News: Biden vs. the bond market? — Yellen says don't sweat it

Monday, February 8, 2021

Biden vs. the bond market? — Yellen says don't sweat it — Minimum wage hike push fades

Feb 08, 2021

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Quick Fix

Biden vs the bond market? — There were plenty of unhappy Biden-world people over the weekend following Larry Summers' op-ed suggesting the administration's nearly $2 trillion stimulus package — on top of the $4 trillion-plus already enacted — may be too large and risk both crowding out the rest of the president's agenda and sparking inflation and higher bond yields.

One person close to the White House told MM that administration officials did not exactly take issue with all of Summers' points — they have considered them all — but rather his timing. "Not really sure why Larry felt the need to do this now when we are pushing so hard to get this done and it's so out of step with all the other stuff he's been saying lately," this person said. "It's not that he doesn't have some legitimate points but it was not helpful timing."

Summers, of course, is not in the business of "helping" the White House. And even senior White House officials know there is some risk of prices overheating with so much cash flowing into people's bank accounts and the potential for a flood of pent-up demand hitting the system should vaccines really lift the virus threat later this year.

But Treasury Secretary Janet Yellen on Sunday rejected the idea that the stimulus was too large and drew on her experience as Fed Chair to suggest that should inflation spike, the government has ways to manage it. She argued, as other White House officials and progressive economists do, that the "most important risk is that we leave workers and communities scarred by the endemic economic toll that it's taken."

She added: "I've spent many years studying inflation and worrying about inflation. And I can tell you we have the tools to deal with that risk if it materializes, but we face huge economic challenge here and tremendous suffering in the country."

And indeed it is true that the Fed has plenty of room to bump up rates should it become necessary to fight a sharp uptick in prices. But if they have to do that, it would trim economic growth, pinch consumers with heavy debt loads, perhaps cause a stock market swoon and cut into home sales and household formation.

The Biden White House has a great case to make that the risks tend toward doing too little. But Summers is not all wrong that there are significant risks on the other side as well.

GOOD MONDAY MORNING — Well, that Super Bowl stank! MVP Tom Brady and the Bucs (especially the defense) played extremely well. But from a viewer perspective it was a total dud of a game.

We will have the MM Super Bowl contest winner for you tomorrow once we have time to compile every single response. 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.

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Driving the Day

ON THE ADS — Nothing really blew MM away. The Will Ferrell GM ad was great but has been popping on the internet for days. The Bruce Springsteen Jeep ad tugged the heart strings with its call for America to meet in the middle. Perhaps you feel differently but nothing jumped out at us as brilliant or revolutionary.

DRIVING THE WEEK — Work on the stimulus package — likely minus the $15 minimum wage — will continue. The Senate is set to hold its impeachment trial for former president Donald Trump which will end in Trump's acquittal.

BIDEN BACKS OFF THE MINIMUM WAGE HIKE — Compass Point's Isaac Boltansky: "Biden suggested that his $15 per hour minimum wage proposal is unlikely to be included in the reconciliation package. … Even if the minimum wage proposals makes it past the Senate parliamentarian, which is far from a certainty as evidenced by the president's comments, Sen. [Joe] Manchin (D-W.Va.) appears unwilling to support such a measure.

"The minimum wage proposal will remain a part of the policy conversation as long as Democrats are in control of Washington, but the odds remain against enactment as there is no clear path to passage through the Senate."

JOBS REPORT REWIND: PRETTY LAME BUT BETTER DAYS AHEAD — Pantheon's Ian Shepherdson: "The labor market is frozen … and it will remain that way until Covid has receded … We think the inflection will come in the second quarter, but the remainder of the first is likely to be characterized by modest payroll increases, at best.

"Yes, we expect a hefty February rebound in the construction and manufacturing components, which were depressed in January by aggressive seasonals, but these sectors are not at the heart of the Covid labor market story. The core problem is the grim state of the services sector, but things will be very different if the U.S. approaches herd immunity by mid-year."

DEMS LOOK TO ADD CHILD POVERTY MEASURE — Our Sam Stein: "Congressional Democrats will try to insert a major child poverty reduction proposal into their Covid-relief package when it comes up for consideration in the next few weeks.

"The proposal, details of which are still being finalized, would provide families a $3,600-per-child allowance for children under the age of 6 over the course of three years. And $3,000-per-child for those between the ages of 6 and 17. The size of the benefit would grow smaller at certain yearly income levels—$75,000 for single parents and $150,000 for a couple's aggregate total—and would be distributed on a monthly basis."

BUTTIGIEG CALLS FOR MORE AIRLINE AID — Our Stephanie Beasley: "Transportation Secretary Pete Buttigieg said … that more federal aid is needed to help airlines avoid massive furloughs as the industry continues to reel from the pandemic, but wouldn't say whether the Biden administration had committed to negotiating for its inclusion in a $1.9 trillion Covid relief plan.

"Buttigieg skirted the issue when he was asked on ABC's 'This Week' if it would be a 'mistake' not to use the relief bill as a vehicle for extending payroll support of airlines. … Federal payroll support for airlines is set to expire at the end of next month. Airlines such as American and United already have warned that they will have to furlough tens of thousands of employees without further federal assistance."

Markets

STOCKS SET FOR MUTED START AFTER HITTING RECORD — Bloomberg's Adam Haigh: "Stocks looked set for a muted start after climbing to a record high last week, with investors monitoring signs of progress on the coronavirus front and comments from Janet Yellen pushing the U.S. relief bill. …

"The weaker-than-forecast U.S. jobs data Friday reinforced the fragility of the global economic recovery as the pandemic lingers. Data suggested a declining trend in U.S. infections, while Germany reported a drop in the pace of new virus cases."

GAMESTOP FRENZY IS TOUGH CALL FOR REGULATORS FOCUSED ON TRANSPARENCY — WSJ's Paul Kiernan and Dave Michaels: "Washington was quick to react to the wild ride of GameStop Corp. stock and the social-media-fueled trading frenzy that by some accounts pitted everyday people against Wall Street.

"Oversight committees in the Senate and House announced hearings, the Securities and Exchange Commission vowed to root out any wrongdoing and the Treasury Department convened a meeting of top financial regulators to discuss the volatility."

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Fly Around

YELLEN, SUMMERS SPAR ABOUT OVERHEATING RISK IN STIMULUS PLAN — Bloomberg's Rich Miller: "In making the case for a mammoth $1.9 trillion economic relief package … Biden and his acolytes had maintained that economists across the board agreed that now is the time to go big in the fight against the pandemic.

"Well, so much for that. A number of prominent economists and former policy makers — from Democrat Lawrence Summers to Republican Douglas Holtz-Eakin — have raised questions in the past week about the size of the package. So too have some economy watchers in the financial markets."

And Yellen warns jobs will be slow to rebound without stimulus — NYT's Alan Rappeport: "The U.S. labor market is stalling and in a 'deep hole' that could take years to escape if lawmakers do not quickly pass an aid package that gives workers a bridge to the end of the pandemic, Treasury Secretary Janet L. Yellen warned on Sunday. By contrast, passing the $1.9 trillion package that President Biden has proposed could allow the economy to reach full employment by next year, Ms. Yellen said."

But it's too soon to say if changes are needed to also address market volatility — Reuters: "U.S. Treasury Secretary Janet Yellen said on Sunday that it is too soon to say whether new policies or regulations are needed to deal with recent market volatility.

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"'We really need to understand exactly what happened and the Securities and Exchange Commission is working hard to assemble a report that gives us the facts, and when we have them we can look at whether or not there were issues that need to be addressed through new policy or regulations,' Yellen told CNN's 'State of the Union' program."

CHINA'S ECONOMY ISN'T OUT OF THE WOODS, DESPITE A STRONG 2020 — WSJ's Stella Yifan Xie: "China weathered the economic fallout from Covid-19 better than any other major country, and economists are predicting a bigger snapback this year. But analysts say the world's second-largest economy also needs to address an array of challenges to get onto a more-sustainable growth trajectory and help the world fully rebound.

"China's job market remains fragile. Consumer spending hasn't kept pace with the broader recovery in economic output. Debt levels, already a problem before the pandemic, grew at their fastest pace in more than a decade during the first nine months of 2020, while asset bubbles in stocks and real estate kept growing. China's central bank faces a tricky balance between reining in stimulus without causing growth to sputter."

PANDEMIC'S TOLL ON HOUSING: FALLING BEHIND, DOUBLING UP — NYT's Conor Dougherty: "As the pandemic enters its second year, millions of renters are struggling with a loss of income and with the insecurity of not knowing how long they will have a home. Their savings depleted, they are running up credit card debt to make the rent, or accruing months of overdue payments. Families are moving in together, offsetting the cost of housing by finding others to share it."

THE UNOFFICIAL GUIDE TO OFFICIAL WASHINGTON: February is short month, but there is a lot in store. From the impeachment trial to the Covid relief package to intraparty squabbles, our new Playbook team is on the case. Rachael Bade, Eugene Daniels, Ryan Lizza and Tara Palmeri are canvassing every corner of Washington, bringing you the big stories and scoops you need to know – and the insider nuggets that you want to know – about the new power centers and players. "This town" has changed. And no one covers this town like Playbook. Subscribe to the unofficial guide to official Washington today .