“When economists look back at the pandemic, I expect them to conclude that congressional actions have averted a lot of suffering,” Yellen said, telling CNN Business in writing. “But more needs to be done. Economists do not always agree, but I think there is a consensus now:
Without further action, we risk a longer and more painful recession now – and long-term scars on the economy later. “
Wall Street expects Congress to support the Biden administration by passing another sizeable emergency bill, with millions of Americans still unemployed and new demands for unemployment rising.
But the scale could be a major bottleneck, with Biden’s team pushing for additional $ 1,400 incentive checks, aid to state and local governments, and a wave of funding for Covid-19 vaccination and testing.
“Neither the president-elect nor I are proposing this aid package without an appreciation for the burden of the country’s debt,” Yellen’s prepared testimony reads. “But right now, with interest rates at historic lows, the smartest thing we can do is act at sea.”
Yellen has a point: The United States can borrow 10 years with about 1%, compared to about 3% when former President Barack Obama took office. But if interest rates rise, servicing the country’s debt burden could become more difficult.
Given Yellen’s experience at the Fed, she will be able to speak with authority about these issues – as well as any concerns about inflation caused by additional spending. Investors will listen.
“Expect a lot of questions about debt sustainability and the role the Fed is likely to play in this regard,” Deutsche Bank’s Jim Reid said in a note to customers on Tuesday.
A personal note: Yellen, in her prepared remarks, also cites her past as a “working class” in Brooklyn, where her father, a doctor, used to treat people in the basement of the family.
“He was the kind of doctor who treated the whole patient,” she said. “He knew about their lives; about when they were fired or couldn’t pay. These remain some of the clearest moments of my childhood.”
Bank earnings combine optimism with uncertainty
Bank gains indicate that the outlook for the economy is expected to improve by the end of this year.
This is a sign that the bank believes that the economic situation is ready to improve, not worse, thanks to vaccination programs and incentives.
In a conference call with reporters, CEO Jamie Dimon said the country could have a “very healthy economy” by the summer – especially if the unemployed and small businesses “in desperate need of help” receive more. incentive payments from the future Biden administration and Congress.
However, he stressed that a lot of strangers remain. The bank still has credit reserves of more than $ 30 billion in amortization if conditions deteriorate. And apart from mortgages, which are facing a pandemic boom, lending to consumers remains off.
Goldman could be next, given how busy investment bankers have been in the last quarter. Companies are rushing to raise capital as they prepare for the next phase of the business cycle. Trading income also looks healthy.
China’s weak growth is the envy of the world
If you were to evaluate the world’s largest economies on a curve, China would be in the top of the class.
It is China’s slowest annual growth rate in decades. Since 1976, the country has not had a worse year, when GDP fell by 1.6% in a period of social and economic turmoil.
But compared to other major world economies, which have been plunged into deep and prolonged recessions, China has come out on top. The expansion also exceeded estimates. The International Monetary Fund, for example, predicted that China’s economy will grow by 1.9% in 2020. It is the only major world economy that the IMF expected to grow at all.
Overview: Economists say boosting China’s economy will be crucial to boosting global recovery in 2021. There has been good news on this front as well: GDP rose 6.5% in fourth quarter year-on-year behind, faster than 4.9% increase in the third quarter.
However, the data highlights some issues that may arise. Industrial production has increased, while retail sales remain fragile.
This raises the question: has the pandemic ignored China’s efforts to shift its economy from a production-based one to one more driven by consumer spending? If so, what will this mean for the long-term growth prospects?
It follows
Also today: Janet Yellen’s confirmation hearing before the Senate Finance Committee begins at 10 a.m. ET.