Wall Street's wild Covid year — White House wants to juice economy even more — No jobless recovery?

From: POLITICO's Morning Money - Tuesday Mar 23,2021 12:03 pm

Mar 23, 2021

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Quick Fix

Wall Street keeps soaring — If you’ve looked at your 401k lately you likely know just how insane the ride up has been since the Covid lows of last March. Stocks are up around 75 percent over the last twelve months. Which is… crazy.

They really shouldn’t be given the economic devastation wrought by Covid-19. But you juice things up with trillions of dollars in stimulus spending and a massively dovish Federal reserve and this is what you get.

For context via AP : “This run looks to be one of, if not the, best 365-day stretches for the S&P 500 since before World War II. Based on month-end figures, the last time the S&P 500 rose this much in a 12-month stretch was in 1936, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.”

The question is … can it last? Will the economy recover to the point that these kinds of valuations are sustainable? Will the endless federal spending spree ever really kick up interest rates and rouse the bond vigilantes? Can the Fed’s wide open spigots help create a better recovery without damaging inflation?

Yellen not backing down — Per Treasury Secretary Janet Yellen’s prepared remarks for this morning’s House Financial Services Committee hearing in which she promises to keep the pedal pressed down hard on the gas.

“With the passage of the Rescue Plan, I am confident that people will reach the other side of this pandemic with the foundations of their lives intact. And I believe they will be met there by a growing economy. In fact, I think we may see a return to full employment next year.”

Speaking of that — Bit more on this below, but the White House is telegraphing plans to perhaps use both of their remaining two shots at budget reconciliation THIS year to pump another $3 trillion into the economy through infrastructure and green energy efforts, among other things. At some point… that could rouse the bond vigilantes. And there aren’t too many Bob Rubins rumbling around the West Wing at the moment.

GOOD TUESDAY MORNING — 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

House Financial Services has a hearing at noon on “Oversight of the Treasury Department's and Federal Reserve's Pandemic Response” with Yellen and Fed Chair Jay Powell … Senate expected to vote on Shalanda Young’s nomination to be deputy director of OMB …

Senate Finance has a hearing at 10:00 a.m. on “How U.S. International Tax Policy Impacts American Workers, Jobs, and Investment” … President Biden travels to Columbus, Ohio to talk about the recovery act and health care …

WHITE HOUSE WORRIES ABOUT J&J — Our Erin Banco, Sarah Owermohle, and Rachel Roubein: “Biden administration officials are increasingly concerned Johnson & Johnson may not deliver the 20 million doses of coronavirus vaccine it promised would be available by the end of this month, according to three senior administration officials.

“The full tranche of vaccine Johnson & Johnson committed in February to delivering may not be ready to ship until the second or third week of April, the officials said, potentially complicating preparations for states expecting millions of J&J shots.”

TECH CRITIC KHAN TO FTC — Our Leah Nylen: “Biden … picked prominent tech industry critic Lina Khan to join the Federal Trade Commission, in the latest sign he may heed the demands of progressive Democrats who want a crackdown on antitrust and privacy abuses in Silicon Valley.

“The long-expected nomination — two weeks after POLITICO reported that Biden had chosen Khan — immediately drew praise from an unlikely collection of tech detractors, including Senate antitrust subcommittee Chair Amy Klobuchar (D-Minn.) and right-wing gadfly Mike Cernovich.”

THE BIG IDEA: NO JOBLESS RECOVERY — Brookings’ Louise Sheiner and Gian Maria Milesi-Ferrett: “This will not be another jobless recovery. If the GDP forecasts prove accurate, we estimate that monthly payroll employment gains over the next 10 months will average between 700,000 and 1 million per month, a lot faster than many forecasters anticipate.”

BLACK AMERICANS RECOVERING MUCH MORE SLOWLY — Our Megan Cassella: “Black Americans, who were among the hardest hit by coronavirus layoffs, are now recovering at the slowest rate, a one-two punch that threatens to worsen the United States' already stark wealth and income disparities long after the pandemic recedes.

“While Hispanic workers initially saw the sharpest uptick in unemployment when business shutdowns began last spring, Black people have seen a slower return to work even as the economy is poised for a robust rebound, government data and economic analyses show. When the overall unemployment rate ticked down in February, Black workers were the only group that saw a rise in joblessness, a 0.7 percentage point increase.”

Markets

STOCKS SOAR 75 PERCENT IN HISTORIC 12-MONTH RUN — AP’s Stan Choe: “It was one year ago that the terrifying free fall for the stock market suddenly ended, ushering in one of its greatest runs. On March 23, 2020, the S&P 500 fell 2.9 percent. In all, the index dropped nearly 34 percent in about a month, wiping out three years’ worth of gains for the market.

“That turned out to be the bottom, even though the coronavirus pandemic worsened in the ensuing months and the economy sank deeper into recession. Massive amounts of support for the economy from the Federal Reserve and Congress limited how far stocks would fall. The market recovered all its losses by August.”

QUARLES PRESES BANKS TO STOP USE OF LIBOR FOR NEW CONTRACTS BY YEAR END — WSJ’s Andrew Ackerman: “A top Federal Reserve official pressed banks Monday to stop using the London interbank offered rate on new transactions by the end of 2021, ratcheting up warnings over the interest-rate benchmark that global policy makers moved to scrap after concluding it was balky and prone to manipulation.

“’After 2021, we believe that continued use of Libor in new contracts would create safety and soundness risks, and we will examine bank practices accordingly,’ Randal Quarles, the Fed’s vice chairman of supervision, said in a speech. The remarks amplify repeated warnings from the Fed and other regulators that banks could face regulatory consequences if robust plans aren’t in place to move away from the benchmark before Dec. 31. That is when it expires for some shorter-dated dollar rates.”

POWELL SAYS FED WON’T ISSUE DIGITAL CURRENCY WITHOUT CONGRESSIONAL APPROVAL — NYT’s Jeanna Smialek: “Jerome H. Powell, the chair of the Federal Reserve, said the Fed’s research into central bank-issued digital currencies is early and exploratory — and that U.S. officials would only consider issuing a digital dollar if they believed there was a clear use and if the idea had widespread public and political buy-in.

“‘You can expect us to move with great care and transparency,’ Mr. Powell said on Monday at a Bank for International Settlements event on central bank innovation. ‘We would not proceed with this without support from Congress.’”

STEP INSIDE THE WEST WING : The Biden administration is more than halfway through its first 100 days and is now facing a growing crisis at the border and escalating violence against Asian Americans, while navigating the pandemic and ongoing economic challenges. Add Transition Playbook to your daily reads to find out what actions are being considered, as well the internal state of play inside the West Wing and across the administration. Track the people, policies, and emerging power centers of the Biden administration. Don't miss out. Subscribe today.

Fly Around

POWELL SAYS RECOVERY FAR FROM COMPLETE — Bloomberg’s Rich Miller: “The economy seems to be gathering steam, though it is still far from fully recovering from the damage wrought by the pandemic, Federal Reserve Chairman Jerome Powell said. ‘The recovery has progressed more quickly than generally expected and looks to be strengthening,’ Powell said in prepared testimony to be delivered Tuesday to the House Financial Services Committee.

FED PAYMENTS TO THE TREASURY ROSE IN 2020 — WSJ’s Paul Kiernan: “The Federal Reserve sent more profits to the Treasury Department last year as the income from its swelling asset holdings offset the impact of lower interest rates.

“The Fed sent $86.89 billion to Treasury in 2020, up 58 percent from $54.89 billion in 2019, the central bank said Monday in an annual financial statement. The central bank is required to use its earnings to cover its own operating expenses and send the bulk of any surplus to the Treasury’s general fund, where the money helps pay for the federal government.”

BIDEN TEAM PREPARING UP TO $3T IN NEW SPENDING FOR THE ECONOMY — NYT’s Jim Tankersley: “President Biden’s economic advisers are preparing to recommend spending as much as $3 trillion on a sweeping set of efforts aimed at boosting the economy, reducing carbon emissions and narrowing economic inequality, beginning with a giant infrastructure plan that may be financed in part through tax increases on corporations and the rich.

“After months of internal debate, Mr. Biden’s advisers are expected to present a proposal to the president this week that recommends carving his economic agenda into separate legislative pieces, rather than trying to push a mammoth package through Congress, according to people familiar with the plans and documents obtained by The New York Times.”

THE WEALTH GAINS THAT MADE 2020 A BANNER YEAR FOR THE RICHEST PERCENT — Bloomberg’s Alexandre Tanzi: “he rich got richer in the U.S. last year, as wealth created by rebounding stock and real-estate markets skewed toward high earners.

"The richest 1 percent of households saw their net worth rise by some $4 trillion in 2020, meaning that they captured about 35 percent of the extra wealth generated nationwide, according to the latest quarterly study of household wealth from the Federal Reserve. The poorest half of the population, by contrast, got about 4 percent of overall gains.”

For Your Radar

BANKS ADD NEW OUTSIDE FIRMS — Wells Fargo and Ally Financial are both adding to their rosters of outside lobbying firms. Wells Fargo has hired RMP Strategies’s Robert Pribble, a former Fed staffer, to lobby for the bank on bank prudential standards, investment banking and mortgage finance, according to new lobbying disclosures.

Ally has added a team from FS Vector, Andy Barbour, a veteran Democratic banking lobbyist, Peter Freeman and Maggie Moore , to lobby generally on issues related to consumer banking. The same team will also represent the Mark Cuban-backed banking app Dave, which fell victim to a major third-party data breach last summer.