The first day of the joint appearance of Federal Reserve President Jerome Powell and Treasury Secretary Janet Yellen at the Capitol surprised no one, but it exposed the current plan for US economic policy. Monetary policy will be lax until there is “maximum employment” and fiscal policy will be aggressive, although Yellen made it clear that the White House wants to pay for higher infrastructure investments with higher taxes.
Jurrien Timmer, director of global macro at Fidelity Investments, says that fiscal and monetary policy “will remain in full swing for some time”. When Timmer last heard this column, he was saying that the 1960s provide a blueprint for what lies ahead for the stock market. He updated the chart to show that he is still on the right track.
But another historical analog is the period from 1941 to 1946. To mobilize against World War II, the federal debt has tripled, the Fed’s balance has swelled 10 times, and the Fed has limited short and long-term interest rates below the rate of inflation. Granted, the current handbook is not as aggressive – the Congressional Budget Office’s forecast for national debt in 2030 is just 6% higher than it was before the COVID-19 pandemic – but it is directionally similar.
“The net result of the suppression of Fed rates in the 1940s was that real rates fell well below zero and remained so for several years, while inflation took root. In my opinion, the Fed today will accept higher inflation, as will the Treasury. How else will the country get out of its growing indebtedness? Says Timmer.
The result was a bullish and broad-based stock market, at least until inflation was really charged at the end of the decade. There was also a steeper yield curve, measured by the difference between 2 and 10 year earnings.
Day two on Capitol Hill for Powell and Yellen
Powell and Yellen will speak on Wednesday in front of the Senate Banking Committee. On a busy day on the economic front, there is data on durable goods orders and instant readings of purchasing managers’ indices, in addition to four other Fed officials speaking.
A huge cargo ship is trapped in the Suez Canal, blocking traffic on an important transport route.
GameStop GME,
the video game retailer reported worse than expected earnings and said it would stop providing comparable store sales data as it tries to focus on more online offers. GameStop also appointed a former director of online retailer Amazon AMZN,
Jenna Owens, to be the director of operations.
Intel INTC microchip maker,
said it will make a $ 20 billion investment in Arizona to build its manufacturing capacity, news that weighed on rival AMD’s Advanced Micro Devices,
Tesla TSLA, maker of electric vehicles,
will begin accepting payment in bitcoin BTCUSD,
Chief Executive Elon Musk said on Twitter TWTR,
Tesla said it would make this move in a previous regulatory process, when it announced $ 1.5 billion in cryptocurrency purchases.
Adobe ADBE software maker,
reported stronger-than-forecast fiscal profits in the first quarter.
Hall of Fame Resort & Entertainment HOFV,
and Dolphin Entertainment DLPN,
both emerged on an adventure to enter the non-fungible token market.
Higher stock futures
Looking more hopeful after a tough day on Tuesday, when little Russell 2000 RUT,
sank 3.6%, its worst performance in a month. ES00 stock futures,
NQ00,
increased and the yield of the 10-year Treasury TMUBMUSD10Y,
fell further, to 1.62%.
CL.1 oil futures,
rose, but were still below $ 60 a barrel.
Random readings
Heavy rains created waterfalls near Australia’s famous Uluru tourist spot.
Three dolphins took a tour of New York City, swimming in the East River.
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