| Good morning. Federal Reserve Chair Jerome Powell prepares to speak to lawmakers, President Joe Biden faces more pressure and traders brace for bank earnings. Here's what's moving markets. — Kristine Aquino The Fed's Powell is likely to say policymakers need further confirmation that inflation is slowing before they're in a position to cut interest rates when he speaks to Congress on Tuesday and Wednesday. His comments will come ahead of Thursday's consumer price figures for June, which are forecast to show a further moderation of cost pressures. And a big bond bet favored by Citigroup and JPMorgan ahead of that data is getting a boost. Markets are calm, with S&P 500 futures little changed on Monday following its biggest weekly advance since April. Treasury yields edged higher, while the Bloomberg Dollar Spot Index held losses after its first weekly decline in seven. Several influential congressional Democrats said privately on Sunday they want President Biden to step aside as the party's White House nominee after his stumbling debate against Donald Trump last month. The latest defections include several Democratic leaders of House committees, which add up to a total of nine members from the chamber who have called for Biden to pull out of the race. If Biden were to step aside, he could request that his delegates to the Democratic party's national convention switch their support to a replacement he favors, such as his current running mate, Vice President Kamala Harris. Other potential replacements include California Governor Gavin Newsom, Illinois Governor J.B. Pritzker and Michigan Governor Gretchen Whitmer. JPMorgan, Wells Fargo and Citigroup will kick off the US banks earnings season on Friday and traders are showing little concern that their rally will stumble. A measure of hedging costs for JPMorgan and Wells Fargo shares is hovering near its lowest level since 2021, while protection for Citigroup is below its one-year average, according to data compiled by Bloomberg. When it comes to volatility following the results, the options market is pricing in stock moves more or less in line with what was seen after past reports. Expectations for muted swings in banks stocks reflect a broader low-volatility environment, with the Cboe Volatility Index recording its lowest average reading since 2017 in the first half. Boeing will plead guilty to criminal conspiracy in connection with two fatal crashes of its 737 Max jetliner and faces a fine of as much as $487.2 million — the maximum allowed by law. The actual amount will be determined by a judge, according to the Justice Department. Boeing will also install a corporate monitor and be required to spend at least $455 million to bolster its compliance and safety programs over the next three years as part of the deal, which requires court approval. The agreement disgraces the storied US planemaker as a felon but avoids a bruising courtroom confrontation. Americans are playing the stock market in record numbers, with almost three in five investing in stocks, according to a Charles Schwab survey released in June. Members of Generation Z start investing when they're 19, on average, compared with 32 for Gen X and 35 for baby boomers, according to the survey. Sports betting has also exploded, with Americans wagering more than $220 billion in the past five years, according to the American Gaming Association. "Trading has become interchangeable with the same kind of online betting that we're seeing for games and in the sports world. It's part of a gambling zeitgeist," says Peter Atwater, an economics professor at William & Mary. Here's what caught our eye over the weekend: Are high interest rates by the Fed contributing to inflation? That's one of those things you hear from time to time, though it's often a little bit unclear what people are talking about when they say it. One popular line of discussion is that high rates impair housing construction. This contributes to a shortage of housing, which puts upward pressure on rents and therefore the total price level.
Another dimension is that even if the price of goods and services cool, that the public perceives interest rate costs (like mortgage rates, or car loan payments) to have a similar effect as inflation itself.
Then there's also the Neo-Fisherian view that the Fed doesn't control real interest rates and that if the Fed raises rates, real rates follow. And then there's another view that rate hikes are (or at least can be) inflationary, since higher rates mean higher income for Treasury and debt holders. This income gets spent in the economy, creating increased demand and therefore higher prices.
That's the gist of today's Odd Lots podcast, with economist, former investor, and race car driver Warren Mosler, who is often known as the godfather of Modern Monetary Theory.
People generally associate the theory with a certain nonchalance about deficits and debts (though they disclaim this crude characterization). Anyway, per Mosler, there's a three-way combination that he's concerned about: Large deficits outside of recession (which he calls a "drunken sailor" level of spending), a historically large stock of debt and a Fed that's using an orthodox approach to get inflation back to target. Because debt is as high as it is, he sees the rate hikes as having generated a massive amount of interest income, and that because much of the government's debt stock has yet to reprice, interest expense is set to go higher yet
In other words, it's not the deficit or the debt, per se, but the deficit and the debt in accordance with our current approach to fighting inflation. Mosler believes the better approach would be a permanent zero interest-rate policy that leaves the task of macro-stabilization to fiscal. Read our article on the conversation here, or listen on the apps. Joe Weisenthal is the co-host of Bloomberg's Odd Lots podcast. Follow him on X @TheStalwart. | 
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