- Yellen: Aid Package Does not Cause Inflation
- BoE President Bailey Says the UK Will Never Fully Return to its Pre-Pandemic Pattern
- Short-term Mismatch between Dow Jones and Nasdaq Rose This High for the First Time Since 1993
Yellen: Aid Package Does not Cause Inflation
US Treasury Secretary Janet Yellen on Monday tried to calm market and investors’ fears of inflation and threw support behind President Joe Biden’s relief package.
US Treasury Janet Yellen denied fears that President Biden’s $1.9 trillion pandemic aid package was large enough to cause inflation.
In an interview with MSNBC, Yellen said to the question about the concerns that consumer price pressures might increase as a result of the implementation of the incentive despite the acceleration of the economy. “I really don’t think that is going to happen. We had a 3.5 percent unemployment rate before the pandemic, and there was no sign of inflation increasing,” she said, adding that the administration has “tools” to reduce inflation if experts believe it will become a problem.
The former Federal Reserve chair also said she believes the U.S. will return to “full employment” by 2022 should the administration’s plans proceed.
“I’m anticipating if all goes well that our economy will be back to full employment, where we were before the pandemic, next year. And the Congressional Budget Office estimated that without this, it could probably take until 2024,” Yellen said.
Saying that the stimulus package should bring the United States back to full employment next year, Yellen said the package provides hundreds of millions of Americans with the assistance they need to cope with the pandemic, saying that Biden’s relief bill “is a tremendously important package that will bring hundreds of millions of Americans the relief they need”.
The bill plans to allocate a massive $350 billion to state and local governments, which are “suffering from declines in revenues and extra expenses due to the pandemic,” according to Yellen.
“We expect the resources here to really fuel a very strong economic recovery,” Yellen said, adding she expects the American economy will be back to full employment next year.
That legislation includes enhanced unemployment benefits until Sept. 6 and stimulus checks for those earning $80,000 or less, and it makes student-loan relief tax-free.
“We have a K-shaped recovery going on, in which high-income people are doing much better than those at the bottom of the economic ladder — low-wage workers and minorities,” Yellen said. The problem pre-dates the coronavirus but was “made immeasurably worse by the pandemic.”
After the Senate passed the $1.9 trillion relief bill on Saturday, the yield on 10-year US Treasury notes has extended their rally to a sixth consecutive weekly increase by rising another 2.9% during Monday trading hours.
BoE President Bailey Says the UK Will Never Fully Return to its Pre-Pandemic Pattern
In a statement published on the official website of the BoE, Andrew Bailey, President of the Bank of England (BoE), emphasized that there is a growing economic optimism in the markets, consumer and business confidence.
Stating that the coronavirus cases have decreased and the vaccination process has been a great success, Bailey said, “There is light at the end of the tunnel,” he said.
Stating that people may continue to work from their homes in the upcoming period, this will be regarded as the “new normal” to some extent, and the economy should adapt to this new situation.
“Reduced transport time is a positive development. But innovation and creativity can be reduced if not working with others,” says Bailey.
Stating that people should be optimistic about the future of the economy, Bailey stated that there are reasons to believe that the expected long-term loss in the economy may be smaller than past recessions.
The British economy is expected to grow by 4 percent this year, 7.3 percent in 2022 and 1.7 percent in 2023, according to the British Office of Budget Responsibility growth projections previously shared by British Finance Minister Rishi Sunak.
Unemployment is projected to peak at 6.5 percent in 2022, according to the estimates of the British government.
The Bank’s February monetary policy report predicted unemployment would peak at 7.5 percent later this year, but Bailey said that forecast would be updated following the budget. “My expectation would be that this is likely to reduce the peak level of unemployment over the coming months. However, some rise in unemployment as the scheme tapers will be hard to avoid.”
He said there was a lot of uncertainty about the extent to which the structural economic changes seen over the past year would persist, but “my best guess is that we will see some persistence, not full persistence but not a full reversion to pre-Covid either.’’
To be noted, with the detection of 4,712 new types of coronavirus cases in the last 24 hours in the UK, “the lowest number of daily cases since September 28, 2020” was seen.
Short-term Mismatch Between Dow Jones and Nasdaq Rose this High For the First Time Since 1993
While the Nasdaq Index lost 2% value in the USA shortly before the indices closed, the Dow Jones Index is trading at 31,940 points with an increase of 2% due to the optimism about the stimulus package.
As the 125-year-old benchmark climbed to another intraday record, the Nasdaq 100 slumped to a level traditionally seen as a correction. It’s the first time since 1993 that the Dow rose and closed within 1% of a record, while the tech-heavy gauge was down more than 10% from its high.
“Investors are feeling better about the recovery and looking to own improving fundamentals within large caps outside of tech and growth where valuations are more reasonable,” said Mike Bailey, director of research at FBB Capital Partners. “The focus on better fundamentals at a reasonable price may be driving the Dow to new highs.”
The S&P 500 Index, on the other hand, is 1 percent higher than the opening and is at 3,870 points. Material manufacturers and financial firms pioneered gains in the S&P 500 after lagging behind for much of the last year.
The dollar strengthened as the 10-year treasury bond yield rose to 1.6 percent. Brent oil was shortly found close to $70 a barrel before retracting, while Bitcoin traded at over $51,000.
Investors expected an increase in global economic growth as vaccine distribution improved and the US moved to pass the $1.9 trillion aid package. Risks associated with increased treasury returns remain an issue amid fears that government aid programs could overheat economic growth.
There are also questions as to whether stock valuations have become excessive, particularly with speculative technology stocks. The Nasdaq 100 Index has fallen nearly 8 percent since the beginning of February.
“You will see a lot of volatility in the markets. Especially with vaccines coming online, we believe confidence is increasing, so we will see an increase in growth globally,” said Kim Stafford, head of Asia Pacific Investment Management Co.
Shares related to finance, restaurants and travel increased on expectations those sectors will do well once the economy reopens, but they were unable to offset the weight of the bigger tech shares that dominate the U.S. stock market.
President Joe Biden said he hoped for quick passage of the stimulus bill by the Democrat-controlled House of Representatives so he could sign it and distribute $1,400 direct payments to Americans after it passed the Senate on Saturday.
However, rising inflation worries have been stoked by the prospect of more government spending and an increasing economy, sending the benchmark 10-year Treasury yield to near one-year highs and weighing on technology stocks that depend on cheap funding for growth.
Stocks that will do well once people start traveling and eating out again have been leading the charge higher, Michael James, managing director of equity trading at Wedbush Securities in Los Angeles, said.
“People have been reallocating assets into those sectors. It’s been coming out of growth-tech to fund those purchases,” he said.