Stimulus drives up consumer confidence — Fed to keep punchbowl full — Markets keep popping

From: POLITICO's Morning Money - Thursday Mar 18,2021 12:03 pm

Mar 18, 2021

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Quick Fix

Stimulus checks boost confidence, especially at lower end — In the "happy headlines for the White House" department, the $1,400 checks and direct deposits now showing up in mailboxes and bank accounts across America are driving up consumer confidence once again.

Per new data from Morning Consult out this morning: “U.S. consumer confidence increased more rapidly following the signing of the American Rescue Plan than it did following the signing of the two prior coronavirus stimulus bills.

“Over the past five days, confidence among low-and middle-income consumers increased more sharply than confidence among high-income consumers, signaling that the third stimulus bill may help counterbalance the K-shaped recovery in confidence and spending.”

Fed to keep punchbowl full — More on this below but Chair Jerome Powell and the Fed gave investors plenty to cheer about with a huge boost to the growth forecast but no indication that they have any plans to raise rates for a couple of years.

Of course Powell also noted that future forecasts for rate hikes are little more than guesses tossed up on the “dot plot.” The central bank is always data-dependent and could swiftly flip to tightening mode if the stimulus and vaccinations lead to sustained inflation well over 2 percent.

So it doesn’t actually matter what the dot plot says . But the play now is clearly to do absolutely nothing to slow down the economy or markets or get in the way of creating a faster recovery than the grinding one we endured after the financial crisis.

Congress, the White House and the central bank are now rowing hard in the same direction, something that doesn’t happen that often. Could turn out well with a perfectly fast growing, low inflation, low unemployment economy. Or it could go… a bit wrong. Or a lot wrong.

GOOD THURSDAY MORNING — Happy NCAA play-in day! MM is still on the hunt for good upset picks so if you have hot ones, let us know. 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.

A message from the American Bankers Association:

From the small business owner able to keep their employees on the job thanks to a PPP loan, to the struggling single parent who found their Economic Impact Payment automatically deposited in their account, customers have been able to count on their bank during COVID-19. America’s banks have stepped up to help, and people have noticed. A new national survey shows how much Americans appreciate their bank. To see the survey results, view our infographic.

Driving the Day

House Financial Services Committee has a hearing at 10 a.m. on “By the Numbers: How Diversity Data Can Measure Commitment to Diversity, Equity and Inclusion” … Senate Banking has a hearing at 10 a.m. on the “21st Century Economy: Protecting the Financial System from Risks Associated with Climate Change” … In the afternoon, President Biden will receive the Weekly Economic Briefing in the Oval Office …

Initial jobless claims at 8:30 a.m. expected to dip to 703K from 712K … Index of Leading Indicators (2)/10:00 EDT We expect a mere 0.1% gain, thanks the strong ISM, the steepening yield curve, and falling jobless claims. Consensus: 0.3%.

LEGISLATIVE FILIBUSTER NOT VANISHING SOON — Our Burgess Everett and Marianne LeVine: “Biden’s call for a return to the old-school Senate filibuster is elating activists who want to gut the impediment to majority rule. Yet the movement to scrap the chamber’s 60-vote requirement is way ahead of Democrats’ whip count.

“Two Democratic senators, Kyrsten Sinema of Arizona and Joe Manchin of West Virginia, are hard opponents of changes to the 60-vote threshold. But that duo's firm resistance is obscuring the size of another, bigger faction in the Democratic caucus — call them softer opponents of ending the filibuster. …

“In interviews Wednesday, at least five additional Democratic senators said that they weren’t willing to scrap the supermajority requirement for most legislation just yet.”

FED STAYS SUPER DOVISH — Our Victoria Guida: “The Federal Reserve … projected the U.S. economy will grow 6.5 percent this year, the fastest pace in four decades, fueled by growing vaccination rates and nearly $2 trillion in new federal spending.

“Central bank officials upgraded their growth forecast from their 4.2 percent estimate in December, saying they now expect the unemployment rate to drop to 4.5 percent by the end of 2021. Fed officials are also predicting a short-term burst in inflation this year … Despite the surge in growth, the Fed isn’t in any hurry to raise borrowing costs, projecting no interest rate increases through 2023 — a stance that sent the stock market soaring”

POWELL WALKS THE LINE — Mohamed A. El-Erian on Bloomberg Opinion: “The Fed … nimbly walked a tightrope … cheering stock and bond investors by tolerating an unusually large divergence between significant revisions to its economic forecast and almost no changes to its policy statement, all supplemented by ultra-dovish remarks by Chair Jerome Powell during his press conference.

“That act will only become more difficult in front of markets that are hooked on the central bank’s liquidity injections unless the undesirable happens and the U.S., like Europe, finds its recent successes against Covid-19 challenged by new variants of the virus.”

Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance: “This is effectively ignoring the likely impact of inflation and illustrates the rock and a hard place that the Fed finds themselves stuck between.

“To the extent that Chair Powell acknowledges inflation risks, he gives credence to the market’s belief that the Fed will be forced to raise rates prior to 2023, but to the extent that he dismisses them as transitory he loses credibility”

BIPARTISAN DEALING ON CHINA? — Our Andrew Desiderio and Marianne LeVine: “The biggest items on Democrats’ agenda have almost no support from Republicans. Chuck Schumerr’s campaign to counter China could be a different story.

“The Senate majority leader is vowing to put a bill on the floor this spring aimed at curbing Beijing’s growing economic influence, human rights abuses and threats to U.S. national security. Schumer, a longtime China hawk, knows he needs Republicans to get his bill done. And … they’re not closing the door to working with the New York Democrat on China.”

A message from the American Bankers Association:

Markets

WALL STREET CLOSES HIGHER — AP’s Damian J. Troise and Alex Veiga: “Stocks closed higher Wednesday, reversing an early slide after the Federal Reserve reassured Wall Street that it expects to keep its key interest rate near zero through 2023.

“The central bank’s renewed commitment to keeping rates at rock bottom lows comes even as its latest economic forecast calls for growth of 6.5 percent this year and for inflation to above 2 percent for the first time in years. Wall Street has been anxious about the potential for higher inflation and has been looking for signs that the central bank shares investors’ concerns.”

SEC ACTING CHAIR WANTS FUND MANAGERS TO DISCLOSE MORE VOTING INFO — WSJ’s Dawn Lim: “The Securities and Exchange Commission’s acting chief wants the agency to require clearer disclosures on how asset managers cast shareholder votes. Acting Chairwoman Allison Herren Lee said in a Wednesday speech that disclosure rules have failed to help everyday investors understand how managers exercise those crucial votes for them.”

A message from the American Bankers Association:

Banks of all sizes are going the extra mile to help individuals affected by COVID-19—and their customers appreciate it. According to a new Morning Consult national survey, 9 in 10 Americans are happy with their bank a year into the pandemic. Many appreciate the helping hand banks have provided small businesses. Nearly 4 in 10 told us they worked at a small business that received a PPP loan. Of those, 92% said the loan made a difference to the business, and 89% said the loan helped preserve jobs. They’re looking to banks in the future as well—84% say banks are “important” to the recovery. For more on Americans’ attitudes towards banks, see our infographic.

Fly Around

POWELL SAYS FED WILL ANNOUNCE UPDATE ON SLR EXEMPTION IN COMING DAYS — Reuters: “Federal Reserve Chair Jerome Powell said on Wednesday that the U.S. central bank will share an update on a bank liquidity rule in the ‘coming days.’

"An exemption on the ‘supplemental leverage ratio’ was put in place at the start of the coronavirus pandemic to encourage big banks to lend and support bond and short-term funding markets. The exemption, which reduced the amount of capital banks must hold against Treasurys and some deposits, is currently set to expire on March 31.”

TREASURY RAMPS UP RACIAL EQUITY REVIEW — NYT’s Alan Rappeport: “The Treasury Department is moving ahead with a formal racial equity review of the agency and its programs, putting in place an effort to ensure that economic fairness is prioritized throughout the Biden administration as it begins to disburse $1.9 trillion in relief money.

“The initiative is expected to be led by Adewale Adeyemo once he is confirmed as deputy Treasury secretary, according to people familiar with the matter. It will be undertaken in close collaboration with Treasury Secretary Janet L. Yellen, who is making racial equity a centerpiece of her agenda as she oversees the disbursement of much of the stimulus package.”

JPMORGAN, BOFA CONDEMN RACISM AGAINST ASIAN AMERICANS — Bloomberg’s Michelle F. Davis and Lananh Nyugen: “JPMorgan Chase & Co. and Bank of America Corp. said they won’t tolerate racism after shootings at Asian massage parlors in Atlanta left eight people dead.

“‘On streets, online and in many Asian-owned small businesses, we are seeing physical assault, verbal harassment and refusal of service,’ JPMorgan Chief Executive Officer Jamie Dimon wrote in a memo to staff seen by Bloomberg. ‘These racist acts cannot — and will not — be tolerated.’”

SANDERS TARGETS CEO PAY IN EFFORT TO KEEP SPOTLIGHT ON WORKERS — WSJ’s Eliza Collins and Richard Rubin: “Sen. Bernie Sanders is using his new perch as Budget Committee chairman to try to keep Congress focused on measures designed to improve worker pay and job conditions, even as related legislation including a $15-an-hour minimum wage has stalled.”

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For Your Radar

NEW REPORT ON DEBT FORGIVENESS — The JPMorgan Chase Institute has a new report up this a.m. that “uses anonymized administrative banking and credit bureau data to estimate how the benefits of student loan forgiveness are distributed by household income, time to pay off, and borrower race and ethnicity.”

TRANSITIONS — The White House has named Kevin Rinz and Ernie Tedeschi as senior economist and senior policy economist, respectively, at the Council of Economic Advisers … Biden announced his intent to nominate Jose W. Fernandez to serve as Under Secretary of State (Economic Growth, Energy and the Environment) among other roles.

TUNE IN TO GLOBAL TRANSLATIONS: Our Global Translations podcast, presented by Citi, examines the long-term costs of the short-term thinking that drives many political and business decisions. The world has long been beset by big problems that defy political boundaries, and these issues have exploded over the past year amid a global pandemic. This podcast helps to identify and understand the impediments to smart policymaking. Subscribe and start listening today.