Overnight Finance: CBO projects return of $1T deficits | Republicans rue Trump trade war | Stocks cooling off from Trump bump | Senators skeptical of spending clawback | Mulvaney blasts consumer bureau leaks

Overnight Finance: CBO projects return of $1T deficits | Republicans rue Trump trade war | Stocks cooling off from Trump bump | Senators skeptical of spending clawback | Mulvaney blasts consumer bureau leaks
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Happy Monday and welcome back to Overnight Finance, where we're trudging through football weather despite the start of baseball season. I'm Sylvan Lane, and here's your nightly guide to everything affecting your bills, bank account and bottom line.

See something I missed? Let me know at slane@thehill.com or tweet me @SylvanLane. And if you like your newsletter, you can subscribe to it here: http://bit.ly/1NxxW2N.



THE BIG DEAL: The era of $1 trillion-deficits is right around the corner.

This year's federal budget deficit will rise to $804 billion and is projected to nearly hit $1 trillion in 2019, largely because of the GOP tax cuts and the bipartisan $1.3 trillion spending package approved last month, according to updated projections released Monday by the Congressional Budget Office (CBO).

The $804 billion deficit this year would be a $139 billion increase over 2017, with the total representing 4 percent of gross domestic product (GDP).

In 2019, deficits would rise to $981 billion before peaking at 5.4 percent of GDP in 2022, according to the CBO's "Budget and Economic Outlook" report.

Deficits would hover around 5 percent through the end of the decade.

"Congress has got some tough decisions to make about how to deal with this problem," CBO director Keith Hall told reporters. The Hill's Niv Elis explains how we got here, what happens next, and what it means for the U.S. economy.



Why it matters: The debt burden, the total amount the government owes relative to the size of the economy, is projected to reach 96 percent of GDP by the end of the decade, its highest level since the end of World War II, the report said.

Higher deficits could lead to ballooning debt interest payments, a drop in capital stock and productivity, decreased fiscal flexibility in the event of a downturn and higher chances for a fiscal crisis, the report said.

The combination of rising interest levels and higher debt levels mean that the government will spend a larger percentage of its resources simply servicing debt. The CBO forecast that net interest payments on the debt would surpass both defense and non-defense spending by 2025.


The silver lining: In the short run, those fiscal policies will boost the economy. CBO projected growth to rise to 3.3 percent in 2018 before dropping below 2017 levels to 2.4 percent next year. But the average growth over the entire decade is expected to remain moderate, at 1.9 percent.

Unemployment is projected to dip to 3.8 percent this year and 3.3 percent next year before popping back up to the decade-long average of 4.8 percent. The current unemployment rate is 4.1 percent. For reference, the Federal Reserve is projecting a 3.8 percent unemployment rate by year's end and 3.6 percent in 2019.


The siren: The GOP tax cuts are projected to increase the national debt by $1.9 trillion between 2018 and 2028. According to the report, the tax law would cost the government $2.3 trillion in revenues, but economic growth would offset that figure by about $461 billion.


What comes next: The House is expected to vote on a balanced budget amendment to the Constitution this week. The measure has almost no chance of becoming law, as it needs Democratic support in the Senate and ratification from the majority of states. But Speaker Paul RyanPaul Davis RyanBush, Romney won't support Trump reelection: NYT Twitter joins Democrats to boost mail-in voting — here's why Lobbying world MORE (R-Wis.) agreed on a vote in exchange for conservative support on a procedural budget measure needed to move forward tax reform.



  • Kirsten Sutton Mork, chief of staff at the Consumer Financial Protection Bureau, speaks on "The New Direction of the CFPB" at the American Bankers Association "Power of Prepaid" summit, 9:45 a.m.
  • House Rules Committee: Hearing on Volcker Rule Regulatory Harmonization Act, 5 p.m.



Republicans rue results of Trump's trade war: Republican lawmakers are returning to Washington this week with their eyes focused on an escalating trade war with China that has roiled the stock market and put them on edge over the economy and this fall's midterms.

The White House and GOP have sought to make the November election as much about the strong economy as possible. They're betting that strong economic growth and the Republican tax-cut law can overcome the ever-present controversies surrounding Trump's tenure.

Trump's trade actions are a threat to that narrative. They have already contributed to a sell-off on Wall Street, and they have raised fears that some economic gains from lower taxes could be lost to higher consumer prices triggered by tariffs. The Hill's Alexander Bolton takes us inside the GOP's battle. 


"A trade coalition of the willing" President TrumpDonald John TrumpKimberly Guilfoyle reports being asymptomatic and 'feeling really pretty good' after COVID-19 diagnosis Biden says he will rejoin WHO on his first day in office Lincoln Project offers list of GOP senators who 'protect' Trump in new ad MORE's chief economic adviser, Larry Kudlow, said on Monday that Trump is open to forming a coalition to deal with China on trade issues (no, not this one) amid the ongoing dispute between Washington and Beijing.

"The president is amenable to that," Kudlow told CNBC's "Squawk on the Street." "He's not necessarily soliciting support yet, but he is amenable."

Kudlow named Japan, the European Union, France, Germany and Canada among potential members of a "trade coalition of the willing," a riff on former President George W. Bush's name for the nations involved in the U.S.-led invasion of Iraq in 2003.


Trump has said that the two countries are not in a trade war and that he and Chinese President Xi Jinping will always remain friends. However, Chinese Foreign Ministry spokesman Geng Shuang said on Monday that is impossible for Washington and Beijing to negotiate under the current conditions. 


Senators doubtful on spending clawback: Key Republican Senators on Monday raised doubts that a rescission bill canceling some government spending would be able to pass the Senate. House Majority Leader Kevin McCarthyKevin Owen McCarthyOn The Money: Breaking down the June jobs report | The biggest threats facing the recovery | What will the next stimulus bill include? McCarthy to offer bill withholding funds from states that don't protect statues McCarthy calls on Pelosi to condemn 'mob violence' after toppling of St. Junipero Serra statue MORE (R-Calif.) and President Trump have been discussing ways to rescind funds from the $1.3 trillion spending bill after criticism from their base.

But lawmakers on Monday downplayed that talk.

Key point: Republicans are worried that using process on a bipartisan, negotiated agreement could poison future talks with Democrats.

"It is counter to the agreement that both houses and both parties and the administration reached, and to try to undo it after it's just been signed into law strikes me as ill-advised," Sen. Susan CollinsSusan Margaret CollinsLincoln Project offers list of GOP senators who 'protect' Trump in new ad The Hill's Campaign Report: Democratic Unity Taskforce unveils party platform recommendations The Hill's Morning Report - Presented by Facebook - Trump backs another T stimulus, urges governors to reopen schools MORE (R-Maine) said Monday. Niv Elis explains here.



Mulvaney blasts leaks from consumer bureau: Mick MulvaneyMick MulvaneyMulvaney: Trump faces difficulty if 2020 election becomes 'referendum' on him Consumer bureau revokes payday lending restrictions Supreme Court ruling could unleash new legal challenges to consumer bureau MORE, acting director of the Consumer Financial Protection Bureau (CFPB) blasted unspecified leaks from within the agency, claiming they come from "a very small minority" of "ideologues and activists."

Mulvaney, also the White House budget director, said some CFPB staffers have damaged the bureau's reputation with leaks to reporters he says are inaccurate. 

Mulvaney is the latest Trump administration official to bemoan unauthorized disclosures of information to the media.

"What's really disappointing to me is it undermines the credibility of the institution," Mulvaney told a conference of community bankers in Washington. He said he wants the CFPB to be viewed with respect across ideological lines and cease leaks he says "makes us look like partisan hacks."


Here's more from me on Mulvaney's gripes with CFPB staffers, and the reason he thinks highly of most of the bureau's staff. We also learned a few other tidbits about his tenure today:

  • Shortly after his appointment to the CFPB, Mulvaney asked whether the agency could legally repeal its rule on short-term, high-interest or "payday" loans. He said he was told that he couldn't, and lent his support to congressional efforts to repeal the rule.
  • Mulvaney said his allotted time as acting director ends on June 22, but only if Trump hasn't nominated a permanent CFPB director yet. If there's a CFPB director nominee pending before the Senate by that date, Mulvaney will stay on as acting chief until his successor is confirmed.


Regulator calls on Congress to clear Dodd-Frank rollback bill: Comptroller of the Currency Joseph Otting called on Congress to pass a bipartisan rollback of strict banking rules passed after the 2008 financial crisis, but wouldn't take sides in a power struggle over the bill between the House and Senate.

"This is a monumental change in our ability to influence regulation. I don't think this is the last time for us to get a chance to open this," Otting said at a Washington summit for community bankers.

The bill, sponsored by Senate Banking Committee Chairman Mike CrapoMichael (Mike) Dean CrapoGOP skeptical of polling on Trump GOP: Trump needs a new plan On The Money: US tops 100,000 coronavirus deaths with no end in sight | How lawmaker ties helped shape Fed chairman's COVID-19 response | Tenants fear mass evictions MORE (R-Idaho) passed the Senate last month, 67-31, with strong bipartisan support. But Speaker Paul Ryan (R-Wis.) has vowed to freeze the bill until senators agree to negotiate on changes with House Financial Services Committee Chairman Jeb HensarlingThomas (Jeb) Jeb HensarlingLawmakers battle over future of Ex-Im Bank House passes Ex-Im Bank reboot bill opposed by White House, McConnell Has Congress lost the ability or the will to pass a unanimous bipartisan small business bill? MORE (R-Texas).

Otting told reporters after his speech before the Independent Community Bankers of America that he's "not in a position" to say whether Ryan should end the blockade. Instead, he encouraged both chambers to come to an agreement on the best way to clear the bill. I've got more on that here.


Otting also set some timelines for a few of OCC's other policy priorities.

  • He said the OCC will propose changes to the Volcker Rule within the next month or two as several financial regulators huddle on how to ease the impact of the Dodd-Frank ban on risky trades for community banks.
  • He said the OCC will be seeking input on planned changes to the Community Reinvestment Act and praised the Treasury Department's recent reform proposal.
  • Otting said OCC would weigh in within the next two to three months on whether financial technology companies should be able to apply for a bank-like charter, and give suggestions to the Treasury Department within a few weeks on how to give banks more flexibility in complying with anti-money laundering laws.


MARKET CHECK: From CNBC"Stocks closed well off their session highs on Monday as shares of Amazon and Boeing rolled over. Traders said a report that FBI officers had raided the office of President Donald Trump's personal lawyer also fueled the late-day decline.
"The Dow Jones industrial average rose 46.34 points to 23,979.10, with Merck and Intel as the best-performing stocks in the index. The S&P 500 gained 0.3 percent to close at 2,613.16, with tech surging 0.8 percent. The Nasdaq composite advanced 0.5 percent to 6,950.34.

"At its session high, the Dow rose as much as 440.42 points. Meanwhile, the S&P 500 and Nasdaq gained as much as 1.9 percent and 2.3 percent, respectively."


GOING DEEPER: Wall Street has muddled through a bumpy 2018, with the economic optimism that drove major gains during President Trump's first year in office steadily eroding.

Stocks have seen rampant volatility this year, in part because of rising trade tensions and growing questions about the outlook for the U.S. economy. While major U.S. stock indexes are still priced well above what they were before Trump took office, they've fallen close to 10 percent from their record highs.

The picture was very different last year, when excitement for sweeping U.S. tax cuts and increases in corporate earnings fueled a massive stock surge dubbed the "Trump bump."

Analysts generally see the white-hot stock market frequently touted by Trump as coming back to earth. I explain here.



  • The financial sector's advocates in D.C. are pushing for changes at the CFPB ahead of Mulvaney's appearances before the Senate Banking and House Financial Services committees this week. The Consumer Bankers Association is pressing the leaders of both panels to follow through with some of Mulvaney's proposed changes. And a broader group of more than a dozen financial trade groups is backing a bill to install a commission atop the CFPB.
  • PayPal is making a move toward traditional banking, reports The Wall Street Journal.
  • A group of the world's leading technology companies expressed opposition to President Trump's plans to slap billions in tariffs on Chinese products over lax intellectual property protection policies.



  • Coinbase, the cryptocurrency exchange, is in talks with the SEC to register as a broker, according to the Journal.