Fed. Chair Powell says stablecoins need more clarification; Morgan Stanley tops Q2 earnings estimates

Yahoo Finance’s Brian Cheung joins the Yahoo Finance Live panel to discuss the latest bank earnings and Powell testimony.

Video Transcript

AKIKO FUJITA: We begin this hour, though, with day two of Jay Powell's testimony. The Fed chair testifying before the Senate Banking Committee this time, one day after warning the house that inflation has increased notably and is likely to remain elevated in the coming months. Brian Cheung is always tracking the testimony for us. And Brian, it's interesting. We saw-- we heard from Jay Powell yesterday, sort of saying on the one hand, inflation has ticked higher and been more sustained than anticipated, but that's not necessarily going to change the Fed's policy, at least in the short term. What more are we hearing today?

BRIAN CHEUNG: Yeah, absolutely, Akiko. As you mentioned, Fed Chairman Jay Powell testifying to the Senate Banking Committee this morning. And it looks like Catherine Cortez Masto, the Democrat from Nevada, currently questioning him. Now, of course, the challenge, as you mentioned, is all about inflation.

And guys, I just want to show you the New York Post this morning. Britney Spears on the cover, but if you take a look at the business section, the headline right here, "Fears Inflated." You have Jay Powell in the rag of the New York Post, so, obviously, inflation fears likely because of those high PPI prints and those CPI prints that we got earlier this week really highlighting the inflationary fears and perhaps inflation expectations running away.

Now for the Fed chairman's part, he was telling the Senate Banking Committee very similar to what he told the House Financial Services Committee yesterday, that he does still feel that inflation will be transitory, likely because of the effect of, for example, used car and truck prices, which are constrained by microchip shortages. But he said if the Fed does see inflation becoming more persistent, they have the tools to address that. And that tool, of course, would be raising interest rates.

Now, again, the Fed doesn't necessarily see that as the case, but he did note inflation readings lately have been a surprise. But guys, I want to call your attention to specifically what he said on another space. And that's stablecoins. Yesterday he caused quite a lot of waves in the crypto community by saying that he felt stablecoins needed to face some more regulation.

Today, he clarified that any sort of stablecoins, in addition to the possible development of a US digital currency, a digital dollar or Fed coin, if you will, would need to get approval from Congress first. So it's not necessarily a Fed versus the stablecoins dynamic. But take a listen to what he told the Senate Finance-- or Banking Committee earlier this morning.

JAY POWELL: The more direct route would be to appropriately regulate stablecoins, which we're not-- we don't do right now. And that's going to be a very important thing that we do, do. So in terms of congressional authorization, you know, there are different views on that. I've said publicly-- and I think this is right-- that we would want very broad support in society and in Congress. And ideally, that would take the form of authorizing legislation as opposed to a very careful reading of ambiguous law to support this. It's a very, very important initiative. And I do think we should ideally get authorization.

BRIAN CHEUNG: So the Fed chairman right there saying that there's a lot of moving parts here and that, on one hand, regulation of stablecoins is one issue, but that the Federal Reserve developing a possible US digital dollar, which he said, by the way, he hasn't decided if he's pro or against, is still a question that is open. The Fed will be having a white paper sometime in the fall, somewhere closer to September, to explore these issues. But of course, the Fed chairman continuing to get questioned on Capitol Hill and the Senate Bank Committee. And of course, we'll have the full updates from that hearing right here on Yahoo Finance, guys.

AKIKO FUJITA: And Brian, I know you've been covering big bank earnings all week. Morgan Stanley the latest out with their numbers, the stock getting a big pop in the session here, up more than 1% on the back of a beat on expectations. Walk us through the numbers there.

BRIAN CHEUNG: Well, Akiko, you can see the numbers ahead of you. The bank beating on the top and bottom lines, $14.8 billion in revenue on the top line. On the bottom line, adjusted earnings per share, $1.89. And this is a lot because of their iBanking revenue up 16% year over year. And that was really important to compensate for a-- get this-- a 45% year over year decline in their fixed income net revenues.

Now that's not just the Morgan Stanley story. That's a story across the entire banking industry. The markets just simply haven't been as volatile in 2021 as they were in the same quarter of 2020. And that's a big reason why there just simply wasn't enough arbitrage.

Now we have to keep in mind, Morgan Stanley earnings are a bit more noisy than other companies because they have two major acquisitions that they just went through over the past two years. You have the E-Trade acquisition, their wealth management business really swallowed up on a year over year basis. That's because of that massive retail platform that's now under Morgan Stanley's structure. And then you also have the Eaton Vance acquisition. That is a big part of their business now as well.

Now, of course, everyone wants to compare Morgan Stanley to Goldman Sachs. Goldman Sachs had the second highest quarter or second highest record for revenues for the quarter. So I think that when we talk about Morgan Stanley versus Goldman Sachs, those two investment banks always like to go back and forth.

But for what it's worth, Morgan Stanley clocked in third in terms of M&A revenue compared to the likes of JPMorgan Chase and Goldman Sachs. So obviously, third place not necessarily probably a thing to brag about within the bank. They've got a little bit more leg work to do. But it does seem like, at least for their performance this quarter, they were still able to beat the Street's estimates.

AKIKO FUJITA: And as we showed there, Brian, green across the board for all the big banks, so at least a good start to earnings season.