“If economists look back on the pandemic, I expect them to conclude that the actions of Congress have averted much suffering,” Yellen was quoted as saying by CNN Business. “But more needs to be done. Economists do not always agree, but I think there is now consensus:
Without further action, we now face a longer, more painful recession – and later the long-term economy. ‘
Wall Street expects Congress to support Biden’s government by passing another substantial relief bill, with millions of Americans still unemployed and increasing new jobless claims.
But scale can be a major bottleneck, with Biden’s team pushing for additional $ 1,400 stimulus checks, aid to state and local governments and a wave of funding for Covid-19 vaccination and testing.
“Neither the elected president, nor I, is proposing this relief package without appreciation for the country’s debt burden,” reads Yellen’s prepared testimony. “But right now, with interest rates at historic lows, the smartest thing we can do is act big.”
Yellen has a point: the United States can borrow for ten years at about 1%, compared to about 3% when former president. Barack Obama accepts his office. But if interest rates rise, the weakening of the country’s debt burden could become more difficult.
Given Yellen’s background at the Fed, she will be able to address these issues – as well as any concerns about inflation caused by extra spending – with authority. Investors will listen.
“Expect a lot of questions about the sustainability of debt and the role the Fed is likely to play in it,” Deutsche Bank’s Jim Reid said in a note to clients on Tuesday.
A personal remark: In her prepared remarks, Yellen also mentions her “working class” background in Brooklyn, where her father, a doctor, treated people from the family’s basement.
“He was the kind of doctor who treated the whole patient,” read her prepared remarks. ‘He knew of their lives; of when they were fired or could not pay. It remains one of the clearest moments of my childhood. ‘
Bank earnings mix optimism with uncertainty
Banking earnings suggest that the outlook for the economy is expected to improve later this year.
This is a sign that the bank believes that the economic situation can be better and not worse, thanks to vaccination programs and stimulus.
In a telephone conversation with reporters, CEO Jamie Dimon, that the country could have a ‘very healthy economy’ by summer – especially if unemployed Americans and small businesses “in dire need of help” receive more incentive payments from the incoming government and Congress of Biden.
However, he stressed that there are still many unknowns. The bank still has credit reserves of more than $ 30 billion as a cushion as conditions worsen. And outside of the mortgage lending that is experiencing a major pandemic, lending to consumers remains subdued.
Goldman is perhaps the one to look at given how busy investment bankers have been over the past quarter. Companies are rushing to raise capital as they prepare for the next phase of the business cycle. Trading income also looks healthy.
The weak growth in China is the envy of the world
If you were to rate the world’s largest economies according to a curve, China would be the best.
This is China’s slowest annual growth rate in decades. Not since 1976 has the country experienced a worse year, when GDP shrank by 1.6% in a time of social and economic turmoil.
But compared to other major world economies, which have been plunged into deep and protracted recessions, China has come out on top. The expansion also beats the estimates. The International Monetary Fund, for example, predicted that the Chinese economy would grow by 1.9% by 2020. It is the only major world economy that the IMF would expect to grow at all.
The big picture: economists say that the momentum from the Chinese economy will be crucial to bring about a global recovery in 2021. On the front, too, there was good news: GDP grew by 6.5% in the fourth quarter compared to a year ago, faster than the 4.9% growth recorded during the third quarter.
However, the data highlights some problems that lie ahead. Industrial production increased while retail sales remained fragile.
This begs the question: has the pandemic shifted China’s efforts to shift its economy from one that depends on manufacturing to one more driven by consumer spending? If so, what will it mean for long-term growth prospects?
Following
Also today: Janet Yellen’s confirmation hearing before the Senate Finance Committee begins at 10:00 a.m.