News: All eyes on inflation — Biden shifts infrastructure messaging

Tuesday, July 13, 2021

All eyes on inflation — Biden shifts infrastructure messaging — Consumers expect more price hikes

Jul 13, 2021

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Quick Fix

All eyes on inflation — All economic eyeballs on Wall Street, in the West Wing and at the Federal Reserve will be on today's consumer price index numbers out at 8:30 a.m.. Consensus is for the headline figure to rise 0.5 percent and the core number to rise 0.4 percent.

Further jumps in restaurant prices, used cars, hotel rates and air fares seem quite likely. So the numbers could beat consensus and further stoke fears that price hikes may stick around and be less "transitory" than both the White House and Fed would like to see.

This really is the ballgame at the moment for markets and the economy, not to mention Fed Chair Jerome Powell's future as head of the world's most important central bank. Officials in the administration and at the Fed will be ready to note that "base effects" from the doldrums of Covid last year will likely make the numbers seem worse than they are.

They will also argue that Wall Street clearly thinks the Fed is absolutely correct in its view that pricing pressure will ease as more of the economy gets turned back on, supply chain issues ease and more workers come back into the labor force as extra federal jobless benefits end. Ten year bond yields are back down to where they were in February. The so-called "break-even" rate on five-year bonds also suggests inflation slightly below the Fed's target.

And most economists are also still on board with the "don't worry about inflation" argument. HFE's Rubeela Farooqi: "We see gains in consumer prices slowing from the current pace over coming months as the impact of a few components that are currently driving price increases recedes.

"Even so, we expect inflation metrics to remain above target in the near term, supported by both core goods and services prices as activity continues to normalize. But the trend is likely to revert to pre-pandemic patterns, when services sector prices drove changes in the headline and core indexes."

GOOD TUESDAY MORNING — 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

President Biden heads to Philadelphia and will offer remarks at 2:50 p.m. on White House "actions to protect the sacred, constitutional right to vote and the need to overcome anti-voter laws" …

Senate Banking has a nominations hearing at 10:00 a.m. on Arun Venkataraman to be assistant Commerce secretary and director general of the U.S. and Foreign Commercial Service; and Damon Smith to be general counsel of the Housing and Urban Development Department …

Treasury Secretary Janet Yellen "will hold bilateral meetings with European Central Bank and European country counterparts" before returning to the U.S. from Brussels … Consumer prices at 8:30 a.m. expected to rise 0.5 percent headline and 0.4 percent core …

BIDEN SHIFTS INFRASTRUCTURE MESSAGING — Our Natasha Korecki and Christopher Cadelago: "The White House has shifted its messaging around the president's agenda after Democrats across the ideological spectrum warned it was becoming ill-defined and increasingly unwieldy. Having spent months pushing his domestic priorities through a dual-track approach … Biden is once more placing his initiatives under the umbrella of 'Build Back Better.'

"The use of that tagline is a reversion to the campaign … Its reemergence is, in part, an effort to placate Democrats and progressives who raised concerns that the myriad proposals that made up an ambitious infrastructure agenda had become too confusing to explain to supporters. Those concerns were relayed to the administration in a series of meetings and emails over recent weeks, six people familiar with the discussions told POLITICO."

BRUSSELS DELAYS DIGITAL TAX PROPOSAL — Our Jakob Hanke Vela: "Brussels will postpone the publication of its digital tax proposal, which had been planned for July. The European Commission confirmed … that it will prioritize finalizing a global tax accord, before reassessing its digital levy in the fall. 'Successfully concluding this process will require a final effort from all parties, and the Commission is committed to focusing on that effort,' said a Commission spokesman …

"The Commission will seek to present the proposal for the new levy in October, one person briefed on the discussion said … in a sign of a détente with the U.S. Washington has urged the EU to delay its proposal, warning that it 'threatens the work undertaken via the OECD/G20 process,' where global leaders have agreed on minimum taxation. A second person said the delay may be a couple of months."

Markets

STOCK INDEXES NOTCH MORE RECORDS — AP's Damian J. Troise and Alex Veiga: "Major stock indexes notched more record highs on Wall Street Monday as investors look ahead to a wave of earnings reports from big U.S. companies coming out this week. Major banks get things started on Tuesday as JPMorgan Chase and Goldman Sachs put out their results for the three months ended in June.

"A handful of other big companies also report this week, including Delta Air Lines, PepsiCo and UnitedHealth Group. The S&P 500 rose 0.3% and the Nasdaq composite rose 0.2%. Small-company stocks lagged the rest of the market. The yield on the 10-year Treasury note rose to 1.37%."

Fly Around

CONSUMERS' SHORT-TERM INFLATION OUTLOOK JUMPS — Reuters: "U.S. consumers expect the economy to continue its rapid resurgence from the COVID-19 pandemic over the next year, with forecasts for inflation, earnings, income growth and spending all increasing in June, according to a monthly survey released on Monday by the New York Federal Reserve.

"One-year-ahead median inflation expectations jumped for the eighth consecutive month to 4.8% in June, up from 4.0% in May and marking a new series high since the survey was launched in 2013. At the three-year outlook, they were unchanged at 3.6%."

And the inflation threat could be boosted by changes in globalization, demographics and even e-commerce — WSJ's Grynn Guilford: "For the past few decades, the Federal Reserve has succeeded in keeping inflation low—perhaps too low. It had an assist: Shifts in the global economy, including globalization, demographics and the rise of e-commerce, helped keep prices in check.

"Some economists say these so-called secular forces have begun to reverse in ways that the pandemic has intensified. 'The factors that were…playing a significant role in that low-inflation environment last cycle are beginning to fade,' said Sarah House, director and senior economist at Wells Fargo."

BIDEN'S PENSION RESCUE SEEN AS BIGGER HELP FOR CORPORATE BONDS — Bloomberg's David Caleb Mutua: "U.S. President Joe Biden's planned pension rescue could result in even more money being shunted into investment-grade corporate bonds than previously thought, according to Citigroup Inc. strategists.

"The Pension Benefit Guaranty Corp., which insures pensions, issued rules on Friday for bailout money for multi-employer plans that are severely underfunded. These plans can apply for rescue funds as part of the $1.9 trillion pandemic-relief bill signed into law in March."

BANK PROFITS POISED TO SURGE — NYT's Lananh Nguyen: "The nation's biggest banks are about to report windfall profits as customers increase their spending and the economy bounces back from the pandemic. Profits for behemoths including JPMorgan Chase and Goldman Sachs are expected to jump when they report second-quarter results this week. Their Wall Street divisions have been able to cash in on a red-hot market for deals, while the banks' Main Street units benefited as customers went back to work and opened their wallets."

YELLEN LOOKS TO REVIVE U.S.-EU TIES WHILE FACING DOWN CHINA, RUSSIA — Bloomberg's Christopher Condon: "Treasury Secretary Janet Yellen made a new push in Brussels to repair U.S. ties with the European Union, urging members of the bloc to help confront China and Russia. In her first visit as Treasury chief to the European capital, Yellen hearkened back to the partnership and 'rules-based international order' constructed after World War II -- before calling out three countries she said imperiled that order."

FED'S BARKIN: LABOR MARKET HASN'T HEALED ENOUGH TO TAPER BOND BUYING — WSJ's Michael S Derby: "Federal Reserve Bank of Richmond President Thomas Barkin isn't ready to call for an end to the U.S. central bank's $120 billion a month in bond-buying stimulus given where the labor market stands today.

"When it comes to slowing the pace of asset buying, 'if the labor market can clear relatively quickly, then maybe it can happen sooner, but if it takes longer for the labor market to reopen, it goes a little later,' Mr. Barkin said in a Wall Street Journal interview Friday."

Williams echoed that, saying he doesn't yet see a case to slow the Fed's bond buying either — WSJ's Michael S. Derby: "Federal Reserve Bank of New York President John Williams said Monday that conditions haven't yet been met to pare back the pace of the central bank's $120 billion a month bond-buying stimulus program.

"'We set a very clear marker, I think, not a quantitative marker, but a very clear marker that we want substantial further progress [on job market improvement] relative to where we were' during the period before the coronavirus pandemic took hold, Mr. Williams told reporters after a speech. 'That's where I'm focused, clearly right now we have not achieved that,' he said."

And Williams added that the Fed's Treasury purchases also boost the housing market — Bloomberg's Matthew Boesler: "The U.S. central bank's purchases of Treasury and mortgage-backed securities are both contributing to lower housing costs, Federal Reserve Bank of New York President John Williams said, alluding to an ongoing debate among policy makers over whether or not to scale back MBS buying faster than Treasuries when the time comes to taper."

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