden administration officials and lawmakers who want to crack down on Beijing’s economy. »

— WSJ’s Jason Douglas and Stella Yifan Xie: “The world is counting on an economic rebound from China to drive global growth and help keep the recession at bay. Don’t bank on it.”

– Bloomberg’s Bill Allison: “Republican Politicians Stir Up Fury, Raise Funds Over Alleged Chinese Spy Balloon That Crossed US Before It Was Shot Down.”

Coinbase CEO Brian Armstrong left with some free time in the Dirksen Senate building Monday after a meeting at Bakken fell through at the last minute. (Looking at you, Super Bowl hangover!)

Armstrong, who made headlines last week for rejects a potential ban on the revenue-generating practice known as staking, is one of the SEC’s most vocal critics. He and his team, including Coinbase Chief Policy Officer Faryar Shirzad, are making their DC rounds in the first half of this week as Congress continues to chart a path forward for cryptocurrency legislation.

The agenda: “What we’re here to do is see if we can get regulatory clarity in the US and sensible crypto regulation passed,” Armstrong told our Eleanor Mueller. “My hope was that in the wake of FTX we would see that urgency because we need consumer protection, obviously. So we want to bring this industry into the regulatory theater and get even more clarity that billers here in the US [are going to pass] – because otherwise this will go offshore.”

Cautiously optimistic?: “I’ve been coming to D.C. maybe twice a year for the last six years,” Armstrong said. “I hope this is the year where you finally get some traction.”

CHILD LABOR LAWS — WaPo’s Jacob Bogage: “As local economies struggle with a tighter labor market, some state lawmakers are looking to relax child labor protections to help employers meet hiring needs.”

WEAKNESS – Reuters’ Caroline Valetkevitch: “U.S. companies’ earnings woes are likely to extend beyond a weak fourth quarter, as a buoyant labor market weighing on margins looks set to hurt results in the first half of this year.”

A CANDLE ROAST FOR TECHNICAL — NYT’s Steve Lohr: “The economic outlook is uncertain. Contingency plans are in place. Some initiatives are cut back or slowed down. But business investment in technology remains remarkably robust, and that trend looks set to continue in 2023.”

OIL FALL – Bloomberg’s Jake Lloyd-Smith: “Oil fell on a US plan to sell more crude from its reserves, countering a boost from Russian production cuts and rising Chinese demand.”

Bank capital rebuttal – Better Markets President and CEO Dennis Kelleher responded to Monday’s MM post about big banks trying to stave off capital increases.

He pointed to Better Market’s recent report that higher capital requirements would protect the economy. He rejected the claim that “nothing really suggests” that there is a need for higher capital requirements.

“This is particularly important now as the number, size, complexity and risk of too-big-to-fail banks continues to increase significantly,” he told MM. “Thankfully, the Fed understands this and that the best way to prevent bank failures, contagion, crashes and bailouts for taxpayers is to ensure they have the quantity, quality and available capital to absorb their own losses, which should not be less than 20 percent.” — Zachary Warmbrodt

Japan’s economy returned to growth in the three months through December, but with momentum still weak, the central bank’s new governor will face challenges managing monetary policy through uncertain terrain. —Bloomberg’s Erica Yokoyama