| Happy Wednesday and welcome back to Overnight Finance, now reconstructed from shredded documents obtained by the feds. 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. Write us with tips, suggestions and news: slane@thehill.com, vneedham@thehill.com, njagoda@thehill.com and nelis@thehill.com. Follow us on Twitter: @SylvanLane, @VickofTheHill, @NJagoda and @NivElis. THE BIG DEAL: The Federal Reserve on Wednesday took the first step toward rewriting one of the most controversial rules written under the Dodd-Frank banking law passed after the 2008-2009 financial crisis. The three members of the Fed board voted unanimously to advance a proposal to loosen and tailor the so-called Volcker Rule, which bans banks from making speculative investments with their own capital. The proposal is meant to set clearer guidelines for and reduce the costs of complying with the rule, and if finalized would be a significant victory for Wall Street, which has long complained about the rule. Fed Chairman Jerome Powell said regulators aim "to replace overly complex and inefficient requirements with a more streamlined set of requirements." The Fed's vote kicks off an effort among federal regulators to temper one of the most polarizing Dodd-Frank regulations. The 2010 law set the broad outline of a rule banning banks from betting their own capital on short-term, high-risk investments. I break down the rewrite proposal here. Why it matters: The rule, named after former Fed Chairman Paul Volcker, was meant to curb the kinds of risky, complex investments that helped trigger the 2007-2008 financial crisis. It was crafted to ensure that banks receiving federal deposit insurance don't take massive losses from speculative bets with their own assets. The Volcker rule includes several exemptions for banks to assist clients in making speculative bets in markets that don't exist yet, hedge other investments and underwrite a company's initial stock offering. But banks have insisted that the 1,000-page rule, crafted by five federal agencies over four years, has cost the industry billions of dollars by blocking safe trades and imposing excessive compliance costs. Federal regulators have ceded for years that clearer guidance was needed when it comes to the Volcker rule, specifically which trades fell under its purview and specifying that the rule did not need to apply to banks without broad systemic connections. What comes next: The proposal is now subject to 60 days of public comment before the agencies can move ahead with finalizing changes. The outline was crafted with the four other agencies in charge of the rule: the Office of Comptroller of the Currency; the Federal Deposit Insurance Corporation; the Securities and Exchange Commission and the Commodity Futures Trading Commission. All will hold their own meetings on moving ahead with the proposal. The FDIC will vote on the proposal tomorrow. ON TAP TOMORROW - Fed Governor Lael Brainard delivers a speech in New York on the central bank's economic and monetary policy outlook, 1 p.m.
- Federal Deposit Insurance Corporation votes on advancing Volcker rule rewrite proposal, 2 p.m
LEADING THE DAY Administration feud over China trade deepens: White House National Trade Council Director Peter Navarro is contradicting Treasury Secretary Steven Mnuchin's assertion that the U.S. trade war with China is on hold. Navarro, in an interview with NPR's Steve Inskeep broadcast Wednesday, took issue with both the characterization of the situation as a trade war, and the notion that it is on hold. "That was an unfortunate sound bite," Navarro said, referring to Mnuchin's remark. "What we're having with China is a trade dispute, fair and simple," he said. "We lost the trade war long ago." Last week, Mnuchin said "we are putting the trade war on hold." "Right now, we have agreed to put the tariffs on hold while we try to execute the framework," the Treasury secretary added. The Trump administration, however, signaled this week that it is moving ahead with 25 percent tariffs on $50 billion worth of Chinese imports, and installing a slew of new restrictions on investments and visas. The Hill's Niv Elis has more here. Backlash from China: China on Wednesday hit back at the White House, saying it is "reckless" to renew tariff threats. "We urge the United States to keep its promise, and meet China halfway in the spirit of the joint statement," Chinese Foreign Ministry spokeswoman Hua Chunying told reporters, according to Reuters.
Hua added that Beijing would use "resolute and forceful" means if the U.S. continued to act in an "arbitrary and reckless manner." Study: Auto tariffs would kill 157,000 jobs: President Trump's proposed tariffs on imported automobiles and parts would cost the U.S. economy 157,000 jobs, according to a report by the Trade Partnership, a trade policy consultancy. "We find that the tariffs would have a very small positive impact on high-skilled workers in the motor vehicle and parts sectors, but very large negative impacts on workers -- both high- and lower-skilled -- in other sectors of the economy," the study says. In all, the tariff policy would boost jobs in the auto sector by 92,000, but then destroy 250,000 jobs in the rest of the economy, according to the study. The price of foreign vehicles would rise from $30,000 to $36,400, a 21 percent increase. All in all, the economy would lose 0.1 percent of its value. Those effects don't take into account any potential retaliation by American trade partners for the tariffs. Niv has more here. MARKET CHECK -- Stocks stabilize as Italy fears ease: From CNBC: "U.S. stocks rebounded Wednesday as financial stocks rebounded from steep losses in the prior session and Italian credit fears eased. "The Dow Jones industrial average rose 306.33 points -- or 1.26 percent -- to close at 24,667.78. Boeing, Chevron and Home Depot led the blue-chip stocks higher. "The S&P 500 added 1.27 percent to finish at 2,724.01 as a rise in U.S. interest rates ushered financial stocks higher and a rise in oil prices provided relief to a recently battered energy sector. "The Nasdaq composite rose nearly 0.9 percent amid gains in Facebook, Intel and Nvidia. Microsoft closed at an all-time high at $98.95 per share, north of its initial public offering price back in 1986." GOOD TO KNOW - The U.S. economy grew by 2.2 percent of gross domestic product (GDP) in the first three months of 2018, the Commerce Department reported Wednesday, 0.1 percent lower than initially projected.
- The Treasury Department on Wednesday targeted several Iranian nationals, organizations and government officials with financial sanctions over charges of human rights abuses and censorship.
- New auto tariffs under consideration by President Trump could threaten General Motors's struggling South Korean operation, just after the company agreed on a bailout for its Asian branch.
- Shares of Dick's Sporting Goods soared on Wednesday after reports the company's first-quarter earnings exceeded expectations, assuaging investors' fears that its new restrictions on gun sales would hurt profits.
- The Tax Foundation is urging Congress to fix a drafting error in the new tax law that it says is harmful for retailers and restaurant owners seeking to make renovations.
- Bloomberg explores how a financier became a Fed power player from the Inside and outside.
- The Wall Street Journal reports on how European bank executives are facing the return of an all too familiar problem: political panic.
ODDS AND ENDS - Commerce Secretary Wilbur Ross is warning that Europe's strict new data privacy laws could hurt trade with the U.S.
- Amazon Prime member discounts expand to 121 additional Whole Foods locations.
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