News: The death of fiscal (and monetary) worries — Tech stocks start to lag

Wednesday, March 24, 2021

The death of fiscal (and monetary) worries — Tech stocks start to lag — Young traders take big risks

Mar 24, 2021

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Quick Fix

The death of worry — Treasury Secretary Janet Yellen, Fed Chair Jerome Powell, the rest of the Biden White House and most of the Democratic Party continue to express pretty much no concern at all that the ocean of stimulus pouring into a growing economy (exceeding output gap) on top of super easy monetary policy could lead to any kind of sustained, potentially damaging inflation.

Nobody seems to care about what certainly appear like unsustainably inflated housing markets or other asset bubbles. And many say at the same time that much of the stimulus is only temporary while also saying it's a revolution in fiscal policy and that anyone who worries about a reckoning in the bond market is a dummy mired in outmoded economic thinking.

Not all Democrats feel this way (that none of this matters). But many who do are deathly afraid of even raising the question of whether the stimulus was too big, not to mention criticizing the Biden White House's hopes for spending up to $3 trillion more on the Build Back Better agenda, most of which didn't make it into the stimulus.

Here's what one had to say on background: "The fact that Powell is exuding all this utter serenity is hihgly problematic. And I don't think anyone did any real economic analysis on the size of the stimulus. This is taking us into substantial risk and people don't seem to remember that when inflation really does take hold, the Fed has to act, and that usually drives us into recession."

GOOD WEDNESDAY MORNING — Are we just nervous Nellies? Maybe! 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

Powell and Yellen are back on the Hill again (albeit remotely) at 10 a.m. before the Senate Banking Committee where more gentle talk on inflation risks is expected … House Financial Services subcommittee has a hearing at noon on "Preserving a Lifeline: Examining Public Housing in a Pandemic" …

House Oversight and Government Reform has a hearing at 9:30 a.m. on Equal Pay Day and the economic impacts of gender inequality … Biden has an Equal Pay Day event in the afternoon with members of the U.S. Soccer Women's National Team

HEARING PREP — From Senate Banking Committee Chair Sherrod Brown 's opening remarks for this a.m.: "Under President Biden's leadership, we are once again the envy of the world, on track to lead the world in vaccinations. …

"[I]n a matter of months, things have reversed. We are leading the world again, and reminding everyone what American ingenuity and talent – and American investment in science and public health – can do to make all our lives better…"

"This is Secretary Yellen's first hearing before our committee as head of the Treasury. That also makes this the first time in American history a woman has come before this committee as the head of our nation's economic policy. It's about time..."

ISRAEL ELECTIONS UPDATE — Via AP: "Israeli parliamentary elections on Tuesday resulted in a virtual deadlock for a fourth time in the past two years, exit polls indicated, leaving Prime Minister Benjamin Netanyahu with an uncertain future and the country facing the prospect of continued political gridlock."

ZERO ACTION ON GUNS UPDATE — Our Marianne LeVine: "After two mass shootings within a week killed 18 people, the evenly divided Senate is no closer to agreement on any gun control legislation that could respond to the devastation.

"Senate Majority Leader Chuck Schumer is vowing to force a vote on an expansive proposal on background checks for gun buyers, but three critical swing votes from both parties are resistant. Talks are ongoing on a bipartisan strategy that might steer gun legislation past political tripwires, but it's far from clear whether those negotiations could yield the 60 votes needed to overcome a filibuster."

POWELL TALKS DIGITAL DOLLAR — Our Victoria Guida: "Jerome Powell … said any digital dollar developed by the central bank would have to strike a balance over how much information about individual transactions the government would be able to see.

'"A system that relies entirely on completely private governance or completely secret information about who's actually owning the digital dollar would not be viable,' Powell said at a hearing of the House Financial Services Committee, acknowledging a point by Rep. Bill Foster (D-Ill.) that it could enable illicit activities."

Markets

STOCKS CLOSE BROADLY LOWER — AP's Damian J. Troise and Alex Veiga: "Stocks closed broadly lower on Tuesday and gave back nearly all of their gains from a day earlier as technology, industrial and bank stocks fell. …

"Stocks of smaller companies, which have far outpaced the rest of the market this year, fell even more. The Russell 2000 index gave back 3.6 percent. Industrial and health care companies also accounted for a good part of the selling. Energy stocks helped drag down the market too as oil prices fell."

TECH STOCKS LED THE MARKET RALLY BUT NOW THEY'RE FALLING BEHIND — WSJ's James Benedict and Caitlin McCabe: "One year ago, the U.S. stock market bottomed out, with the S&P 500 hitting its trough after a 34 percent plunge in just 23 trading days.

"At the time, few could have imagined the recovery that the market has seen, including 34 record-highs for the index since last year's low. Despite a global pandemic that has killed nearly 550,000 people in the U.S., eliminated millions of jobs and restricted economic activity, stock indexes have risen to new highs."

YOUNG TRADERS ARE TAKING 'BIG FINANCIAL RISK' ON INVESTMENT APPS — Bloomberg's Silla Brush: "Britain's market watchdog warned that popular investment apps are exposing young consumers to big financial risks by drawing them into unsuitable cryptocurrency and other speculative investments.

"The Financial Conduct Authority published research on Tuesday that found 59 percent of investors in high-risk products would face financial hardship if they took a significant loss on their positions. More than four in ten investors, the FCA found, did not acknowledge that losing money was one of the risks of their actions."

STEP INSIDE THE WEST WING : The Biden administration is more than halfway through its first 100 days and is now facing a growing crisis at the border and escalating violence against Asian Americans, while navigating the pandemic and ongoing economic challenges. Add Transition Playbook to your daily reads to find out what actions are being considered, as well the internal state of play inside the West Wing and across the administration. Track the people, policies, and emerging power centers of the Biden administration. Don't miss out. Subscribe today.

Fly Around

POWELL: STIMULUS PACKAGE ISN'T LIKELY TO FUEL UNWELCOME INFLATION — WSJ's Paul Kiernan and Kate Davidson: "Federal Reserve Chairman Jerome Powell told lawmakers Tuesday he doesn't expect the $1.9 trillion stimulus package will lead to an unwelcome increase in inflation, but he emphasized that the central bank has tools to deal with rising price pressures if necessary.

"'We might see some upward pressure on prices. Our best view is that the effect on inflation will be neither particularly large nor persistent,' he said, reiterating comments he has made repeatedly since the measure was enacted earlier this month."

Both Yellen, Powell said more is needed to limit economic damage — AP's Martin Crutsinger: "Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell told Congress on Tuesday that more must be done to limit the economic damage from the coronavirus pandemic. Powell also reiterated that he does not expect programs aimed at reviving the economy will trigger unwanted inflation.

"Both officials struck upbeat notes about the U.S. economy's outlook in their appearances Tuesday before the House Financial Services Committee. They said that, while there are encouraging signs of a rebound, it is important that government support continue in order to make sure the millions of people who have lost jobs can return to the labor market."

YELLEN SEES POSSIBLE FULL EMPLOYMENT BY 2022 — Reuters: "Treasury Secretary Janet Yellen will paint an optimistic picture for the U.S. economy as it emerges from the coronavirus pandemic, telling U.S. lawmakers on Tuesday that she sees both growth and possibly full employment next year — due to President Joe Biden's coronavirus stimulus package.

"Yellen, in written testimony prepared for delivery to the U.S. House of Representatives Financial Services Committee, said that with passage of the $1.9 trillion American Rescue Plan Act, 'I am confident that people will reach the other side of this pandemic with the foundations of their lives intact. And I believe they will be met there by a growing economy. In fact, I think we may see a return to full employment next year.'"

And she pledged to work with Congress on ways to ease the SALT cap — Bloomberg's Laura Davison: "U.S. Treasury Secretary Janet Yellen pledged to work with Congress to ease the $10,000 cap on state and local tax deductions that's been a key area of focus for New York and New Jersey lawmakers in recent years.

"Yellen noted that the limitation on state and local tax, or SALT, write-offs in President Donald Trump's 2017 tax law caused 'disparate treatment' across taxpayers. Representatives from high-tax states have said that the restrictions on the tax break have caused their constituents to pay more in taxes."

IMF MULLS CREATING $650B IN RESERVES — Bloomberg's Eric Martin and Saleha Mohsin: "The International Monetary Fund is considering a plan to create as much as $650 billion in additional reserve assets to help developing economies cope with the pandemic, with an eye on finalizing a decision next month, according to two people familiar with the plan.

"The institution's executive board is discussing the staff proposal informally on Tuesday, and one of the priorities will be to consider how much to issue in the units known as special drawing rights, according to the people, who spoke on condition of anonymity because the talks are private. Attention is now focused on a $650 billion issuance, according to the people, after previous talk of $500 billion."

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