News: Stimulus deal is pretty late and pretty lame — Worries about the Fed next year

Monday, December 21, 2020

Stimulus deal is pretty late and pretty lame — Worries about the Fed next year — No help for state and local government

Dec 21, 2020

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Quick Fix

Stimulus deal is late and fairly lame — So Congress finally managed to reach agreement on a roughly $900 billion stimulus bill late Sunday with House votes expected today and the Senate shortly after. Fine. Good. It will certainly help. But it's massively late and way too limited to stop the Covid-19 damage already coursing through the economy with higher jobless claims, reduced spending, lower incomes and vastly diminished job growth numbers.

Yes, Congress has already allocated around $3 trillion. That's a lot of money. But this crisis, which has claimed over 300,000 American lives and continues to kill 3,000-plus a day, merited a more sustained federal effort according to pretty much any serious economist. The $300 boost in weekly jobless benefits will help as will $600 checks for adults and children whose families meet income requirements as well as the $300 billion for small business.

But make no mistake . There is no escaping the slowdown kicked off by the latest virus surge and the lack of significant Congressional action for nine months. Thousands of business that might have survived with earlier action are already long gone. The final hang up on this one was a fairly pointless fight over Fed lending programs staged by Sen. Pat Toomey (R-Pa.).

Fed Chair Jerome Powell and his colleagues can revive similar programs intended to help Main Street businesses in 2021. They just can't use the old ones or any leftover money from the CARES Act. So essentially, Toomey mainly achieved … well not very much.

What's wrong with the bill — Pantheon's Ian Shepherdson: "Any Covid relief bill is better than no Covid relief bill, but the measures set to be passed by Congress … do not represent the most efficient use of the $900B total cost.

"In particular, most households do not need the $600 one-time payments which will be made in January, so a substantial part of the money will be saved. … We're happy to see that unemployment benefits are set to be increased by $300 per week … but that's only half the enhancement under the CARES Act and it will expire in early spring … The likely-to-be-unspent payments to households would have been much better employed by state and
local governments"

Mohamed A. El-Erian on Bloomberg View: "[I]t unfortunately will not be enough to significantly alter longer-term economic prospects. It will also underscore the need for a bold policy response on the part of the incoming Biden administration. …

"Likely to be missing will be other short-term relief measures, including assistance to local and state governments and measures aimed at addressing the danger of declining productivity and higher household economic insecurity even after the distribution of Covid-19 vaccines. … [I]t will not alter significantly the general direction of the bumpy road in the short term. Nor will it do much to offset the longer-term risks to economic, social and institutional well-being."

The fear going forward — Cap Alpha's Ian Katz: "[T]he dispute sends a signal to investors that anything that the Fed or a Janet Yellen Treasury Department attempts to help struggling municipalities will be challenged by Republicans in Congress. … More broadly, it's an indicator that Republicans may not support additional stimulus once Joe Biden takes office."

GOOD MONDAY MORNING — Welcome to a shortened Christmas week! Let's get this miserable year over with already. Email me on bwhite@politico.com and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on aweaver@politico.com and follow her on Twitter @AubreeEWeaver.

Driving the Day

WARREN REVIVES BAN ON CONGRESSIONAL STOCK TRADES — Our Maggie Severns: "While Georgia's two Republican senators fend off campaign attacks on their stock trading, their Democratic colleague Elizabeth Warren is re-launching her bill to prevent lawmakers from making individual stock trades.

"Georgia Republican Sens. David Perdue and Kelly Loeffler both came under recent fire for buying and selling stocks at moments when they were privy to sensitive information about the companies they invested in. … Warren's proposed ban is part of a broader anti-corruption plan she promoted on the presidential campaign trail and is reintroducing with hopes that it can gain traction now that she has returned to the Senate."

LONG READ — Stephanie Clifford in Elle Magazine spins the tale of former Bloomberg reporter Christie Smythe who for reasons that are entirely unfathomable to MM blew up her life after falling in "love" with pharma bro and generally detestable human Martin Shkreli.

Markets

YELLEN PRESSED TO BACK STRONG DOLLAR — Bloomberg's Saleha Mohsin and Liz McCormick: "Janet Yellen once touted the benefits of a weaker greenback for exports, but as the incoming Treasury secretary, she faces pressure to return the U.S. to a 'strong-dollar' policy — and may cause trembles on Wall Street if she doesn't.

"The greenback's tumble this year — it's heading for the second-biggest drop in the past decade and a half — has already stoked foreign policy makers' concerns, thanks to the competitive advantage it gives the U.S. Even a tacit endorsement of a weakening dollar could spur tensions with trading partners."

INVESTORS BET OLD-SCHOOL RETAILERS WILL REBOUND NEXT YEAR — Reuters' April Joyner: "As holiday shopping season wraps up, U.S. equity investors are gauging whether long-languishing shares of brick-and-mortar retailers can sustain their recent rebound in anticipation of a full economic reopening in 2021.

"The SPDR S&P Retail ETF, which tracks a broad group of retailers such as department and specialty stores, is up nearly 40 percent this year. Its gain reflects a rally that has lifted shares of companies in sectors particularly sensitive to the economic cycle, such as industrials and energy, in the wake of recent breakthroughs in Covid-19 vaccines."

TUNE IN TO NEW EPISODE OF GLOBAL TRANSLATIONS: Our Global Translations podcast, presented by Citi, examines the long-term costs of the short-term thinking that drives many political and business decisions. The world has long been beset by big problems that defy political boundaries, and these issues have exploded over the past year amid a global pandemic. This podcast helps to identify and understand the impediments to smart policymaking. Subscribe for Season Two, available now.

Fly Around

FED FINDS BIG BANKS IN SOLID SHAPE — AP's Marcy Gordon: "The Federal Reserve said Friday that the 33 largest U.S. banks are in strong shape despite the pandemic's economic shock. The banks have ample capital cushions girding them against unexpected losses and that will also enable them to keep lending even under the most severe straits, the central bank said.

"The Fed disclosed the results from a special second round of 'stress tests' that it added this year because of damage to the economy from the virus outbreak. The pandemic has killed more than 300,000 Americans, closed hundreds of thousands of businesses and pushed unemployment to levels not seen since the Great Depression."

STIMULUS COMPRIMISE DOESN'T RESOLVE FED EMERGENCY POWERS DEBATE — Bloomberg's Christopher Condon and Laura Davison: "A compromise reached during pandemic relief talks over restrictions on the Federal Reserve doesn't resolve differences in how Republicans and Democrats view its emergency lending authority, setting up a potential clash over how the central bank is able to respond to future crises.

"Senator Pat Toomey, a Republican from Pennsylvania, insisted on tacking a provision onto the $900 billion stimulus plan that would prohibit the Fed from restarting programs supporting corporate bonds, small and mid-sized companies, and municipalities, which are set to expire on Dec. 31."

HOW 2020 WHIPSAWED ECONOMISTS — WSJ's Harriet Torry: "All year, economists, central banks and private forecasters have struggled to predict the economic impact of the Covid-19 pandemic.

"They went from barely registering it, to predicting it would cause the worst economic downturn since the Great Depression, to something much milder, on a par with the 2007-09 recession. Forecasters' inability to pin down how businesses and shoppers would respond to the Covid-19 outbreak echoes the black eye suffered by pollsters in this year's presidential election."

And here's a great look at how markets handled 2020, in graphics — Reuters' Marc Jones and Ritvik Carvalho: "Last December the first infection with the new coronavirus was reported to the World Health Organization. Twelve months later, as the charts below show, global financial markets have been on a roller coaster like no other."

SMALL BUSINESS, HIT HARD BY PANDEMIC, ARE BEING STARVED OF CREDIT — WSJ's Peter Rudegeair: "Small businesses that cleared the hurdle of the coronavirus shutdowns are now encountering an all-too-familiar obstacle: Banks don't want to lend to them. The Paycheck Protection Program funneled $525 billion in forgivable loans to millions of small businesses in the pandemic's early days. Yet that massive infusion masked a yearslong contraction in small-business lending that happened alongside a big-business borrowing boom.

"In 2007, banks held $721 billion in small loans to businesses and small commercial mortgages of $1 million or less, according to an analysis of bank regulatory filings by Florida Atlantic University professor Rebel A. Cole. By 2019, such loan balances had fallen around 6 percent to $680 billion."

FED'S DALY WELCOMES MORE FISCAL AID — Bloomberg's Alister Bull: "Another $900 billion of fiscal support would 'absolutely' make a significant difference to the U.S. economy's ability to endure Covid-19, but 'challenging months' lie ahead, a top Federal Reserve official said.

"'This support in unequivocally beneficial,' Mary Daly, president of the Federal Reserve Bank of San Francisco, said on CBS's 'Face the Nation' on Sunday, after congressional negotiations cleared the last significant obstacle for pandemic relief, setting up a possible vote later in the day."

ICYMI: CHRISTOPHER WALLER SWORN IN AS NEWEST FED GOV — WSJ's Michael S. Derby: "Economist Christopher Waller joined the Federal Reserve Board of Governors upon being sworn in Friday, becoming the fifth member of the body nominated to his or her current position by President Trump.

"Mr. Waller, formerly the research director of the Federal Reserve Bank of St. Louis, fills a term as governor that runs through January 2030. He has attended meetings of the rate-setting Federal Open Market Committee this year in his capacity at the St. Louis Fed. He headed the University of Notre Dame's economics department before joining the regional Fed bank in 2009."

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