- Biden announced $1.9 trillion stimulus package
- The USA blacklisted Chinese smartphone giant
- Fed Chairman Powell’s statement of interest
Biden Announced $1.9 Trillion Stimulus Package
The elected president of the United States, Joe Biden, who will take over on January 20, will seek emergency funding of $ 1.9 trillion from the US Congress to reduce the effects of the coronavirus pandemic on the economy.
The pandemic support plan announced by Biden envisages $ 400 billion in combating Covid-19, more than $ 1 trillion in checks to be paid directly to citizens, and $ 440 billion in communities and companies.
The size of the package, as well as the fact that it includes the priorities of Democrats such as minimum wage increase and aid to state and local governments, is considered to be a factor that can make the support of Republicans difficult. The package is more than twice the size of the March 2020 Coronavirus Aid, Support and Economic Security Act (CARES) package, over twice the size adopted last month. In addition, the size of the $ 350 billion funds that are projected to be allocated to states and local governments is more than twice the amount of $ 160 billion that Republicans supported at the end of 2020.
In the package accepted at the end of the year, the amount of the checks to be paid directly to the citizens was predicted as 600 dollars. This amount goes up to $ 1,400 in Biden’s package. The package also includes raising the minimum wage to $ 15 per hour, setting aside $ 130 billion for reopening schools, and continuing to provide additional unemployment benefits of $ 400 per week until the end of September.
All told the new package, which must still be voted on by Congress, would bring to $5.2 trillion the total fiscal stimulus delivered to the U.S. economy since the crisis began, equivalent to about a quarter of U.S. annual economic output.
That is enough of a boost for the economy to recoup all its decline from the Covid-19 recession by the third quarter of this year, Moody’s economist Ryan Sweet estimates. But, he adds, “the recovery in the labor market will take longer.”
Biden is expected to present a second package to Congress next month, which includes longer-term goals such as infrastructure and climate change.
The USA Blacklisted Chinese Smartphone Giant
Xiaomi’s shares fell 11 percent after the Trump administration blacklisted China’s largest smartphone maker Xiaomi and 10 other companies.
The US was targeting Chinese companies, citing national security, but Xiaomi was not among those expected to be blacklisted. Known as China’s answer to Apple, the Beijing-based company was producing smartphones with loyal followers.
“This news was really surprising for me,” said Kevin Chen, China Merchants Securities Analyst in Hong Kong.
The US Department of Defense designated Xiaomi as one of the 9 companies linked to the Chinese military, which means that US investors will not be able to buy securities of these companies.
Xiaomi hit back at the U.S. on Friday and said it is not linked to China’s military.
Xiaomi said it will “take the appropriate course of actions to protect the interests of the Company and its shareholders.”
“The Company reiterates that it provides products and services for civilian and commercial use. The Company confirms that it is not owned, controlled, or affiliated with the Chinese military, and is not a ‘Communist Chinese Military Company’ defined under the NDAA,” Xiaomi said.
“For Xiaomi, everything is now on the line,” Abishur Prakash, a geopolitical specialist at the Center for Innovating the Future (CIF), a Toronto-based consulting firm, told CNBC by email.
“By being blacklisted, it is now deemed a U.S. national security threat. This may affect its global strategy, from expanding into markets like India to hiring Western talent to launch new products in Africa.”
Other blacklisted companies include Gowin Semiconductor, Luokong Technology Group, Global Tone Communication Technology, and Advanced Micro-Fabrication Equipment.
Unless the ban is withdrawn, there is a risk that Xiaomi will be removed from the US Stock markets and deleted from global indicator indices.
Fed Chairman Powell’s Statement of Interest
US Federal Reserve (Fed) Chairman Jerome Powell stated that they will not raise interest rates unless they see problems with inflation, “When it comes time to raise interest rates, we will definitely do it, but this time is not near, ” he said.
Powell spoke at a video conference event organized by Princeton University Bendheim Finance Center.
Explaining that the flexible average inflation target means that the bank will not depend on a specific mathematical formula, Powell stated that inflation should be allowed to rise above 2 percent for a while for the new inflation target to be credible.
Pointing out that the economy is far from the bank’s goals, Powell stated that they are strongly committed to the goals and will use monetary policy tools until they achieve this.
Expressing that they are aware of the need to be very careful when communicating about asset purchases, Powell noted that the guidance on interest rates and asset purchases is determined based on the result, not the time.
Powell emphasized that they will be very transparent about reducing asset purchases, “We will communicate very clearly with the public and we will do this before actively considering the gradual reduction of asset purchases,” he added.
On the employment mandate, Powell stressed the Fed’s new approach to inflation in which it will not raise rates even if unemployment falls below levels that historically would have been considered a warning sign for pricing pressures ahead.
“That wouldn’t be a reason to raise interest rates unless we start to see inflation or other imbalances that would threaten the achievement of our mandate,” he said.
Powell noted that even though the economy faces powerful challenges and there is a long way to go until the labor market heals, there’s the reason for optimism.
“We were in a good place in February of 2020, and we think we can get back there, I would say, much sooner than we had feared,” he added.