Economy

WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen said on Friday the Biden administration’s economic agenda will not only expand the productive capacity of the U.S. economy, but can propel faster growth by reducing economic and racial disparities.In remarks to a Stanford University economics conference, Yellen provided more details on the approach she has branded “modern supply-side economics,” which incorporates the key elements from the Biden administration’s “Build Back Better” agenda: investments in child care, education, job training, infrastructure and healthcare.Despite a strong recovery from the COVID-19 pandemic, Yellen said sluggish growth forecasts in coming decades due to an aging population mean that a model is needed.”These facts suggest the need for a policy approach that fosters greater equity across places and races while, at the same time, propelling faster aggregate growth,” Yellen said.She said her modern supply-side economics concept – a new twist on the Reagan-era term associated with “trickle-down” economics driven by tax cuts – aims to expand U.S. growth potential through investments in boosting productivity, such as more research funding, coupled with an expanded workforce, through better education and child care funding to draw more women into the labor force.Yellen introduced the concept in January during the World Economic Forum.But instead of having those benefits flow to a limited number of booming cities and wealthy communities, she said the Biden administration’s plans would ensure that “disadvantaged communities and racial groups receive an adequate share of investments in both physical and human capital.””Such an approach yields larger aggregate gains under the basic economic premise that returns to investment exhibit diminishing returns,” Yellen said. “In the context of investments in people, directing public resources to children and to workers who have received less education and training can yield the largest bang for the buck — and a return that can last decades.” Key Biden proposals that can help achieve greater equity include child care subsidies that can draw more women into the workforce, and an expanded Earned Income Tax Credit, Yellen said. Defending her thesis in a scholarly manner during the Stanford conference, Yellen cited research https://www.brookings.edu/wp-content/uploads/2021/09/The-Economic-Gains-from-Equity_Conf-Draft.pdf co-authored by San Francisco Federal Reserve President Mary Daly showing that more equitable access to labor markets over the past 30 years would add $790 billion to the U.S. economy annually.She also cited a paper http://klenow.com/HHJK.pdf from Stanford and University of Chicago researchers that concludes that 20% to 40% of the growth in U.S. economic output per person from 1960 to 2010 can be explained by the inclusion of women and racial minorities in highly skilled occupations, such as the rising share of non-white doctors and female lawyers.In a question-and-answer session, Yellen said that Friday’s jobs report showing 675,000 jobs added to the economy in February was a sign of underlying strength in the U.S. economy..She said that the Federal Reserve was working to bring down inflation without causing a recession.”This is something that is not unheard of,” she said, noting that strong growth followed Fed rate hikes in the 1990s. More

NEW YORK (Reuters) – Geopolitical worries are clouding the outlook for U.S. stocks, even as Russia’s invasion of Ukraine moderates expectations for how aggressively the Federal Reserve will tighten monetary policy in coming months. Concerns over the conflict weighed on the S&P 500 on Friday, as the index pared a rally that has seen it rise 5.2% from its Feb 24 intraday low. The see-saw moves come as investor hopes that the Fed may raise rates less severely than anticipated vied with worries about inflation and higher commodity prices, stoked by sanctions against Russia, one of the world’s biggest commodity exporters. Investors have virtually priced out the chances of a hefty 50 basis point rate hike in March, giving a lift to the technology and growth stocks that had been pummeled in recent weeks by anticipation of harsh Fed tightening. Among those, shares of software company Adobe (NASDAQ:ADBE) was up over 5% since last week, with Microsoft (NASDAQ:MSFT) up over 3% in the same period. “The stock market has been buoyed by expectations for a less aggressive Fed and lower yields in aggregate. The threat of higher interest rates has receded somewhat,” said Brad Neuman, director of market strategy at Alger. The impact of moderating yields has been evident below the market’s surface. Since the day before Russia launched its invasion last week, the S&P 500 growth index, replete with longer-duration stocks heavily pressured by higher yields, has climbed 2.6% against a 2.3% rise for the counterpart value index. That spread narrowed on Friday as the broad market fell. Meanwhile, geopolitical concerns have propelled oil prices, prompting fears of slower growth and higher inflation over the long term. U.S. crude prices topped $115 a barrel this week and hit their highest levels since 2008, while other commodities such as wheat also surged. “The Fed will be less aggressive now that Russia has invaded Ukraine in the near term, but the problem that the Fed faces has not been ameliorated,” Neuman said. “In fact, it has been exacerbated.” Investors next week will be watching data on U.S. inflation, due out Thursday. Consumer prices in January grew at their fastest pace in nearly four decades. For now, however, the run-up in U.S. Treasury yields, which move opposite to bond prices, has stalled. The yield on the 10-year Treasury note climbed over 50 basis points to start the year to 2.065%, but has since pulled back and was last at 1.74%.Strategists at Citigroup (NYSE:C) on Thursday upgraded their rating on U.S. equities, which are heavily weighted in tech stocks, to overweight, describing them as a “classic” growth trade. “Growth stocks were hit by rising real yields, but should benefit as they reverse,” the Citi strategists wrote in a note.Conversely, yield-sensitive financial stocks have struggled, with the S&P 500 banks index down nearly 8% since last week.Truist Advisory Services this week lowered its rating on the financials sector to “neutral”, while upgrading its ratings on two defensive groups, consumer staples to “overweight” and utilities to “neutral.” “Because of what is happening overseas, it complicates the global picture,” said Keith Lerner, Truist’s co-chief investment officer. “The global economy will be somewhat slower, capping rates, and by itself that is a negative for financials.” Some investors have been wary of the rebound in stocks. The Wells Fargo (NYSE:WFC) Investment Institute is re-evaluating its asset price targets in the wake of the Ukraine turmoil, “but we don’t want to over-react when uncertainty is so high,” said Sameer Samana, senior global market strategist at Wells. “With geopolitics still lurking out there, it is going to be tricky for the market to make meaningful headway,” Samana said. More

LONDON/NEW YORK (Reuters) -Financial indicators signalled increasing signs of stresses spreading through global markets on Friday as concerns grow over the wider economic fallout of Russia’s invasion of Ukraine.With stock market prices and bond yields falling, gauges regarded as stress indicators are attracting investor attention. The so-called FRA-OIS spread, which measures the gap between the U.S three-month forward rate agreement and the overnight index swap rate, hit its highest level since May 2020.A higher spread reflects rising interbank lending risk or banks hoarding U.S. dollars, meaning that it is widely viewed as a proxy for banking sector risk.The U.S. FRA-OIS spread rose to 32.29 basis points on Friday, compared with 23.7 on Thursday.Global alarm was triggered earlier by a blaze at the site of a Ukrainian nuclear power station, Europe’s biggest, after it was seized by Russian forces. The fire has been extinguished.”The market’s liquidity conditions have weakened this week, and were exacerbated overnight after reports of shelling to Europe’s largest nuclear plant in Ukraine,” said ING currency strategist Francesco Pesole. Nevertheless, the FRA-OIS gap remains well below levels seen at the height of market turmoil in 2020. “Dollar funding conditions are not too alarming at the moment, but the deterioration in the past week naturally argues in favour of a stronger dollar,” Pesole added.The dollar index jumped nearly 1%, mainly at the expense of the euro which has tumbled 3% this week because of Europe’s exposure to the Russian economy.Another closely-watched short-term funding stress gauge, the spread between the U.S. three-month Libor and the overnight index swap rate, rose to more than 18 basis points , its highest since May 2020, as well. The LIBOR-OIS spread is the credit and term premium a lender would charge for a three-month unsecured loan over an overnight bank loan, such as the effective fed funds rate, the risk-free rate set by the Federal Reserve. “Our sense is that this week’s unsecured funding pressure reflects a precautionary build up of cash balances that is to some extent exacerbated by the upcoming Fed hike,” wrote Joseph Abate, managing director, at Barclays (LON:BARC) in a research note.”Although Libor has lost much of its significance since year-end and the end of banks’ ability to put on new trades, the rate is still seen as an early warning barometer of financial market stress,” he added.DOLLAR SWAPS MARKET, OTHER STRESS METRICSThe demand for dollars was reflected in swap markets where dollar borrowing costs rose further. For instance, three-month euro-dollar swaps rose to around 27 bps from 15 bps on Thursday. However, swap rates remained below a March 2020 peak of nearly 40 bps hit on Monday, and analysts said the Federal Reserve and other major central banks have mechanisms to relieve funding stress. Stress metrics are on the rise elsewhere too. The cost of insuring exposure to a basket of “junk-rated” European company debt jumped to its highest since July 2020 at 398 bps, the iTraxx European Crossover index showed.Another iTraxx index which measures the cost of insuring exposure to senior bonds from banks and other financial issuers rose 7 bps to 91.7 bps, a May 2020 high.A European banking stocks index is down 16% this week, reeling from Western sanctions on Russia, a scaling back of interest rate hike forecasts and a worsening macroeconomic environment. Also in focus was the daily number of repo fails, which occur when a market participant is unable to deliver the security on time to complete a repo transaction. Societe Generale (OTC:SCGLY) said daily repo fails of Treasuries rose to $76.1 billion on Feb. 28, the highest since June 2020 and more than double the average for this year.While repo fails are relatively common, large nubers of failures in volatile markets suggest dislocations and stress. More

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The consensus forecast of 11 analysts surveyed was for inflation to grow to 7.23% from 7.07% in January. If the prediction is correct, it would be the first increase since November, when inflation hit a 20-year high.The core rate of inflation, which strips out some volatile food and energy items, was seen accelerating to 6.58%, which would be the highest rate since June 2001.The Bank of Mexico targets inflation of 3%, with a one percentage point tolerance range above and below that. In February the bank raised its benchmark interest rate by 50 basis points, a sixth consecutive rise, citing inflation.The central bank’s next monetary policy decision is scheduled for March 24, a week after the United States’ Federal Reserve is expected to hike percentages after years of near-zero rates.Just in February, Mexican consumer prices are estimated to have increased by 0.78% with the core price index seen advancing 0.74%.Mexico’s national statistics agency will publish the latest inflation data on Wednesday. More

NEW YORK (Reuters) – Recession concerns are showing up more prominently in the U.S. Treasury yield curve, as soaring commodity prices in the wake of Russia’s invasion of Ukraine fuel worries over inflation and slower growth.The closely watched gap between yields on two- and 10-year notes stood at its narrowest since March 2020 on Friday, a signal that some investors may be anticipating that economic growth will slow from its current robust pace.On a two-month rolling basis, the 2s/10s flattening has been its most extreme since 2011, said Jonathan Cohn, head of rates trading strategy at Credit Suisse (SIX:CSGN).Market participants watch the yield curve for insight into the U.S. economy. An inverted curve, where rates on short-term government debt exceed those on longer-term debt, has reliably predicted past recessions. Investors said the most recent moves appear driven by worries that prices for oil and other raw materials, which have spiked after the invasion of Ukraine by commodity-export giant Russia, will add to already-high inflation, forcing the Fed to tighten interest rates even if growth slows.While expectations of a 50 basis-point hike this month have been all but priced out in recent weeks, markets still expect over 150 basis points of tightening by next February. [FEDWATCH]”If central banks prioritize fighting inflation in 2022, having failed the world on that front in 2021, then hiking into a stagflationary environment likely means they are accepting some sort of recession is necessary to sort the whole mess out,” said Jeffrey Halley, senior market analyst, Asia Pacific, at OANDA, referring to a blend of weak growth and strong inflation.Brent crude oil prices approached $120 a barrel on Thursday, their highest level since 2012, after a fresh round of U.S. sanctions that targeted Russia’s oil refining sector and raised concerns that oil and gas exports could be impacted next.At the same time, growth appears strong for now: the U.S. unemployment rate fell to a two-year low of 3.8% in February, the Labor Department’s closely watched employment report showed on Friday, raising optimism that the economy could withstand mounting headwinds from geopolitical tensions, inflation and tighter monetary policy.Still, the curve flattening suggests that may not last.”Flattening has accelerated as the Fed is seen prioritizing inflation moderation over backstopping risk appetite,” said Cohn of Credit Suisse. More

(Reuters) – In the two years since the COVID-19 pandemic upended the U.S. economy, the labor market has rebounded far faster than most had predicted after roughly 22 million jobs were wiped out in the space of two months in the spring of 2020.As remarkable as the rebound has proven to be, the comeback from the low point in April 2020 has not been evenly spread across industries and demographic groups, with restaurant employment, for instance, still in a deep hole and the share of Black women with jobs trailing the recovery in other groups. Here’s a look at some of the ways the labor market has changed over the past two years. INDUSTRY MIX DIFFERENTA look at the labor market recovery by industry sends a message about the ways consumer behavior and worker preferences have changed and how health restrictions affected some industries more than others. Employment for leisure and hospitality businesses plunged at the start of the pandemic and is still 9% below where it was in February of 2020, data from the Labor Department’s nonfarm payrolls report for February showed on Friday.That is a sign that demand for travel and dining out has not fully recovered and that employers are still struggling to recruit workers for those face-to-face service jobs, even as health restrictions continue to be eased. Hiring for transportation and warehousing businesses, in contrast, rose early on as more people turned to online shopping and food delivery services. Those gains have continued, with industry employment now 10% above pre-pandemic levels, far more than any other sector. RACIAL GAPS NARROWINGThe share of Black Americans who are either working or looking for work, known as the labor force participation rate, was equal to the share for white workers in both January and February of this year. That participation gap between the two races typically narrows late in economic expansions when labor markets are tight and businesses are competing more intensely for workers. BLACK WOMEN STILL LAGBlack women, who faced substantial job losses at the start of the pandemic, still have more ground to recover than other groups to close the jobs hole left by the crisis. The employment-to-population ratio for Black women, or the share of the population that is working, is still 2.9 percentage points below where it was in February 2020 after it dropped last month. That is nearly double the 1.5-percentage-point shortfall faced by all women and almost three times the gap left for all men when compared to pre-pandemic levels.Still, Black and Hispanic workers have seen employment rebound strongly over the past year, with their gains outpacing those for white workers. If that trend continues, it should help close those racial gaps.NO DIPLOMA, NO PROBLEMIn another sign that the labor market is creating more opportunities for workers on the margins, the unemployment rate for people with less than a high school diploma dropped to 4.3% last month, the lowest since the Labor Department started tracking it in 1992.In all, just 388,000 people aged 25 and above who had not completed high school were without a job in February, roughly a fifth of the number out of work in April 2020. That is also nearly 100,000 below the previous record low in September 2019.BROAD-BASED HIRINGThe number of workers being added to company payrolls has remained robust over the last year, averaging more than 550,000 a month, a level never seen prior to the pandemic. Moreover, the breadth of hiring is as wide as it has been in more than two decades.The Labor Department’s diffusion indexes, a gauge of how widespread hiring activity is across the manufacturing sector and private-sector industries overall, shows more industries adding staff over the last 12 months, on average, than at any time since 1998. They’re also up substantially from where they were in the months before the pandemic struck.With the two diffusion indexes now near where they have peaked in the past, the question is whether the gains will continue to be as broad-based as the employment recovery matures this year. More

The Biden administration and European officials are crushing the Russian economy and stirring mass anxiety to pressure President Vladimir V. Putin to end his war in Ukraine.WASHINGTON — As they impose historic sanctions on Russia, the Biden administration and European governments have set new goals: devastate the Russian economy as punishment for the world to witness, and create domestic pressure on President Vladimir V. Putin to halt his war in Ukraine, current and former U.S. officials say.The harsh penalties — which have hammered the ruble, shut down Russia’s stock market and prompted bank runs — contradict previous declarations by U.S. officials that they would refrain from inflicting pain on ordinary Russians. “We target them carefully to avoid even the appearance of targeting the average Russian civilian,” Daleep Singh, the deputy national security adviser for international economics, said at a White House briefing last month.The escalation in sanctions this week has occurred much faster than many officials had anticipated, largely because European leaders have embraced the most aggressive measures proposed by Washington, U.S. officials said.With Russia’s economy crumbling, major companies — Apple, Boeing and Shell among them — are suspending or exiting operations in the country. The Biden administration said on Thursday that it would not offer sanctions relief amid Mr. Putin’s increasingly brutal offensive.The thinking among some U.S. and European officials is that Mr. Putin might stop the war if enough Russians protest in the streets and enough tycoons turn on him. Other U.S. officials emphasize the goals of punishment and future deterrence, saying that the carcass of the Russian economy will serve as a visible consequence of Mr. Putin’s actions and a warning for other aggressors.But Russia’s $1.5 trillion economy is the world’s 11th largest. No countries have tried pushing an economy of that size to the brink of collapse, with unknown consequences for the world. And the actions of the United States and Europe could pave the way for a new type of great-power conflict in the future.The moves have also ignited questions in Washington and in European capitals over whether cascading events in Russia could lead to “regime change,” or rulership collapse, which President Biden and European leaders are careful to avoid mentioning.“This isn’t the Russian people’s war,” Secretary of State Antony J. Blinken said in a news conference on Wednesday. But, he added, “the Russian people will suffer the consequences of their leaders’ choices.”“The economic costs that we’ve been forced to impose on Russia are not aimed at you,” he said. “They are aimed at compelling your government to stop its actions, to stop its aggression.”The harshest sanctions by far are ones that prevent the Central Bank of Russia from tapping into much of its $643 billion in foreign currency reserves, which has led to a steep drop in the value of the ruble. Panic has set in across Russia. Citizens are scrambling to withdraw money from banks, preferably in dollars, and some are fleeing the country.The United States and Europe also announced new sanctions this week against oligarchs with close ties to Mr. Putin. Officials are moving to seize their houses, yachts and private jets around the world. French officials on Thursday snatched the superyacht of Igor Sechin, the chief executive of Rosneft, the Russian state oil giant.“The sanctions have turned out to be quite unprecedented,” said Maria Snegovaya, a visiting scholar at George Washington University who has studied U.S. sanctions on Russia. “Everybody in Russia is horrified. They’re trying to think of the best way to preserve their money.”The French finance minister, Bruno Le Maire, has used some of the harshest language yet to articulate the mission, telling a radio program on Tuesday that Western nations were “waging an all-out economic and financial war on Russia” to “cause the collapse of the Russian economy.” He later said he regretted his words.Evidence of shock and anger among Russians — mostly anecdotal in a country with restricted speech and little public opinion polling — has raised the specter of mass political dissent, which, if strong enough, could threaten Mr. Putin’s grip on power.Senator Lindsey Graham, Republican of South Carolina, said on Fox News, “The best way for this to end is having Eliot Ness or Wyatt Earp in Russia, the Russian Spring, so to speak, where people rise up and take him down.”Mr. Graham added: “So I’m hoping somebody in Russia will understand that he’s destroying Russia, and you need to take this guy out by any means possible,” reiterating his Twitter post on Thursday calling for an assassination of Mr. Putin.A spokesman for Prime Minister Boris Johnson of Britain said on Monday that the sanctions were “intended to bring down the Putin regime.” Mr. Johnson’s office quickly corrected the statement, saying that it did not reflect his government’s view and that the goal of the measures was to stop Russia’s assault on Ukraine.Michael A. McFaul, a former U.S. ambassador to Moscow, called the talk of Mr. Putin’s overthrow unhelpful, emphasizing that the sanctions should be tailored and described as a means of stopping the invasion. “The objective should be to end the war,” he said.But while the Biden administration has said it is still open to diplomacy with Russia, it has not offered to reverse any of the sanctions in exchange for de-escalation.“Right in this moment, they’re marching toward Kyiv with a convoy and continuing to take reportedly barbaric steps against the people of Ukraine,” Jen Psaki, the White House press secretary, said on Thursday. “So, no, now is not the moment where we are offering options for reducing sanctions.”But in an interview on Friday with the Russian news agency TASS, Victoria J. Nuland, the U.S. under secretary of state for political affairs, suggested terms for possible sanctions relief, albeit maximalist ones. She said that Mr. Putin had to end the war, help to “rebuild” Ukraine and recognize its sovereignty, borders and right to exist. Those are conditions that the Russian leader is highly unlikely to consider.Families in Kyiv, Ukraine, waited for a train west on Friday.Lynsey Addario for The New York TimesAll the while, Biden officials have sought to assure the Russian people that they take no pleasure in their suffering. The United States and Europe have tried to spare Russians some of the effects, including allowing sales of consumer technology to Russia despite sweeping new limits on exports.They have also refrained from imposing energy sanctions because of Europe’s dependence on Russian gas and the risk of higher oil prices.Even so, Mr. Putin and his aides are doing their best to find some political advantage in the sanctions, arguing that the real goal for the West has always been to weaken Russia. As he launched his invasion last week, Mr. Putin said the United States would have sanctioned his country “no matter what.”Russia-Ukraine War: Key Things to KnowCard 1 of 4Nuclear plant seized. More