On The Money — Dems hit corporations as cashing in amid price rises

Corporations are reeling in high profits as consumers pay more for just about everything—and Democrats are angry about it.

We’ll also look at why one mortgage giant thinks a recession is on the way and the immediate departure of airline mask mandates. 

But first, find out why a secretly recorded phone call has Rep. Madison Cawthorn (R-N.C.) in hot water again. 

Welcome to On The Money, your nightly guide to everything affecting your bills, bank account and bottom line. For The Hill, we’re Sylvan Lane, Aris Folley and Karl Evers-Hillstrom. Subscribe here.

As corporate profits rise amid inflation, Dems cry foul

As consumers feel the pinch of inflation, corporate profits are hitting all-time highs, adding impetus to Democratic arguments that big business is gouging consumers and making inflation worse.

Inflation has become a major headwind for Democrats ahead of this fall’s midterm elections, when the party is at risk of losing its narrow majorities in the House and Senate. Rising prices have contributed to President Biden’s faltering approval ratings, adding to Democratic anxieties.  

But Sen. Elizabeth Warren (D-Mass.) and other Democrats contend it is increasingly clear that part of the problem is big business and that Democrats need to go on the attack to fight inflation by pressuring corporate America to stop raising prices.

• Overall, corporate profits after tax, as reported by the U.S. Bureau of Economic Analysis and compiled by the Federal Reserve Bank of St. Louis, hit $2.7 trillion in the fourth quarter of last year, just off the all-time high of $2.72 trillion in the previous quarter.   
• That’s a 40 percent increase in profits from the pre-pandemic level of $1.96 trillion for the fourth quarter of 2019 and nearly an 80 percent increase from the pandemic low point of $1.5 trillion.  
• John Butters, an analyst with FactSet, found that 356 S&P 500 companies cited ‘inflation’ on earnings calls for the fourth quarter, which was the highest number in at least 10 years. 

The record number of inflation citations, paired with skyrocketing profits, has led Democratic senators like Warren to cry foul.

“As we emerge from two years of the coronavirus pandemic, American efforts to return to normal are being stymied by inflation, driven in part by corporate profiteering and price-gouging,” she wrote in a letter to the FTC.

The Hill’s Tobias Burns has more here. 

RECESSION WARNING

Mortgage giant says US to see ‘modest recession’ in 2023 

Government-supported mortgage giant Fannie Mae said Tuesday the U.S. will see a “modest recession” in 2023 due to inflation and other economic factors.   

The company predicted in an economic and housing forecast that such a recession will be caused by the record-high inflation the U.S. is seeing, the Federal Reserve tightening monetary policy and the effects from Russia’s war on Ukraine.

“As such, we’ve updated our 2023 forecast to include a modest recession, but one that we do not expect to be similar in magnitude or duration to the recession of 2008,” Doug Duncan, Fannie Mae senior vice president and chief economist, said in a statement. 

• The company gave multiple reasons why it is not expecting a recession as bad as the one seen in 2008, citing the current state of the housing market, including a mortgage credit quality that is “far superior” and mortgage servicers that are better equipped than they were at that time. 
• However, the company expects home sales, house prices and mortgage volumes all to drop in the next two years, Duncan said. “In particular, we expect house price growth to decelerate to a pace more consistent with income growth and interest rates.”  

Read more here from The Hill’s Lexi Lonas. 

MASK-OFF?

Airlines rush to drop mask mandates 

Airlines and airports are rushing to drop their mask requirements following a federal court ruling that struck down the federal government’s mask mandate for planes, trains and buses.  

Every major U.S. airline announced that masks are now optional shortly after the Transportation Security Administration (TSA) said Monday evening that, in accordance with the new ruling, it would no longer enforce its mandate.

• The big four carriers — American Airlines, Delta Air Lines, Southwest Airlines and United Airlines — quickly nixed their mask requirements Monday night, with some passengers reporting hearing about the policy change mid-flight.  
• JetBlue, Alaska Airlines, Spirit Airlines, Frontier Airlines, Hawaiian Airlines and Allegiant Airlines also announced that masks will be optional on their flights following the TSA announcement.  

The change comes as airports experience a surge in travelers. The TSA on Monday screened nearly 2.3 million people, roughly 10 percent lower than the same period in 2019. 

Karl has more here. 

AUF WIEDERSEHEN (GOOD-BYE) 

SAP winding down Russian operations after decades 

SAP, a German-based software company, announced on Tuesday that it planned to exit Russia over its invasion of Ukraine.  

“Today we are announcing further steps toward an orderly exit from our operations in Russia,” SAP said in a statement, adding that the company had operated in Russia for more than 30 years.

• It specified that it would give non-sanctioned companies the opportunity to have their data “deleted, sent to them, or migrated to a data center outside of Russia.” 
• SAP also said it would no longer provide support and maintenance for on-premise products. The company had already announced that it would also stop sales in Russia and Belarus and had begun shutting down cloud operations in Russia.   

The Hill’s Monique Beals has more here.  

Good to Know

As the housing market remains volatile, with high mortgage rates and home prices, a new survey reveals more Americans are beginning to feel more pessimistic about the future of their own housing options.

A recent survey from the Federal Reserve Bank of New York showed that while households expect strong home price growth of 7 percent over the next 12 months, renters felt a lower probability of ever owning a home, with their reported likelihood of owning falling to 43.4 percent. 

Here’s what else we have our eye on: 

• The Department of Education announced on Tuesday that thousands of borrowers could see immediate forgiveness under changes the agency said it will be making to address long-standing failures in federal student loan programs. 
• A coalition of House Democrats on Tuesday introduced a bill that aims to bolster workplace harassment and discrimination rules for matters involving congressional lawmakers. 
• Treasury Secretary Janet Yellen will be forgoing some Group of 20 (G-20) meetings this week over Russia’s invasion of Ukraine, a U.S. Treasury official confirmed to The Hill. 
• The United States Postal Service will slow delivery times for a third of its first-class packages to cut costs and its dependency on air transportation amid financial struggles. 

That’s it for today. Thanks for reading and check out The Hill’s Finance page for the latest news and coverage. We’ll see you tomorrow. 

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