The first day of the joint performance of Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen on Capitol Hill did not surprise anyone, but it outlined the current blueprint for US economic policy. Monetary policy will be lenient until there is “maximum employment,” and fiscal policy will be aggressive, although Yellen made it clear that the White House wants to pay for more infrastructure investment with higher taxes.
Jurrien Timmer, director of Global Macro for Fidelity Investments, says fiscal and monetary policy “will remain in full swing for a while”. When this column last heard from Timmer, he said the 1960s were a blueprint for what’s to come for the stock market. He updated that map to show he’s still on track.
But another historical analog is the period from 1941 to 1946. To mobilize against World War II, federal debt tripled, the Fed’s balance sheet tripled by a factor of 10, and the Fed hedged both short and long-term interest rates below the inflation rate. Admittedly, the current roadmap isn’t that aggressive – the Congressional Budget Office’s 2030 forecast for government debt is only 6% higher than it was before the COVID-19 pandemic – but it’s similar in direction.
“The net result of the Fed’s rate cut in the 1940s was that real interest rates fell well below zero and stayed that way for a number of years as inflation took root. In my opinion, the Fed will accept higher inflation today, as will the Treasury. How else can the country get out of its rising debt burden, ”says Timmer.
The result was a bullish and broad stock market, at least until inflation really got carried away later in the decade. There was also a steeper yield curve, measured by the difference between the 2- and 10-year interest rates.
Day two on Capitol Hill for Powell and Yellen
Powell and Yellen will speak before the Senate Banking Committee on Wednesday. On a busy day in the economic field, there is data on durable goods orders and flash readings from purchasing manager indexes, as well as four other Fed officials speaking.
A huge cargo ship is trapped in the Suez Canal, blocking traffic on a major shipping route.
GameStop GME,
The video game seller reported worse than expected earnings and said it would stop providing comparable store sales as it tries to focus on more online offers. GameStop has also hired a former director at online retailer Amazon AMZN,
Jenna Owens, to become Chief Operating Officer.
Microchipmaker Intel INTC,
said it will make a $ 20 billion investment in Arizona to build its manufacturing capacity, news that weighed on rival Advanced Micro Devices AMD,
Electric vehicle manufacturer Tesla TSLA,
starts accepting payments in bitcoin BTCUSD,
Chief Executive Elon Musk said on TWTR’s Twitter,
Tesla had said it would take this step in an earlier filing from regulators when it announced $ 1.5 billion in purchases of the cryptocurrency.
Software maker Adobe ADBE,
reported a better than expected fiscal profit for the first quarter.
Hall of Fame Resort & Entertainment HOFV,
and Dolphin Entertainment DLPN,
both went up to enter the non-replaceable token market.
Stock futures higher
Looking more hopeful after a tough day on Tuesday in which the small-cap Russell 2000 RUT,
fell 3.6%, the worst performance in a month. Equity Futures ES00,
NQ00,
rose and the yield on the 10-year treasury TMUBMUSD10Y,
decreased further to 1.62%.
Oil Futures CL.1,
rose, but still fell short of $ 60 a barrel.
Random reads
Heavy rainfall has created waterfalls at Australia’s famous landmark Uluru.
Three dolphins toured New York City, swimming in the East River.
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