“When economists look back on the pandemic, I hope they will conclude that Congressional actions have avoided much suffering,” Yellen told lawmakers, according to a written testimony obtained by CNN Business. “But more needs to be done. Economists don’t always agree, but I think there is now a consensus:
Without further action, we risk a longer and more painful recession now – and long-term scarring in the economy later. “
Wall Street expects Congress to support the Biden government in passing another bill of considerable relief, with millions of Americans still unemployed and new claims for unemployment benefits on the rise.
But scale can be a major obstacle, with Biden’s team pushing for additional $ 1,400 stimulus checks, help for state and local governments and a wave of funding for vaccination and Covid-19 tests.
“Neither the president-elect nor I propose this relief package without an assessment of the country’s debt burden,” says Yellen’s prepared statement. “But now, with interest rates at historic lows, the smartest thing we can do is act big.”
Yellen is right: the United States can borrow for 10 years at about 1%, compared to about 3% when former President Barack Obama took office. But if interest rates rise, the country’s debt service could become more complicated.
Given Yellen’s experience at the Fed, she will be able to talk about these issues – as well as any concerns about inflation triggered by additional spending – with authority. Investors will be listening.
“Expect a lot of questions about debt sustainability and the role the Fed is likely to play in that,” said Jim Reid of Deutsche Bank in a note to customers on Tuesday.
A personal note: Yellen, in his prepared comments, also cites his origins in the “working class” in Brooklyn, where his father, a doctor, used to treat people from the family’s basement.
“He was the type of doctor who treated every patient,” said his prepared comment. “He knew about their lives; about when they were fired or were unable to pay. These remain some of the clearest moments of my childhood.”
Bank profits mix optimism with uncertainty
Bank profits indicate that the outlook for the economy is expected to improve later this year.
It is a sign that the bank believes that the economic situation tends to improve, not to worsen, thanks to vaccination and stimulus programs.
In a conference call with reporters, CEO Jamie Dimon said the country could have a “very healthy economy” in the summer – especially if unemployed Americans and small businesses “in desperate need of help” get more stimulus payments from the next Biden government and the United States. Congress.
However, he emphasized that many unknowns remain. The bank still has credit reserves of more than $ 30 billion as a mattress in case conditions deteriorate. And apart from mortgages, which are experiencing a pandemic boom, consumer loans remain silent.
Goldman may be the only one watching, given how busy the investment bankers were in the last quarter. Companies are rushing to raise capital as they prepare for the next phase of the business cycle. Commercial revenue also looks healthy.
China’s weak growth is the envy of the world
If you ranked the largest economies in the world on a curve, China would be first in the class.
It is China’s slowest annual growth rate in decades. Since 1976, the country has had no worse year, when GDP shrank 1.6% during a period of social and economic turmoil.
But compared to other major world economies, which have plunged into deep and prolonged recessions, China has come out on top. The expansion also exceeded estimates. The International Monetary Fund, for example, predicted that China’s economy would grow by 1.9% in 2020. It is the only major world economy that the IMF expects to grow.
General picture: economists say that the momentum of the Chinese economy will be crucial to drive a global recovery in 2021. On that front, too, there was good news: GDP grew 6.5% in the fourth quarter compared to a faster year ago than 4.9% growth recorded during the third quarter.
The data highlights some problems that may arise, however. Industrial production has increased, while retail sales remain fragile.
This begs the question: has the pandemic diverted China’s efforts to shift its economy from one dependent on manufacturing to another driven by consumer spending? If so, what does this mean for long-term growth prospects?
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Also today: Janet Yellen’s confirmation hearing before the Senate Finance Committee starts at 10 am ET.