By Michael Every of Rabobank
Puppy Power!
Treasury Secretary Yellen was doing media on Sunday as an alternative alternative to the Superbowl’s ‘Puppy Bowl’, stressing the need for Congress to back the proposed USD1.9 trillion fiscal stimulus package. Her stance is in stark contrast to that of Larry Summers, who despite talking about “secular stagnation”, just wrote an editorial arguing USD1.9trn stimulus is too large (a stance he held, wrongly, back in 2008-09 too of course).
Even though key details of the fiscal package are still not clear - e.g., where the income cut-off point for the USD1,400, not USD2,000, cheques is, and if children should get a separate USD3,000 sum - in Yellen’s view, if the stimulus is passed, “full employment” can return in the US as soon as next year. If not, it will take until 2025: and President Biden late last week suggested it would be a decade until this goal was achieved. The White House’s political imperative, understandably, is just to pass it rather than quibble, more so after the disappointing underlying details of Friday’s payrolls report.
Markets need to quibble though: is this bill going to be a reflation game changer? It’s very long, but will it be soft or strong? Yellen stated that without stimulus there will be economic scarring that will impact low-income groups, minorities, and women (short-hand: the working class). Although some in markets - who already got their bailouts - disagree, there appears more economic consensus behind this view than in the past. Yet is “full employment” achievable in under two years via a single bill?
Consider the structural changes to the post-Covid economy: with some vaccines now...