News: Welcome to Inflation Summer — Manchin cold on big reconciliation bill

Monday, June 28, 2021

Welcome to Inflation Summer — Manchin cold on big reconciliation bill — Delta variant worries rise

Jun 28, 2021

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Quick fix

Welcome to inflation summer — I wrote here over the weekend on challenges to the White House as prices rise and Americans hit the road and the air for long-delayed vacations and family visits:

Republicans — seeing a potential repeat of former President Barack Obama's "Recovery Summer" of 2010 when the economy suddenly backslid after emerging from the Great Recession — have used the price spikes to attack the administration's big-spending plans and response to the pandemic.

Employment growth may be disappointing to some economists, but Biden officials note that wages are rising. Inflation is hitting consumers, but the Federal Reserve considers it transitory.

Homeowners may have to wait months for furniture and appliance deliveries, but that's because the economy is roaring back faster than predicted. And the administration wants to pour trillions more into the economy, with child-care options, free pre-school and other benefits for workers, especially at the lower end of the income scale.

Jared Bernstein, a member of Biden's Council of Economic Adviser, tells MM: "From the start, we were clear that inflation would firm as the rescue plan got shots in arms and checks in pockets. … The reason these price pressures are upon us is getting lost: There's an extremely robust recovery afoot, with strong job creation and wage gains for workers who finally have some bargaining clout."

The extent to which Biden and the White House can pull off this argument — and actually deliver on their promises — will determine whether a recent dip in the president's approval rating proves to be temporary or portends a slide that could put the Democrats in serious jeopardy heading in the 2022 midterms.

Rubeela Farooqi, chief U.S. economist at research firm High Frequency Economics: "The issue right now is really about people's psyches and how they are feeling about this and how persistent all these higher prices will be … For the White House it's a tricky situation and all they can do is stick to their messaging that this is all temporary and will ease up. But if it doesn't, the Federal Reserve will have to act and that will certainly slow down the economy."

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DRIVING THE WEEK

Big economic data point comes Friday with the June jobs report. Wall Street expects a bump up to 700K job returning from the pandemic and unemployment dropping to 5.6 percent from 5.8 percent with wages up 0.3 percent …

President Biden on Monday welcomes Israeli President Reuven Rivlin to the White House … Federal Reserve Vice Chair for Supervision Randy Quarles speaks at 1:10 pm Monday central bank digital currencies … House Financial Services has a hearing on Wednesday at 10:00 a.m. on digital currencies

MANCHIN THROWS COLD WATER ON BIG RECON BILL — Quote of the weekend from Sen. Joe Manchin (D-W.Va.) on ABC's "This Week" on the idea that Dems could jam through a giant reconciliation bill alongside a bipartisan infrastructure package:

"But if they think in reconciliation I'm going to throw caution to the wind and go to $5 trillion or $6 trillion when we can only afford $1 trillion or $1.5 trillion or maybe $2 trillion and what we can pay for, then I can't be there.

"I'm very, very open minded and I think we can find our priorities. We can help a lot of people and lift them up. But people have to get up and make an effort too. We all have to be fighting for the same greater country that we live in"

GOP BATTLE OVER HOUSE FINANCIAL SERVICES SEAT — Our Zachary Warmbrodt: "A race to fill one of the most coveted committee seats in Congress is forcing Republican leaders to make a tough choice between how much they value seniority over the need to improve diversity in their ranks.

"At least six GOP lawmakers are vying for an open spot on the House Financial Services Committee, whose vast jurisdiction includes overseeing banks and the nation's stock markets. The 24-seat Republican membership on the committee — which is also a prime perch to raise campaign cash from Wall Street — is nearly all white and male."

BIDEN WALKS BACK INFRA COMMENTS — Our Natasha Korecki and Christopher Cadelago: "Not 48 hours after … Biden had appeared to seal a landmark deal with Republicans, he was on the phone trying to save it. Biden himself was making calls to members of Congress in an effort to salvage a nearly $600 billion infrastructure package, two people with knowledge of the calls said.

"That was just one of the many steps Biden, top aides and allies were taking to avoid an unraveling of an agreement after the president in a press availability infuriated Republicans by threatening not to sign it if he wasn't also sent a Democrat-only spending bill. Biden acknowledged he erred in a lengthy statement he released on Saturday where he issued a complete reversal to his previous comments."

DELTA VARIANT WORRIES — Mohamed A. El-Erian on Bloomberg Opinion: "Over the weekend, Sydney was put under a mandatory stay-at-home order for two weeks in response to the risk posed by the Delta variant of Covid-19. This came as a surprise to many, especially those who rightly view Australia as having been among the best in managing Covid, with its very low infections, hospitalizations and deaths.

"Australia was not the only recent Covid surprise in advanced countries. Israel, long a vaccination leader, reimposed an indoor-mask requirement last Friday. Once again, the catalyst was the Delta variant. Then there was the U.K., which, other than India, has been battling longest against Delta.

"According to government reports, the number of Delta infections rose 46% in just one week. Indeed, whether it is the evidence from there or the reactions of Australia and Israel, four issues should be front and center for many more countries, including the U.S., which need to realize that new Covid risks are likely and do not respect borders."

Markets

THE STOCK MARKET HASN'T BEEN THIS PLACID IN YEARS — WSJ's James Mackintosh: "The U.S. stock market is as calm as can be on the surface, while churning underneath more than it has in decades. The S&P 500 is so quiet it is almost disconcerting.

"The index hasn't had a 5% correction based on closing prices since the end of October; no wonder the new day traders who started buying shares in lockdown think the market only goes up. The last time the S&P was this serene for so long was in 2017, a period of calm that ended with the volatility crash early in 2018—although back then it was even quieter for much longer."

But the IPO market has never been hotter — Bloomberg's Swetha Gopinath and Myriam Balezou: "Companies are racing to public markets like never before, cashing in on record-high stock prices. An all-time high of almost $350 billion has been raised in initial public offerings in the first six months of this year, according to data compiled by Bloomberg, surpassing the previous peak of $282 billion from the second half of 2020 and enriching entrepreneurs and bankers alike.

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Fly Around

CAPITAL-SPENDING SURGE FURTHER LIFTS ECONOMIC RECOVERY — WSJ's Sarah Chaney Cambon: "Business investment is emerging as a powerful source of U.S. economic growth that will likely help sustain the recovery. Companies are ramping up orders for computers, machinery and software as they grow more confident in the outlook.

"Nonresidential fixed investment, a proxy for business spending, rose at a seasonally adjusted annual rate of 11.7 percent in the first quarter, led by growth in software and tech-equipment spending, according to the Commerce Department. Business investment also logged double-digit gains in the third and fourth quarters last year after falling during pandemic-related shutdowns. It is now higher than its pre-pandemic peak."

MACRON ROLLS OUT RED CARPET TO JPMORGAN, GLOBAL CEOS — Reuters: "President Emmanuel Macron will declare that Paris is back on the map of global finance on Tuesday when he inaugurates JPMorgan's new trading hub in the French capital which he hopes will attract more bankers leaving post-Brexit Britain.

"The U.S. bank's chief executive, Jamie Dimon, will be one of almost 120 international CEOs travelling to Versailles on Monday for Macron's now traditional 'Choose France' summit in which he pitches France as an investment destination. The day after, Dimon and Macron will visit JPMorgan's new hub in central Paris, a stone's throw away from the Louvre museum, where about 440 employees will be based, many having relocated from London."

DURING COVID, MOST AMERICANS GOT RICHER (ESPECIALLY THE RICH) — WSJ's Orla McCaffery and Shane Shifflett: "The coronavirus pandemic plunged Americans into recession. Instead of emerging poorer, many came out ahead. U.S. households added $13.5 trillion in wealth last year, according to the Federal Reserve, the biggest increase in records going back three decades.

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