Welcome to jobs day — Barr out at OCC? — Young seems like a lock for OMB

From: POLITICO's Morning Money - Friday Mar 05,2021 01:02 pm

Mar 05, 2021

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Quick Fix

Welcome to jobs day — Markets tanked pretty hard again after Fed Chair Jerome Powell acknowledged a spike in inflation could hit this U.S. pretty soon but added that it should be temporary and that the central bank has no plans to change its easy money policies and is instead fully focused on restoring full employment.

Investors are not quite panicking over the insistently dovish stance from the central bank and its steadfast refusal to signal any potential policy shift. But they are not THAT far from doing so. And once inflation freak-outs set in, they can be very hard to undo.

And we should get a decent — if not spectacular — print on the jobs number this morning, suggesting the labor market is set to snap back pretty hard as re-openings progress and vaccination numbers rise. Today’s number likely won’t put any pressure on the Fed. But figures in subsequent months may very well do so. Sleep on the inflation and overheating narrative if you want, but it’s not an insignificant risk.

Moody’s Mark Zandi emails: “February was another difficult month for the job market. Employment likely increased by only 150,000 jobs after several months of effectively no job growth. … February unemployment should remain close to January's 6.3%.

“However, the job market is set to significantly ramp up this spring, as the pandemic continues to wind down and President Biden's American Rescue Plan provides a massive dose of fiscal support. GDP is already re-accelerating - it is tracking close to double-digits annualized so far in the first quarter. Job growth will soon follow, with employment expected to surge by close to 5 million jobs in the year ending in December 2021.”

Pantheon’s Ian Shepherdson: “We expect to see a 300K increase in February payrolls … We expect better numbers in March … The scope for a brisk acceleration is clear, though we expect the biggest gains to come later in the spring as the reopening broadens.”

MM hears … that Michael Barr’s nomination to be comptroller of the currency is nearly dead following significant opposition from the left, leaving UC Irvine’s Mehrsa Baradaran as the leading candidate.

And at OMB, the WH saying that Shalanda Young would likely serve as acting OMB director following Neera Tanden’s withdrawal means that she will likely get the permanent gig over Gene Sperling and Ann O’Leary. If both things come to pass, it will be clear the progressive wing of the party has established fairly strong dominance over remaining significant nominations.

GOOD FRIDAY MORNING — Happy weekend, everyone! Email me on bwhite@politico.com and follow me on Twitter @ morningmoneyben. Email Aubree Eliza Weaver on aweaver@politico.com and follow her on Twitter @AubreeEWeaver.

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Driving the Day

February jobs report at 8:30 a.m. is expected to show a gain of 195K with unemployment up a tenth at 6.4 percent and hourly earnings up 0.2 percent … President Biden in the afternoon “will receive an economic briefing with the Secretary of the Treasury in the Roosevelt Room.” He will then participate in a roundtable on the Covid relief plan

POWELL DOESN’T SEE FULL EMPLOYMENT THIS YEAR — Our Victoria Guida: “Powell … said he doesn’t expect the economy to reach full employment this year despite the brightening economic outlook. Powell's remarks underscore his previous estimate that the real unemployment rate is closer to 10 percent, rather than the most popular measure of joblessness, which is currently at 6.3 percent. …

“Powell also said the Fed is watching more than just the overall data on the health of the labor market; the central bank is also committed to promoting job gains across races and income brackets … Financial markets have been grappling with the economic outlook, with the coronavirus vaccinations bringing the promise of faster growth but also perhaps more inflation.”

FDIC CHIEF DOESN’T SEE NEED FOR SLR RELIEF — Also via Victoria: “FDIC Chair Jelena McWilliams … said it doesn’t seem like banking agencies need to extend an emergency move that made it cheaper for insured depository institutions to hold cash and U.S. government bonds on their balance sheets. The most important question rests with the Federal Reserve, she said.

“That’s because capital requirements for the parent holding company, which is regulated by the Fed, are more important for determining how expensive it is for those banks to hold Treasuries, she said.”

FORGET ABOUT INFLATION? — Morning Consult economist John Leer: “The data shows that although pent-up demand for services among workers increasingly secure in their jobs complicates the near-term inflation outlook, the ability of the service sector to hire additional workers at stable wages limits the likelihood that demand increases will translate into persistent inflation.”

Markets

TECH PULLS STOCKS LOWER — AP’s Damian J. Troise and Alex Veiga: “Stocks turned lower on Wall Street as bond yields made another upward spike, renewing pressure on high-flying technology companies.

“The S&P 500 fell 1.3 percent Thursday, its third straight loss. The Nasdaq pulled back 2.1 percent. The losses came as the yield on the 10-year Treasury rose sharply during a question-and-answer session with Federal Reserve Chair Jerome Powell during which Powell said that any pickup in inflation in coming months would likely be temporary, disappointing investors who were hoping for a firmer stance against inflation.”

But the Fed has no sympathy for stock market momentum comeuppance — Bloomberg’s Vildana Hajric and Lu Wang: “Last summer as the Faang block was tightening its strangle-hold on equities, a theory was hatched that the only thing that could ever halt the rally in megacap tech would be evidence the economy is healing.

“Three weeks into the worst selloff of the year, it’s a view looking more and more prescient. The Nasdaq 100, which surged 48 percent in 2020 on bets people would be stuck indoors forever, is now tumbling toward a correction. Thursday’s leg came as Federal Reserve Chair Jerome Powell did nothing more than recommit himself to an economic recovery whose pace is picking up.”

POWELL CONFIRMS FED PLANS TO MAINTAIN EASY-MONEY POLICIES — WSJ’s Paul Kiernan: “Powell reaffirmed … his intention of keeping the central bank’s easy-money policies in place until the labor market improves much further.

“‘Today we’re still a long way from our goals of maximum employment and inflation averaging 2 percent over time,’ Mr. Powell said Thursday during an interview at The Wall Street Journal Jobs Summit. The appearance came as brightening economic forecasts are pushing up long-term borrowing costs, which could complicate the Fed’s efforts to keep interest rates low to support the recovery.”

And Powell is likely to push back on bond market doubts — Bloomberg’s Rich Miller and Steve Matthews: “Federal Reserve Chairman Jerome Powell will probably seek to convince suddenly skeptical financial markets on Thursday that the central bank will be ultra-patient in pulling back its support for the economy after the pandemic has ended.

“Rather than trying to cap rising long-term interest rates, Fed watchers expect Powell to use his appearance at a Wall Street Journal webinar to reaffirm the Fed’s determination to meet its revamped employment and inflation goals by keeping monetary policy looser for longer, and to make clear he’d like to avoid a repeat of last week’s disorderly bond market.”

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Fly Around

TREASURY LAUNCHES $9B PROGRAM FOR UNDERSERVED COMMUNITIES — Reuters’ David Lawder: “The U.S. Treasury … launched a new program to infuse $9 billion into minority and community lenders to boost financing for small businesses and consumers struggling with the coronavirus pandemic in low-income and underserved communities.

“The Emergency Capital Investment Program, funded as part of a $900 billion COVID-19 aid bill signed into law at the end of 2020 by former president Donald Trump, will provide $9 billion in capital to Community Development Financial Institutions (CDFIs) and minority depositary institutions."

CBO WARNS MOUNTING FEDERAL DEBT PUTS U.S. AT RISK OF FISCAL CRISIS — NYT’s Alan Rappeport: “The Congressional Budget Office projected on Thursday that the federal budget deficit will begin to decline in the coming years as the United States economy recovers from the coronavirus pandemic but will rise again during the second half of the decade and climb steadily over the following 20 years.

"The projections offer near-term hope for the nation’s fiscal situation, which is expected to improve as government spending on the pandemic subsides when normal business activity resumes as more Americans get vaccinated and find employment. But the nonpartisan office forecast a more challenging long-term outlook, as interest costs rise and federal spending on health programs swells along with an aging population.”

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DOLLAR STRENGTH CONFOUNDS INVESTORS, SPARKS SOME WORRIES — WSJ’s Paul J. Davies: “The U.S. dollar is confounding expectations that it would fall this year. The greenback is up almost 2 percent against a basket of other currencies since its low in early January.

“Its gains are a sign that a coordinated global recovery isn’t going as well as hoped, according to investors. That is at odds with the signals coming from stock and bond markets, where investors are betting on an economic rebound as the world escapes Covid-19 shutdowns. It is also at odds with large bets against the dollar in derivatives markets.”

SEC DEPLOYS TEAM TO TARGET CLIMATE, ESG MISCONDUCT — Reuters’ Chris Prentice: “The U.S. Securities and Exchange Commission has formed an enforcement task force to examine misconduct related to environmental, social and governance issues as the regulator ramps up a focus on climate and other hot-button topics.

“The SEC has deployed a 22-person team that will focus on disclosures from public companies related to issues such as climate change, investment-advisor activities and funds dedicated to ESG investments, the agency said on Thursday.”

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