Excitement, job loss and inflation

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Federal Reserve Chairman Jerome Powell began two days of congressional testimony on Tuesday – in an economic climate – not to mention political – that is very different from June, the last time the Fed Chair gave its Semiannual Monetary Policy report.

Powell appears before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday. He faces tough questions, experts say: Republicans would like to know if the $ 1.9 trillion stimulus package is sending inflation backward, while Democrats are likely to tell the head of the central bank that the epidemic economic disparity among Americans How to increase

“We are not out of the woods yet when it comes to the virus, and the economy is also far from fully recovering,” said McKay Shields senior macroeconomist Steve Freedman. “Powell is very focused on the fact that millions of workers and their families have suffered a lot due to the epidemic,” he said.

Powell has said that labor force participation based on job growth data is being manipulated, estimating that the real unemployment rate is closer to 10 percent for January than the official 6.3 percent calculated by the Bureau of Labor Statistics is.

“The unemployment rate has actually exceeded the amount of improvement in the labor market. I don’t do a good job of accounting for the fact that a lot of people just leave the labor market, “Friedman said. “I think it’s really going to be about his testimony.”

With the Fed’s mandate for full employment, Powell has reiterated his repeatedly repeated claim that the current course of action – lowering interest rates and leveraging the central bank’s balance sheet to facilitate asset purchases – The best way to relax is the constraints facing the labor market as well as the broader economy.

“While the situation is improving, the economy is far from the Fed’s employment targets, and removing significant policy support requires significant progress before beginning,” said Bill Merz, head of fixed income research at US Bank Wealth Management .

Allianz Investment Management senior investment strategist Charlie Ripley said the week of inflation is likely to pose some of the more obvious questions for Powell.

“It is likely that lawmakers will touch on the subject of inflation and asset bubbles as risks to current policy,” said Ripley. “Lawmakers are sure to question Powell on the unintended consequences and risks surrounding current policy decisions,” he said, especially as former ex-Obama National Economic Council director Larry Summers expressed concern recently.

Scott Cole, founder and president of Cole Financial Planning and Wealth Management, said, “There is a debate as to whether employment will increase if vaccination occurs, but another round of incentives will increase inflation.” “But clearly, we didn’t see that when employment was hitting record lows – and a lot of work has to be done to get some sectors of our economy back up and running,” he said.

Despite the current fragility of the economy, the recent upsurge of green shoots will also push some committee members, particularly Republicans, to make it clear to Powell that he would like the Fed’s gradual withdrawal from its current market level How to withdraw by destabilizing a system. Expect, if not trust, central bank support. “How is the market doing when the Fed stops buying?” Said that Lindsey Pigza, chief economist at Stifel.

Republicans are seeking evidence that too much stimulus may be on the backfoot, while Democrats will seek support for continued aggressive fiscal stimulus.

The Powell articulate would be the angle for his preferred stance on fiscal policy on both sides of the aisle: Republicans would be seeking evidence that too much stimulus could backfire, while Democrats continued to support an argument for aggressive fiscal stimulus The lines of inquiry will follow. “I don’t think there’s going to be a lot of potential grandeur,” Peezza said.

Kenneth Kutner, professor of economics at Williams College, said committee members could be mocked for any statement that could be seen as an endorsement. “I think Republicans would be most eager to find some reason in the policy comment to vote against the $ 1.9 trillion stimulus package,” he said. The president of Democrats is likely to highlight the extent of economic inequality and on the drivers, both in terms of providing more financial support for individuals, as well as furthering the party’s goal of a $ 15 minimum wage.

“Traditionally the Fed does not like making changes in fiscal policy,” Friedman said, though he said Powell has made clear over the past several months that monetary policy alone cannot revive the economy. “I think he’s going to avoid weight in relief form and size, but he’s going to be clear that he necessarily sees support for homes,” Friedman said.

This would amount to a verbal game of cat-and-mouse, with Powell aiming to provide a snapshot of the economy provided in broad brushstrokes, while trying to circumvent statements that support a particular fiscal strategy or dollar amount. do.

“I think it’s a partisan discussion in this sense,” said Brad McMillan, chief investment officer of the Commonwealth Financial Network. Democrats are asking key questions asking them to expand on the weakness of the economy and further risks, trying to form the basis for stimulus packages, while Republicans are going to do the opposite – they are gone If we get inflation then try and do it at the ground level to attack the Fed.

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