Update 788: View from G7 Summit; Biden Nominations

Update 788 — View from G7 Summit;
Nominations; CFPB Medical Debt Rule

Leaders of the G7 nations are meeting in Italy this weekend, a time when stock can be taken of the American economy compared to its closest partners and competitors. Sadly lost on many Americans: the impressive and widening lead in growth among G7 countries that the U.S. has been enjoying for the last several years.

Yesterday saw a set of noteworthy nominations made by the administration for critical financial regulatory and policy positions, including a replacement for outgoing FDIC Chair Martin Gruenberg. And on Tuesday, the CFPB issued a new rule removing medical debt from credit reports. These and coverage of key hearings on the Hill below.

Good weekends, all…

Best,

Dana

Headline

Economic Growth Side-by-Side: U.S. vs G7

World leaders from Canada, France, Germany, Italy, Japan, the United Kingdom and the United States are gathered in Apulia, Italy for the annual G7 summit. While this meeting of leaders will host a range of discussions from sanctions on Russia to climate change, it is an opportunity to step back and take a look at the economic strength of these countries.

The United States has witnessed an impressive comeback after a recession-scare, post-COVID-19 pandemic. Most poignantly, the strength of the U.S. economy in terms of Gross Domestic Product (GDP) has led the group’s other six members by a substantial margin, expressed in the graph below:

Source: The Atlantic Council

According to the International Monetary Fund (IMF), the United States’ real GDP growth rate of 2.7 percent is on track to double most of the other G7 member countries with a growth rate average of 0.7 percent rate, excluding the United States. Since the fourth quarter of 2019, the United States’ GDP has grown by 7.4 percent, more than double Canada and Italy, the next closest of the G7 nations’ economies.

As polling continues to show that American voters are simply not unaware of or impressed by these statistics, the relative strength of the U.S. dollar is lowering prices for imports for consumers. Every major currency has fallen compared to the dollar this year, further cementing its strength.

These impressive statistics bear the question: why is the United States able to pull off such impressive growth compared to its counterparts? Consumer spending, which accounts for a large portion of U.S. GDP, has soared with Personal Consumption Expenditures (PCE) increasing each month by at least 2 percent in 2024. Another common explanation for the growth is the $5 trillion of stimulus funding, enhanced unemployment benefits and other credits that allowed consumers to spend heavily once the economy reopened. A combination of government support, a resilient labor market and soaring consumer spending allowed the economy to soar in relation to the United States’ G7 counterparts.

Coincidentally, five of the seven world leaders gathered in Italy will face elections by the end of 2025, and while the incumbency of President Joe Biden is under threat by former President Donald Trump in recent polling, he is actually faring better in his home country than other G7 leaders are in theirs, with a 37 percent approval rating – second only to Italy’s Giorgia Meloni at 42 percent.

Other Developments

Biden Nominations: FDIC, Treasury, SEC, FSOC

Yesterday afternoon, President Joe Biden officially announced his intent to nominate Christy Goldsmith Romero to succeed Martin Gruenberg as Chair of the Federal Deposit Insurance Corporation (FDIC).

Commissioner Romero will bring a wealth of experience to the FDIC. She has served as a Commissioner at the Commodity Futures Trading Commission (CFTC) since March 2022, after being unanimously confirmed by the Senate. Prior to this, Commissioner Romero served for a decade as the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) at the Department of Treasury, after being unanimously confirmed by the Senate in 2012. 20/20 Vision applauds Commissioner Romero’s nomination.

FDIC Chair Gruenberg announced his intention to resign after an independent review of misconduct at the agency found that hundreds of reports of sexual harassment, discrimination, and other interpersonal misconduct had occurred within a misogynistic, patriarchal, insular, and outdated workplace culture. Such a toxic work culture can be deeply ingrained in an organization. Creating lasting change will require the time and support of Commissioner Romero as she takes up leadership of the key banking regulator.

In addition to Commissioner Romero, Biden announced nominations for three other key positions in his administration yesterday:

Kristin Johnson, a Commissioner of the Commodity Futures Trading Commission (CFTC), has been nominated to serve as Assistant Secretary for Financial Institutions at the Department of the Treasury. Johnson would replace Graham Steele, who resigned in January.
Caroline Crenshaw has been nominated to be reappointed for a five-year term as Commissioner of the Securities and Exchange Commission (SEC).
Gordon Ito, the current Insurance Commissioner for the state of Hawaii, has been nominated to serve a six-year term as a member of the Financial Stability Oversight Council (FSOC). Ito would replace Thomas Workman, whose term expired in March.

CFPB Rule to Remove Medical Debt from Credit Reports

On Tuesday, the Consumer Financial Protection Bureau (CFPB) proposed a rule to stop credit reporting companies from sharing medical debts with lenders and prohibit lenders from making lending decisions based on medical information.

As CFPB Director Rohit Chopra noted, “Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans.” The Bureau’s research has found that a medical bill on a person’s credit report is not a good predictor of whether they will repay a loan.

The proposed rule would remove medical bills from most credit reports, increase privacy protections, help to increase credit scores and loan approvals and prevent debt collectors from using the credit reporting system to coerce people to pay.

The proposed rule would remove roughly $49 billion in medical debts from the credit reports of 15 million Americans, having a broad impact on consumers’ ability to access housing and affordable lines of credit. The CFPB expects that the proposed rule will lead to the approval of approximately 22,000 additional, safe mortgages every year. Comments on the proposal must be received on or before August 12.

PPI Report: Wholesale Inflation Fell Unexpectedly in May

Per a Bureau of Labor Statistics report released yesterday, wholesale inflation cooled significantly in May. The producer price index (PPI), which measures the change in prices that manufacturers pay to suppliers, decreased by 0.2 percent month-over-month, beating expectations from economists. The PPI increased 2.2 percent year-over-year, a promising sign for an economy that has seen inflation remain stubbornly high in areas such as shelter costs despite the Fed’s strategy of keeping interest rates higher for longer.

Source: Bloomberg

Nearly 60 percent of the decline in the PPI was due to a drop in gasoline prices, which fell 7.1 percent in May. Prices also fell for diesel fuel, chicken eggs, electric power, jet fuel, and basic organic chemicals. All told, the PPI can serve as a bellwether for retail-level inflation going forward, and a decrease in the PPI suggests that the Fed’s anti-inflationary strategy is, indeed, working. If the PPI and other economic indicators continue to go in the right direction, the Fed may finally see fit to cut interest rates earlier than it had previously indicated.

Trump Supplements Tax Plans Ahead of 2024 Elections

Yesterday, presumptive GOP presidential nominee Donald Trump met with members of the Business Roundtable in Washington, reportedly talking at length about his plans for tax policy if elected to a second term. Trump’s landmark Tax Cuts and Jobs Act (TCJA) lowered the corporate rate from 35 percent to 21 percent, despite the Business Roundtable pushing for 25 percent at the time of passage. The former president seeks to lower the rate even further to 20 percent, at a time when the nation faces diminishing corporate income tax revenue amidst surging corporate profits. Trump also discussed his proposal to give tax-exempt status to tip wages earned in the service industry, an idea he first floated at a rally in Las Vegas last weekend.

This year’s election will decide the balance of power in Congress and, therefore, 2025’s tax policy superbowl, featuring debates about extensions for expiring TCJA provisions. We expect this will be an occasion for both parties to fight for additional reforms. Democrats have stuck to a message centered on tax fairness and have outlined plans to invest in working- and middle-class Americans with revenue raised from wealthy individuals and large corporations who often take advantage of the skewed tax code to pay lower rates than working-class Americans and small businesses.

Hearings

CFPB’s Chopra on Bureau’s Work to Protect Consumers

This week, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra testified before the Senate Committee on Banking, Housing, and Urban Affairs and the House Financial Services Committee as he delivered his semi-annual report to Congress.

Chopra has appeared before both committees on many occasions, but this marks his first Congressional testimony since the Supreme Court ruled that the CFPB’s funding mechanism is constitutional in an overwhelming 7-2 decision. Thanks to the Supreme Court’s ruling, the CFPB can – as Senate Banking Committee Chair Sherrod Brown (D-OH) said in his opening statement – “refocus on what matters: protecting hardworking families, military personnel, students, and seniors from financial predators.” Republicans, including Senate Banking Committee Ranking Member Tim Scott (R-SC), claimed that the CFPB’s overwhelming victory only raised their concerns about the agency’s conduct.

Even under continued attacks from the financial industries it oversees and those industries’ Republican allies in Congress, the CFPB has been a diligent protector of the American consumer. Senate Banking Committee Chair Brown highlighted the importance of the rule saying “No one should be rejected for a car loan because of a sick family member, or forced to pay higher mortgage rates because of a medical emergency.”

Senate Budget: Making Wall Street Pay Fair Tax Share

On Wednesday, members of the Senate Budget Committee held a hearing to discuss tax policy as we approach the expiration of many Tax Cuts and Jobs Act (TCJA) provisions at the end of next year. While the direct focus of the hearing was on “making Wall Street pay its fair share,” members of both parties used the opportunity to discuss their broader agenda for next year’s tax fight, in which Republicans will push to extend tax cuts while Democrats will focus on raising more revenue and enhancing tax fairness. Republicans, including Ranking Member Chuck Grassley (R-IA), cited the economic consequences of tax increases and framed the TCJA as a success despite the contested evidence that the tax bill led to significant economic gains.

Conversely, Democrats, led by Chair Sheldon Whitehouse (D-RI) focused on a myriad of tax provisions they believe will help instill fairness in the tax code and generate more federal revenues, including but not limited to:

locking in a corporate minimum tax on foreign profits,
raising the corporate tax rate,
closing the carried interest loophole,
reining in the “Buy, Borrow, Die” loophole,
eliminating rewards for the offshoring of profits provided by the TCJA,
raising the buyback excise tax,
taxing firms that pay their CEOs excessive salaries much higher than those of lower-level employees, and
enacting a Financial Transaction Tax (FTT).

These ideas will likely remain a fixture in the 2025 tax fight despite the fact that expirations are mainly limited to individual provisions of the TCJA. Any agreement that does not enhance tax fairness and raise additional revenues for investments in working- and middle-class Americans would be irresponsible and should be vehemently opposed.

HFSC Republicans Target FDIC Leadership

The House Financial Services Committee convened on Wednesday for a hearing to further consider the independent review of misconduct at the Federal Deposit Insurance Corporation (FDIC), which found a toxic workplace culture at the agency. The report was conducted by the law firm of Cleary Gottlieb Steen & Hamilton.

Committee Republicans, led by Chair Patrick McHenry (R-NC), used the hearing to platform their calls for FDIC Chair Martin Gruenberg to step down immediately, rather than wait for a successor to be appointed. Ranking Member Maxine Waters (D-CA) noted that the FDIC’s toxic workplace culture has persisted under both Democratic- and Republican-appointed leaders. Ranking Member Waters also highlighted that the report failed to focus on the leadership of former FDIC Chair Jelena McWilliams and her senior staff, which included current FDIC Vice Chair Travis Hill, who also failed to effectively protect FDIC employees from the misconduct identified in the report.

Look Ahead

Tuesday, June 18

Senate Finance Committee hearing: “Work and Social Security Disability Benefits: Addressing Challenges and Creating Opportunities”

Friday, June 21

Existing home sales – May
U.S. leading economic indicators – May

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