Aurelia Butler

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen on Friday rebranded the Biden administration’s economic agenda as “modern supply-side economics,” using a Reagan-era phrase favored by Republicans to assert that Democrats’ spending plans will boost the U.S. economy’s productive capacity.Yellen said in a speech to the World Economic Forum that rather than tax cuts and deregulation, her modernized version seeks to increase labor supply and improve infrastructure, education and research to boost potential U.S. growth and ease inflationary pressures.”Our new approach is far more promising than the old supply- side economics, which I see as having been a failed strategy for increasing growth,” Yellen said. “Significant tax cuts on capital have not achieved their promised gains. And deregulation has a similarly poor track record in general and with respect to environmental policies — especially so with respect to curbing CO2 emissions.”Yellen did not announce any policy shifts as she introduced the concept, which suggests it may be a new tactic to persuade Americans and moderate Democrats in Congress to support the “Build Back Better” social spending and climate investment plan, which stalled in December.The new nomenclature emphasizes the administration’s efforts to expand the U.S. workforce – a sentiment echoed by President Joe Biden in a speech to mayors on Friday – and increase productivity, forces that could help quell inflationary pressures while supporting a stronger growth rate.The administration is trying to blunt the political fallout from high inflation that hit 7% last month amid labor, housing and goods shortages, the biggest annual increase in nearly 40 years, and counter claims that further spending would fuel further inflation.A DIFFERENT SUPPLY SIDEYellen’s vision of “supply-side economics” would differ greatly from the “Reaganomics” version that burst into the mainstream in the 1980s with the election of Ronald Reagan as president.Then, lower taxes and lighter regulation were touted as the fuel that would make U.S. businesses more competitive and profitable, unleashing capital investment that would “trickle down” to the wider economy, fueling growth and hiring.At the same time, Republicans argued, the tax cuts would “pay for themselves” through turbocharged growth – a phenomenon that has never come to pass.Yellen argued that the “supply” needs of the economy center around the availability of labor, which has been constrained by the pandemic and in the view of Democrats by the absence of policies around things like child and elder care that could allow more people to join the workforce. Yellen identified two years of universal early childhood education and an expanded earned income tax credit as “core” components of the Build Back Better plan going forward.She added that Republican-passed tax cuts in 2017, rather than encourage investment in the United States, have perpetuated the ‘perverse corporate tax incentives’ that have encouraged companies to shift productive capacity overseas as countries compete on taxes. The deal for a global 15% corporate minimum tax, which depends on passage of Build Back Better for implementation, would end this “race to the bottom” she said.”Modern supply-side economics seeks to spur economic growth by both boosting labor supply and raising productivity, while reducing inequality and environmental damage,” Yellen said. “Essentially, we aren’t just focused on achieving a high topline growth number that is unsustainable — we are instead aiming for growth that is inclusive and green.” More

NEW YORK (Reuters) – Expectations of rising interest rates are bolstering the shares of regional banks, as a tumble in technology stocks pushes investors to search for assets that could thrive amid higher yields and tighter Federal Reserve policy. The SPDR S&P Regional Banking (NYSE:KRE) ETF was up 2% year-to-date on Friday afternoon, compared to a 6.6% decline for the S&P 500. Gains in some individual bank stocks have been even more eye-catching: Shares of Citizens Financial (NYSE:CFG) Group Inc are up 8.4% for the year to date, while shares of KeyCorp (NYSE:KEY) are up nearly 9%. Regional banks make a hefty chunk of their revenues from net interest margins, boosting their appeal as investors increasingly expect the Fed to hike interest rates more aggressively this year to control inflation. The central bank meets next week and is expected to raise interest rates as soon as March. [L4N2TZ0GW][L4N2TQ2J1]Treasury yields have risen in anticipation of tighter policy, with those on the benchmark 10-year Treasury up 40 basis points from recent lows. At the same time, some investors expect the expanding U.S. economy and reduced fiscal stimulus to boost loan growth, helping regional banks post full-year 2021 earnings growth of 70.1%, the seventh-fastest among the 126 subsectors in the S&P 500, according to Goldman Sachs (NYSE:GS). “If you want to play the yield curve steepening, then the best way to do that is through regional banks,” said Moustapha Mounah, assistant portfolio manager at James Investment, who has been increasing his stake in companies such as SVB Financial Group. Though investors expect regional banks broadly to benefit from rate increases, the pace at which the Fed tightens monetary policy could be key. A too-steep trajectory of rate increases may hurt economic growth and eventually weigh on bank earnings, Mounah said, though such an outcome is not his base forecast. Fed funds futures traders are fully pricing in a 25 basis point hike in March, in addition to three more rate increases by year-end.In addition to next week’s Fed meeting which concludes on Wednesday, investors await earnings from Zions Bancorp, which is expected to release its latest quarterly results Monday, followed by First Bancorp (NASDAQ:FBNC) on Tuesday and United Bankshares (NASDAQ:UBSI) Inc and Merchants Bancorp (NASDAQ:MBIN) on Wednesday. The pace of the Federal Reserve’s rate hikes will directly affect revenues in the sector, said Gary Tenner, an analyst at D.A. Davidson & Co. Tenner recently added two more expected rate hikes of 25 basis points to his valuation models for regional banks, bringing his total to four through the end of 2023, he said. “The impact of higher interest rates is potentially more positive for estimates and returns for regional banks” than so-called universal banks, which also have income from investment banking, he said. Banks in the S&P 500 are up 0.4% so far in 2022. Besides a too-quick pace of rate hikes, regional bank shares could suffer if a stock selloff that has already pushed the Nasdaq into correction territory accelerates further, raising expectations that the Fed will raise rates at a slower pace to avoid destabilizing markets. [L1N2TZ2JG]”There’s still this debate in the share price about how much the Fed is going to raise and how fast. If the Fed backpedals then the rally we’ve been seeing here may slow,” said Steve Comery, a research analyst at GAMCO Investors. [L1N2TZ2JG] Brady Gailey, managing director at Keefe, Bruyette & Woods, believes even two or three rate hikes would be enough for the sector to post above-market earnings growth as loan growth accelerates. He upgraded the regional bank sector to overweight in September. “They are set to be a big beneficiary of higher rates, but there are other fundamentals that the sector has going for it, too,” he said. More