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The first day of the joint appearance of Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen on Capitol Hill surprised no one, but presented the current plan for US economic policy. Monetary policy will be loose until there are “maximum jobs”, and fiscal policy will be aggressive, although Yellen has made it clear that the White House wants to pay for increased infrastructure investments with higher taxes.
Jurrien Timmer, director of global macroeconomics for Fidelity Investments, said fiscal and monetary policy “will remain in full swing for some time to come”. When this column was last heard by Timmer, he was saying that the 1960s provided a blueprint for what is to come for the stock market. He’s updated this graph to show he’s still on the right track.
But another historical analogue is the period from 1941 to 1946. To mobilize against World War II, the federal debt tripled, the Fed’s balance sheet increased tenfold, and the Fed capped short interest rates. and in the long run below the rate of inflation. Admittedly, the current manual is not as aggressive – the Congressional Budget Office’s forecast for national debt in 2030 is only 6% higher than before the COVID-19 pandemic – but directionally they are similar.
“The net result of the Fed’s rate cut in the 1940s was that real rates fell well below zero and stayed that way for a number of years as inflation took hold. In my opinion, the Fed will accept higher inflation today, as will the Treasury. How else will the country get out of the burden of its growing debt?
The result was a booming, broad-based stock market, at least until inflation really got carried away later in the decade. There was also a steeper yield curve, measured by the spread between 2 and 10 year yields.
Day two on Capitol Hill for Powell and Yellen
Powell and Yellen will speak to the Senate Banking Committee on Wednesday. In a busy day on the economic front, there is data on durable goods orders and flash readings from purchasing managers’ indices, along with four other Fed officials speaking.
A huge freighter is stuck in the Suez Canal, blocking traffic on a key sea route.
GameStop GME,
the video game retailer, said worse-than-expected profits and said it would stop providing comparable store sales data as it tries to focus on more online offerings. GameStop has also appointed a former director of online retailer Amazon AMZN,
Jenna Owens, as Director of Operations.
Manufacturer of Intel INTC microchips,
said it would make a $ 20 billion investment in Arizona to boost its manufacturing capacity, news that weighed on rival Advanced Micro Devices AMD,
Manufacturer of electric vehicles Tesla TSLA,
will start accepting payment in bitcoin BTCUSD,
General Manager Elon Musk said on Twitter TWTR,
Tesla had said it would make the move in a previous regulatory filing when it announced $ 1.5 billion in cryptocurrency purchases.
Adobe ADBE software creator,
announced better than expected first quarter results.
Hall of Fame Resort & Entertainment HOFV,
and Dolphin Entertainment DLPN,
both have started a business to enter the non-fungible token market.
Higher equity futures
More optimistic after a tough Tuesday day in which the small-cap Russell 2000 RUT,
sank 3.6%, its worst performance in a month. ES00 equity futures,
NQ00,
increased and the yield on the 10-year Treasury TMUBMUSD10Y,
fell further, to 1.62%.
CL.1 oil futures,
rose but were still short by $ 60 a barrel.
Random readings
Heavy rains have created waterfalls off the famous Uluru monument in Australia.
Three dolphins took a tour of New York City, swimming in the East River.
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