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Crypto becomes partisan — There were partisan fireworks at SEC Chair Gary Gensler’s hearing on Tuesday at the Senate Banking Committee, in what could spell trouble for the cryptocurrency industry as it aims to build alliances with lawmakers on both sides of the aisle. Republicans urged Gensler to do less and say more about how digital currencies are regulated, while Democrats called on him to crack down further on virtual assets.

Sen. Pat Toomey, a Pennsylvania Republican, ripped Gensler for the numerous enforcement actions he has taken against crypto firms: “I understand that SEC staff will privately provide feedback and analysis on whether a cryptocurrency is a security. Why keep this analysis private? Why not publicly announce what characteristics make a cryptocurrency a security or not a security? Why wait to make the SEC’s views known only when it swoops in with an enforcement action, in some cases years after the product was launched?”

Gensler countered that the law is clear on what constitutes activity subject to SEC rules and that the regulator had already put out significant guidance on the issue, per our Kellie Mejdrich.

“Some of these tokens have been deemed to be commodities, many of them are securities, and the Supreme Court has weighed in a number of times,” he said. “I think that there’s a fair amount of clarity.”

One sign of hope for the industry: Sen. Mark Warner, a Virginia Democrat, indicated he’d like to join Republican Sen. Cynthia Lummis’ Financial Innovation Caucus.

Meanwhile, narrative wars continued around price increases as the Consumer Price Index from August pointed to still high inflation along with signs of cooling; at 0.3 percent, it was the slowest month-over-month increase since January. A White House official told MM before the data release that month-over-month is their preferred measure because it’s the clearest indicator of the current trend in prices. Year-over-year comparisons reflect what was going on during the pandemic, when everything was upended. The official also underscored that the administration doesn’t think inflation data should play into the debate over the massive spending packages the Democrats are proposing, which it says are longer-term investments that aren’t inflationary and will be paid for with higher taxes.

Economists generally saw the report as points on the board for those (like the White House) who argue that higher inflation is transitory, tied only to temporary, Covid-induced disruptions in supply chains. Sen. Ted Cruz had a different take, warning of an “inflation bomb.”

HAPPY WEDNESDAY — Ben White will be back soon! Send tips to him at [email protected] or @morningmoneyben and to Aubree Eliza Weaver at [email protected] or @AubreeEWeaver. And you can always reach me with any economic policy tips at [email protected].

WHITE HOUSE EYES CONSUMER WATCHDOG FOR FHFA — Our Katy O’Donnell reports: “The White House is considering nominating consumer-lending advocate Michael Calhoun to be the next director of the Federal Housing Finance Agency, according to three people familiar with the matter. Calhoun is the president of the Center for Responsible Lending. If nominated and confirmed, he would become the top housing regulator in the country, with oversight of mortgage giants Fannie Mae and Freddie Mac.”

A newsy day for FHFA, which also reached an agreement with the Treasury Department to suspend restrictions on Fannie Mae and Freddie Mac during the Trump administration, giving the companies freer rein to purchase riskier mortgage loans, Katy reports.

“Treasury and FHFA revised legal agreements underpinning the government’s stake in the mortgage giants and halted four requirements. Among them was a restriction on their purchases of ‘high-risk’ loans characterized as having some combination of low credit scores and high debt-to-income or loan-to-value ratios. Fannie and Freddie buy mortgages from lenders and sell them to investors as securities. Loosening the Trump-era restrictions to give the companies the ability to purchase more loans with lower credit scores will allow lenders to make more of those loans, expanding mortgage access.”

WARREN ASKS FED TO BREAK UP WELLS FARGO — NYT’s Emily Flitter: “Senator Elizabeth Warren says Wells Fargo has run out of time to fix the many internal problems that have harmed its customers. In a letter to the Federal Reserve chair, Jerome H. Powell, on Monday, Ms. Warren asked the Fed to force the financial giant to break off its core banking activities, like offering checking and savings accounts and loans, from its other financial services.

“Divorcing Wall Street-centric work — which can include managing investment funds and providing financial market sales and trading services — from the bank would ensure that Wells Fargo’s everyday customers did not continue to suffer, Ms. Warren wrote. The Fed could accomplish this, she explained, by revoking Wells Fargo’s financial holding company license — essentially making it impossible for the company to operate any nonbanking businesses.”

SCHUMER ASKS BUSINESSES TO WEIGH IN ON DEBT DEFAULT — Reuters: “U.S. Senate Majority Leader Chuck Schumer urged the business community on Tuesday to start weighing in with Republicans on the dangers of not raising the debt ceiling to avoid a government default or partial government shutdown. ‘This is risky business and dangerous business’ that Republicans are engaging in, Schumer, a Democrat, told reporters at the Capitol.”

Speaking of which, financial trade groups banded together Monday to do just that. “ Our members fully support Congressional efforts to raise the federal debt ceiling without delay,” the Securities Industry and Financial Markets Association, American Bankers Association, Bank Policy Institute, Financial Services Forum and Investment Company Institute said in a letter to congressional leaders that was later touted in a White House press release.

WAIT, WHAT? — Sen. Rick Scott, who has been outspoken on the need to rein in U.S. government debt, on Tuesday told reporters that it made no sense for investors to buy that debt right now because “American taxpayers are not willing to raise taxes to pay for this.” He added: “If you’re foolish enough right now to be buying this stuff, you’re foolish.” (h/t Caitlin Emma)

POWELL/BRAINARD SAGA — Revolving Door Project’s Jeff Hauser emails to say he isn’t worried that a nomination of Lael Brainard to lead the Fed would be dragged out, calling her a “thoroughly mainstream candidate for Fed Chair with a history of earning the votes of Murkowksi and Collins.” “Also: the pressure from even Wall Street to avoid a dragged out Fed fight will be intense. … She will get more than 50 votes easily. Fewer than a Republican, but a Fed Chair with 50-55 confirmation votes wields exactly the same powers as a Fed Chair with 85 votes.”

POVERTY FELL LAST YEAR AS AID MADE UP FOR LOST JOBS — NYT’s Ben Casselman and Jeanna Smialek: “The share of people living in poverty in the United States fell to a record low last year as an enormous government relief effort helped offset the worst economic contraction since the Great Depression.

“In the latest and most conclusive evidence that poverty fell because of government aid, the Census Bureau reported on Tuesday that 9.1 percent of Americans were poor last year, down from 11.8 percent in 2019. That figure — the lowest since records began in 1967, according to calculations from researchers at Columbia University — is based on a measure that accounts for the impact of government programs. The government’s official measure of poverty, which leaves out some major aid programs, rose to 11.4 percent.”

STOCKS CAN’T HOLD ON TO AN EARLY GAIN — AP’s Damian J. Troise and Alex Veiga: “Stocks went back to falling on Wall Street Tuesday after a blip higher the day before, giving the S&P 500 its sixth loss in the last seven trading days. The benchmark index lost 0.6 percent. The market had started higher after the latest data on inflation came in better than economists had expected, but those gains faded quickly. Bond yields fell following the report, which showed that consumer prices rose just 0.3 percent last month, the smallest increase in seven months and a hopeful sign that inflation pressures may be cooling. The yield on the 10-year Treasury note fell to 1.29 percent.”

FOR THE FED, INFLATION DOESN’T MATTER (YET) — WSJ’s Justin Lahart: “When it comes to Federal Reserve interest-rate policy, what inflation is doing now matters much less than what it will be doing next spring.

“What inflation is doing now is running fairly high. The Labor Department on Tuesday reported that its index of consumer prices rose a seasonally adjusted 0.3 percent in August from July, putting it 5.3 percent above its year-earlier level. Core prices, which exclude food and energy items in an effort to better capture inflation’s trend, were up 4 percent from a year earlier.”

TREASURY YIELDS FALL AFTER CONSUMER-PRICE DATA — WSJ’s Julia Ambra-Verlaine: “U.S. government-bond yields fell after data showed consumer prices cooled in August, easing investors’ worries about runaway inflation. The yield on the benchmark 10-year Treasury note, which helps set borrowing costs on everything from corporate debt to mortgages, slid to a recent 1.282 percent, according to Tradeweb, from 1.323 percent Monday.”