February 15, 2023
Mornin'! Today we dive into CPI, ESG and FTC. Let's go.
Today’s newsletter is 970 words, 4 minutes.
1 big thing: Housing costs are still a problem
The costs of shelter kept inflation stubbornly high last month, Matt writes.
The big picture: Early on, COVID-era inflation was driven by the cost of stuff — cars, lumber and bikes, for example. But now, getting inflation under control hinges on controlling costs for services, a segment in which housing is the heavyweight.
By the numbers: So-called core inflation — which excludes volatile food and energy, and is a closely watched measure of price trends — was up 5.6% over the last year, according to the January Consumer Price Index released yesterday.
- Shelter costs accounted for almost 60% of that.
- And shelter was about half of the higher-than-expected 6.4% annual rise in headline inflation. (Analysts expected 6.2%.)
What they're saying: "What is concerning, and influential for the Fed, is that services inflation continues to remain elevated with limited progress the past few months, with shelter costs leading the way," wrote Rick Rieder, chief investment officer of global fixed income at giant money management firm BlackRock.
Yes, but: While shelter costs remain elevated in the CPI numbers produced by the Bureau of Labor Statistics, private-sector market research suggests some housing expenses are declining.
For instance: An index of rental prices produced by real estate firm Zillow found that asking rents declined in October, November and December 2022, the last months for which data was available.
- Zillow says BLS rent metrics tend to lag its rental index by about a year.
Yes, but, but: That traditional lag could be broken since there are remarkably few homes available to buy — and that could keep American home prices from declining.
The bottom line: While such data distinctions are important to the Federal Reserve — and therefore the stock market — the facts about American housing are pretty clear.
2. Charted: No shelter from rising costs
3. Catch up quick
4. The cost of anti-ESG in the statehouse
How much does it cost to blacklist America’s biggest banks? Ask Texas, Axios' Kate Marino writes.
The big picture: Texas is one of the states that's effectively said it'll pull back from doing business with banks like JPMorgan, Goldman Sachs and Citigroup — on the grounds that these banks are too into ESG (environmental, social and governance) policies for the tastes of conservative state leaders.
- This could cost Texas taxpayers about $416 million per year, in the form of higher interest payments on its municipal bonds, estimated a 2022 paper by Wharton Business School professor Daniel Garrett and Federal Reserve economist Ivan Ivanov (highlighted this week by Bloomberg’s Matthew Winkler).
How it works: Investment banks raise money from investors to lend to state and local governments in the form of bonds.
- The biggest banks — like JPM, Goldman and Citi — charge lower average fees and often have a broader pool of investors, Bloomberg reports. That usually translates to a lower cost of capital for the borrower.
The impact: Texas has the highest possible credit rating, at AAA, yet on routine borrowings it's paying 0.19 percentage points more in yield — the equivalent of $1.9 million on every $1 billion of bonds — than California, which has a lower AA rating, according to data compiled by Bloomberg.
- One example: The city of Anna, Texas, passed over Citi for a mandate to lead a bond offering last fall, despite Citi submitting the most attractive bid, financially, Bloomberg reported at the time.
- Citi offered Anna a rate of 4.215% on bonds totaling about $100 million. Boutique bank Robert W. Baird & Co. offered 4.24% — and got the job. The cost differential to Anna, a city of about 20,000 people, is $277,334, a city spokesperson told Bloomberg.
The bottom line: The difference in interest rates may seem small — but it adds up.
5. 💬 Quoted: Calling it quits at the FTC
"I have failed repeatedly to persuade Ms. Khan and her enablers to do the right thing, and I refuse to give their endeavor any further hint of legitimacy by remaining. Accordingly, I will soon resign as an FTC commissioner."— Christine Wilson, commissioner, FTC
The sole remaining Republican on the Federal Trade Commission, Christine Wilson, announced yesterday in the Wall Street Journal that she’s resigning from her position, Emily writes.
- In making what she called a "noisy exit," Wilson leveled a fairly personal attack on FTC chair Lina Khan. Her "means... involve dishonesty and subterfuge to pursue her agenda," she wrote.
Zoom out: "Regulators tend to disagree and they can maybe be aggressive about it," said Matt Stoller, director of research at the American Economic Liberties Project, a progressive group that's supportive of Khan's approach. But the level of anger here is unusual, he added.
Why it matters: Wilson has been an outspoken opponent of Khan's more robust approach to antitrust, which is a U-turn from decades of tradition and has drawn the ire of pro-business types.
- Most recently Khan's proposal to ban noncompete agreements was criticized by the Chamber of Commerce, which argues the agency doesn't have the authority to make such a move.
Khan released a joint statement with FTC commissioners Rebecca K. Slaughter and Alvaro Bedoya addressing Wilson's exit.
- "While we often disagreed with Commissioner Wilson, we respect her devotion to her beliefs and are grateful for her public service. We wish her well in her next endeavor."
💭 Our thought bubble, via Axios' Ashley Gold: Pro-business groups and Republicans are already skeptical of Khan — and will likely see Wilson's departure as evidence of the agency's politicization.
Thanks for reading!
Markets is edited by Kate Marino and copy edited by Mickey Meece.