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PROGRAMMING NOTE: Morning Money will not be publishing from Aug. 28 through Sept. 4. We’ll be back to our normal schedule on Tuesday, Sept. 5.

Wall Street spent months lobbying lawmakers, the SEC, the press —anybody and everybody — over why SEC Chair Gary Gensler’s planned overhaul of the private equity and hedge fund industry would be a colossal mistake.

The question now is if Gensler & Co. are willing to confront those arguments in a legal showdown.

Later this morning, the SEC will vote on whether to enact new rules for large private equity, hedge funds and credit firms that have emerged as major rivals to commercial banks. Their growing role in the economy, and their power to extract fees and other concessions from their investors, has alarmed progressives like Senate Banking Chair Sherrod Brown (D-Ohio) and Sen. Elizabeth Warren (D-Mass).

Imposing reforms on the multitrillion-dollar private investment market would represent a major victory for Gensler, who told POLITICO earlier this year that the rule changes were crafted to empower investors in their negotiations with Wall Street giants. The proposal specifically would require a raft of new disclosures from firms, ratchet up the legal risks for fund managers and, critically, prohibit certain practices and activities.

But absent major revisions to scale back those plans, lawsuits from wealthy Wall Street lobbying organizations are all but guaranteed, multiple sources told your MM hosts.

Bryan Corbett, president and CEO of hedge fund trade group Managed Funds Association, last week warned that his organization would “consider our full range of options to respond to the rulemaking, including potential litigation,” once it reviews the rule.

The American Investment Council, which represents major private equity firms, has also been laying track for a legal challenge for months, repeatedly arguing in comment letters that the agency lacks the authority to “fundamentally alter the longstanding, widely used business arrangements of private funds.”

They’ve also enlisted powerful allies in Congress to throw up roadblocks designed to slow the SEC’s progress.

Late last year, they successfully lobbied to attach language to a $1.7 trillion government funding bill that urged the agency to take a second look at how the rule would impact smaller investment managers, particularly those owned by women and minorities. Rep. Steve Horsford (D-Nev.), a member of the House Financial Services Committee who chairs the Congressional Black Caucus, pressed the SEC in a letter to consider more economic analysis before finalizing the rule.

Key Republicans like Sens. Tim Scott of South Carolina and Bill Hagerty of Tennessee — along with Reps. Bill Huizenga of Michigan and Steve Womack of Arkansas — have also argued to Gensler that the reach of the proposal exceeds the SEC’s grasp.

Still, progressives claim that the industry’s rapid expansion over the last decade — fueled by the strong returns it delivered to state retirement systems, college endowments and other institutions — has created unfair advantages that advisers can use to charge higher fees or skirt fiduciary duty, according to the Institutional Limited Partners Association.

Now, while the private equity firms and hedge funds prepare for a court battle, Wednesday’s meeting will reveal how much the SEC is willing to do about it.

“An entrenched self interest of a particular industry is something that people are willing to spend a lot of resources protecting,” Brandon Rees, deputy director for corporations and capital markets at the AFL-CIO, tells MM. “Oftentimes, that special interest is more concentrated than the general interests of investors — including retirees, who are beneficiaries of the pension plans that invest in private equity.”

IT’S WEDNESDAY — If you find anything interesting in the final rule, let us know. Send tips, gossip and suggestions to Sam at [email protected] and Declan at [email protected].

The SEC meets at 10 a.m. … New home sales for July will be released at 10 a.m.

[Cocks eyebrow] — The Quarterly Census of Employment and Wages is not something that typically gets top billing in Morning Money. But some Wall Street analysts now expect that revised employment data from March 2022 to March 2023 — which the Labor Department will report at 10 a.m. — could show a reduction of more than 650,000 jobs compared to previous estimates. Non-farm payrolls climbed by more than 4 million during that period, so “this is not an overwhelming downward revision,” Steve Englander of Standard Chartered wrote in a research note. Still, a weak quarterly census could “alter the narrative of an extremely tight labour market, especially if softness is concentrated in recent quarters.”

It would also suggest that the Federal Reserve’s rate hikes started denting the jobs market earlier than previously thought, which would take pressure off Jerome Powell and central bank policymakers to continue tightening. In other words, if you needed more convincing to tune in to Powell’s speech at Jackson Hole on Friday, there you go.

“This is one of the times where it could make a difference, particularly if we’re right and the first and fourth quarter is where we see more softening than the current data suggests,” Englander told Sam.

— WSJ’s Nick Timiraos: “Much of the work lowering inflation is done: Amid the most aggressive series of interest rate increases in four decades, it has fallen to 3.2% from 9.1%. This good news presents the Federal Reserve with a new thorny question. How aggressive should it be in squeezing out what’s left?”

Could the Fed break something? — S&P has joined Moody’s in downgrading several regional banks – including the parents of KeyBank and Comerica — citing how the “decline in deposits has squeezed liquidity for many banks while the value of their securities — which make up a large part of their liquidity — has fallen.” Bank indices fell on Tuesday on the news.

One day, the cuts will come — Just maybe not as soon as markets were expecting. While Wall Street is increasingly bullish on the likelihood of the U.S. avoiding a recession, traders are also “dialing back expectations for Federal Reserve rate cuts,” writes Edward Bolingbroke for Bloomberg.

[Cocks eyebrow even higher] — A research note from the Wells Fargo Investment Institute points out that credit card delinquencies have spiked to the highest levels on record for banks outside the top 100 in assets. “The economy still has a cash cushion, but many consumers are exhausting their credit, while income growth has slowed sharply,” according to the report. Wells Fargo is among the institutions that still anticipate that the U.S. will enter a recession in the coming months.

— Whatever pinch consumers have faced is starting to emerge as President Joe Biden unveils a new promotional blitz for a program that helps student loan borrowers repay their debt, our Michael Stratford reports.

— And in the jobs market: “Pay for new hires is starting to shrivel after years of hefty salary bumps, requiring workers to reset what financial gains to expect from switching to a new job,” writes The WSJ’s Te-Ping Chen.

DOJ backs off — Our Josh Sisco reports that the Department of Justice is not challenging private equity firm Thoma Bravo’s $2.3 billion acquisition of identity management company ForgeRock. Justice Department officials have been scrutinizing the deal since December amid concerns it could be too close of a competitor to another Thoma Bravo portfolio company, Ping.

Fair weather — As extreme weather events grow more prevalent and insurance markets face stress, the progressive investor advocacy group Better Markets is urging the Financial Stability Oversight Council and banking regulators to take stronger action to address climate risk. “Climate disasters are bad enough; a banking disaster on top of that will make everything worse,” said Better Markets CEO Dennis Kelleher in a statement.

— The NYT’s Somini Sengupta, “July was the hottest month in modern times. Now, August is shaping up to be a month of extremes.”