Biden draws wallet
Earlier this week, the US Federal Reserve (Fed) reported in its Beige Book that the US economy showed modest growth in the last weeks of 2020. According to the Fed, some regions experienced lower retail sales and less spending in the hospitality sector as a result of the corona measures. The roll-out of the vaccine did provide some optimism but concerns about the rapidly rising number of infections dampened enthusiasm. The Beige Book results cover a period when vaccination was beginning, so the impact on the economy is not yet visible. It is expected that the vaccinations will only have an impact on the economy from the second half of this year.
In December, a total of 140,000 jobs were lost. According to Reuters, economists who were consulted beforehand had actually taken into account an increase of 50,000 jobs. The over-optimistic view of economists was once again contradicted yesterday. The number of applications for unemployment benefits increased by 181,000 in the past week, while economists had not anticipated any increase in applications. As a result of corporate reorganisations and the spreading pandemic, applications for benefits continue to flood in. This is the strongest increase since March of last year.
Fed Chairman Jerome Powell briefly addressed the sharp rise in support applications during his virtual speech to students at Princeton University. America is still far from a healthy labour market and maximum employment. The central bank continues to pursue an aggressive monetary policy because not only the labour market but also inflation is still far from the desired level. Powell’s views are not surprising as the Fed’s most recent dot plot shows that the first interest rate hikes are not expected until 2024.
In contrast, capital markets speculated in recent weeks on a tightening of monetary policy because of a faster-than-expected economic recovery. The US 10-year interest rate rose this year from 0.92 percent to 1.14 percent. This rise in interest rates was a precursor to the stimulus plans of President-elect Joe Biden.
In a speech last night, Joe Biden presented a coronary rescue plan with a total volume of 1.9 trillion dollars. The plan includes a cheque for 1,400 dollars per person. To further support families, not only will the minimum hourly wage be increased to 15 dollars, but unemployment benefits, severance pay, and child allowances will also go up. About half of the aid package will go to the vaccination programme and support for state and local governments. In February, Biden wants to present a more comprehensive aid plan. Investors are happy with the support measures for the time being. Central Bank Chairman Powell has expressed his concern about the cost of these plans and the even higher debt burden that would result.