Axios Markets: All eyez on Powell

1 big thing: As yields rise, investors look to Powell for guidance | Thursday, January 14, 2021

Open in app View in browser   Presented By DiversyFund   Axios Markets By Dion Rabouin ·Jan 14, 2021 Good morning! Was this email forwarded to you? Sign up here. (Today's Smart Brevity count: 941 words, 3.5 minutes.) ✊ I'm taking tomorrow off to begin an early long weekend in honor of the good Rev. Dr. Martin Luther King Jr., so Courtenay Brown will be in your inbox. I'll be back on Tuesday. 🎙 "I'm a beast on the microphone, a night stalker, a killing machine, a savage street talker, Jason with an axe, but I put it on wax to eradicate the suckers who thought I had relaxed." - See who said it and why it matters at the bottom.     1 big thing: As yields rise, investors look to Powell for guidance Federal Reserve chairman Jerome Powell. Photo: Alex Wong/Getty Images   With long-term U.S. interest rates creeping higher and the stock market rally looking increasingly bubblicious, market participants will have a keen eye on remarks by Fed chair Jerome Powell today at Princeton University. Why it matters: The uncertainty created by the coronavirus pandemic, volatility in financial markets and diverging opinions about the future of monetary policy from Fed policymakers have investors hungry for guidance. What's happening: Minutes from the Fed's latest policy-setting meeting and comments from various members of the FOMC in recent days have suggested the central bank could begin reducing its massive quantitative easing program — which has provided significant confidence to stock and bond investors — by the end of the year. While comments from other members of the committee have suggested the central bank will be buying bonds for much longer. What they're saying: "I could see, potentially, that occurring at the very end of 2021 or early 2022," Philadelphia Fed president Patrick Harker said of reducing the Fed's bond buys in a speech last week. Atlanta Fed president Raphael Bostic told reporters on Monday he was "open to" tapering bond buys later this year. "I would hope it might be this year," Dallas Fed chief Robert Kaplan said Monday. On the other side: In an effort to tamp down on all the tapering talk, two of the Fed's heavy hitters, seen as closest to Powell, made clear we would be here for a while. "We are not going to lift off until we get inflation at 2% for a year. ... We are trying to tie our hands," Fed vice chair Richard Clarida said Wednesday. The U.S. economy remains "far away" from the Fed's goals and as a result, the bond-buying program will likely continue for "quite some time," Fed governor Lael Brainard said on Wednesday. By the numbers: The Fed is currently buying $120 billion of U.S. Treasury bonds and mortgage-backed securities every month in part to keep yields on U.S. government debt low. Even so, the 10-year Treasury yield has risen by nearly 25 basis points since the start of the year, touching a high of 1.18% earlier this week as investors brace for a pickup in inflation. Ten-year breakeven inflation rates rose as high as 2.11% last week and held steady at 2.06% on Thursday. Watch this space: The Fed's latest report on business conditions around the country found that a third of the U.S. central bank's 12 districts reported flat or declining activity in November and December while the majority of districts said activity increased only modestly.     2. Catch up quick President-elect Biden is expected to unveil a major COVID-19 relief package today that advisers have recently told allies in Congress will carry a price tag in the neighborhood of $2 trillion. (CNN) The House voted 232-197 to impeach President Trump for an unprecedented second time with support from 10 Republicans. (WSJ) British retailers had their worst annual sales performance on record last year. (BBC) Americans will not be banned from investing in Chinese tech giants Alibaba, Tencent and Baidu after government agencies weighed the firms' alleged ties to China's military against the potential economic impact of banning them. (WSJ)     3. Rep. Ro Khanna calls on the Fed to reexamine its policies   Rep. Ro Khanna laid out a few specific policies he and some of Congress' other leading progressives are likely to demand when the next U.S. Congress begins its term later this month. What he said: Khanna wants Congress to deliver more direct aid to Americans in the form of $2,000 monthly checks and to provide $1 trillion over 10 years in loans and grants to small businesses but is also taking aim at the Fed, arguing that the central bank has gone astray of its original intent to help small businesses and community banks. "It's a quirk of our system that the Fed has chosen only to lend to financial institutions or large corporations," Khanna told me during Axios' Recovery and Resilience After COVID-19 event Wednesday. "They could easily distribute that money [to small businesses]. In my view, that was the original intention of the Fed and Congress should clarify that." And it's not just a matter of chastising the Fed, Khanna says. "We need to give the Fed more explicit authority to [reexamine] how they have been lending and make sure lending isn't concentrated just to financial institutions and large corporations, that they're using their regional banks to be regional economic development banks considering rural and minority communities." Why it matters: Khanna (D-Calif.) sits on the House budget committee and the committee on oversight and reform and is seen as something of a leading voice for progressive Democrats. His view that the Fed needs to change the way it operates is one that is gaining traction among popular and powerful members of Congress. Between the lines: Khanna's calls for the Fed to reorient its lending structure as a way to counter the trend of growing wealth inequality echoes San Francisco Fed president Mary Daly who in December called for the Fed to "think outside of the traditional banking box." "This could mean developing firmer partnerships with Community Development Financial Institutions and other nonprofit or small-dollar lenders." Why you'll hear about this again: "The concentration of capital is part of what has left communities behind," Khanna said.     A message from DiversyFund Start your investment journey in 2021 with just $500     Start this year off right with your finances in order. DiversyFund's tech-enabled platform allows everyday investors to build wealth through its private, non-traded real estate investment trust. Sign up now and create multi-generational wealth with as little as $500.     4. Inflation rose more than expected in December Data: Bureau of Labor Statistics; Chart: Axios Visuals The Consumer Price Index rose 0.4% in December, the biggest increase since August, largely because of rising gasoline prices, the U.S. Bureau of Labor Statistics reported. Details: The increase "was driven by an 8.4% increase in the gasoline index, which accounted for more than 60% of the overall increase," BLS said. The core index, which strips out volatile food and energy prices, rose 0.1% for the month after rising 0.2% in the previous month. Yes, but: For the year, CPI rose just 1.4% for the 12 months ending December, a slightly larger increase than the 1.2% rise in November. That was slightly more than expected but still well below the Fed's 2% inflation target. (The Fed also prefers to track the personal consumption expenditures metric, which has historically shown lower readings than CPI.)     A message from DiversyFund Build wealth through real estate investing     Historically, real estate has been a very stable asset during market downturns. DiversyFund allows you to plant the seeds of your financial future without relying on the stock market and its roller coaster of fluctuations. With just $500, you can diversify your portfolio.   Thanks for reading! Quote: "I'm a beast on the microphone, a night stalker, a killing machine, a savage street talker, Jason with an axe, but I put it on wax to eradicate the suckers who thought I had relaxed." Why it matters: On Jan. 14, 1968, James Todd Smith, aka Ladies Love Cool James, or LL Cool J, was born. The lyrics are from LL's seminal 1989 diss track "Jack the Ripper," a hip hop classic.   Axios thanks our partners for supporting our newsletters. Sponsorship has no influence on editorial content. 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