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    How the Stimulus Could Power a Rebound in Other Countries

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    As Americans buy more, they are expected to spur trade and investment and invigorate demand for German cars, Australian wine, Mexican auto parts and French fashions.Washington’s robust spending in response to the coronavirus crisis is helping to pull the United States out of its sharpest economic slump in decades, funneling trillions of dollars to Americans’ checking accounts and to businesses.Now, the rest of the world is expected to benefit, too.Global forecasters are predicting that the United States and its record-setting stimulus spending could help haul a weakened Europe and struggling developing countries out of their own economic morass, especially when paired with a rapid vaccine rollout that has poised the U.S. economy for a faster recovery.As Americans buy more, they should spur trade and investment and invigorate demand for German cars, Australian wine, Mexican auto parts and French fashions.The anticipated economic rebound in the United States is expected to join China’s recovery, adding impetus to world output. China’s economy is forecast to expand rapidly this year, with the International Monetary Fund predicting 8.1 percent growth. That is good news for countries like Germany, which depends on Chinese demand for cars and machinery.Yet the United States is particularly important to the world economy because it has long spent more than it makes or sells, spreading dollars globally. China is one of the major beneficiaries of Washington’s largess because many Americans have spent their stimulus checks on video game consoles, exercise bicycles or other products made in China.The United States’ comparatively fast recovery was neither guaranteed nor expected: It was the result of a little bit of luck — new variants of the virus that have coursed through other countries have just begun to push infections higher in the United States — and a large policy response, including more than $5 trillion in debt-fueled pandemic relief spending passed into law over the past 12 months. Those trends, paired with the accelerating spread of effective vaccinations, seem likely to leave the American economy in a stronger position.“When the U.S. economy is strong, that strength tends to support global activity as well,” Jerome H. Powell, the chair of the Federal Reserve, said at a recent news conference.A year ago, it was not at all certain that the United States would gain the strength to help lift the global economy.The International Monetary Fund forecast last April that the U.S. economy might expand 4.7 percent this year, roughly in line with forecasts for Europe’s growth, after an expected slump of 5.9 percent in 2020. But the actual contraction in the United States was smaller, and in January, the I.M.F. upgraded the outlook for U.S. growth to 5.1 percent this year, while the euro area’s expected growth was marked down to 4.2 percent.Germany has extended its lockdown to April 18, and there is a good chance restrictions will be extended further.Lena Mucha for The New York TimesSince then, the U.S. government has passed a $1.9 trillion relief package, and the I.M.F. has signaled that the estimates for the country’s growth will be marked up further when it releases fresh forecasts on Tuesday.The recent relief package continues a trend: America has been willing to spend to combat the pandemic’s economic fallout from the start.America’s initial pandemic response spending, amounting to a little less than $3 trillion, was 50 percent larger, as a share of gross domestic product, than what the United Kingdom rolled out, and roughly three times as much as in France, Italy or Spain, based on an analysis by Christina D. Romer at the University of California, Berkeley.Among a set of advanced economies, only New Zealand has borrowed and spent as big a share of its G.D.P. as the United States has, the analysis found.In Europe, where workers in many countries were shielded from job losses and plunging income by government furlough programs, the slow pace of the European Union’s vaccination campaign will probably hurt the economy, said Ludovic Subran, the chief economist of German insurance giant Allianz.On Wednesday, France announced its third national lockdown as infected patients fill its hospitals.Mr. Subran also questioned whether the European Union can distribute stimulus financing fast enough. The money from a 750 billion-euro, or $880 billion, relief program agreed to by European governments in July has been slow to reach the businesses and people who need it because of political squabbling, creaky public administration and a court challenge in Germany.Karen Dynan, a former U.S. Treasury Department chief economist who is now at the Peterson Institute for International Economics, estimated that economic output would take at least a year longer to return to prepandemic levels in Europe than it would in the United States.“Fiscal policy has differed across countries in ways that are really shaping the experience they have now,” Ms. Dynan said.Vaccine supplies are limited in many developing economies, including Venezuela.Ariana Cubillos/Associated PressPoorer and smaller countries, facing severely limited vaccine supplies and fewer resources to support government spending, are likely to struggle to stage an economic turnaround even if the U.S. recovery increases demand for their exports. Places including Venezuela, Iraq and Namibia have administered only about 1 vaccine dose per 1,000 people, if that, based on New York Times data. In the United States, the rate is more than 400 doses per 1,000 people.Still, a booming American economy poses some hazard to other nations — and especially emerging markets — as economic fates diverge.Market-based interest rates in the United States are already climbing, as investors, sensing faster growth and quicker inflation around the corner, decide to sell bonds. That could make financing more expensive around the globe: If investors can earn higher rates on U.S. bonds, they are less likely to invest in foreign debt that offers either lower rates or higher risk.If the United States lures capital away from the rest of the world, “the rose-colored view that we are helping everyone is very much in doubt,” said Robin Brooks, chief economist at the Institute of International Finance.Philip Lane, chief economist of the European Central Bank and a member of the policymaking Governing Council, said the strength of the U.S. economy was generally good news for Europe. But, in an interview on Monday, he warned that rising market interest rates could be a burden for the eurozone economy.Imported goods at a cold storage port in China.Yao Jianfeng/Xinhua, via Associated Press“We do think it’s net positive for the European economy — positive for G.D.P., positive for inflation,” Mr. Lane said of the economic rebound in the United States. “But that’s based on the assumption that the increase in bond yields is very limited.” He noted that bond yields had so far risen faster than expected.Trans-Atlantic trade should get help from warmer relations between the United States and the European Union. The Biden administration has already moved to defuse trade tensions with Europe, which the Trump administration treated as an adversary. President Biden met online with European leaders last week.The U.S. stimulus packages “will be part of the water that lifts all boats,” said Selina Jackson, senior vice president for global government relations and public policy at Procter & Gamble, during a recent panel discussion organized by the American Chamber of Commerce to the European Union. “We are hoping for a calm slide out of this economic situation.”Keith Bradsher More

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    Fear of Inflation Finds a Foothold in the Bond Market

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    There is little evidence for a big jump in prices, but some economists and bond investors fear President Biden’s policies could lead to inflation.The so-called bond vigilantes may be back, 30 years after they led a sell-off in Treasury securities over the prospect of higher government spending by a new Democratic administration.The Federal Reserve has downplayed the risk of inflation, and many experts discount the danger of a sustained rise in prices. But there is an intense debate underway on Wall Street about the prospects for higher inflation and rising interest rates.Yields on 10-year Treasury notes have risen sharply in recent weeks, a sign that traders are taking the inflation threat more seriously. If the trend continues, it will put bond investors on a collision course with the Biden administration, which recently won passage of a $1.9 trillion stimulus bill and wants to spend trillions more on infrastructure, education and other programs.The potential confrontation made some market veterans recall the 1990s, when yields on Treasury securities lurched higher as the Clinton administration considered plans to increase spending. As a result, officials soon turned to deficit reduction as a priority.Ed Yardeni, an independent economist, coined the term bond vigilante in the 1980s to describe investors who sell bonds amid signs that fiscal deficits are getting out of hand, especially if central bankers and others don’t act as a counterweight.As bond prices fall and yields rise, borrowing becomes more expensive, which can force lawmakers to spend less.“They seem to mount up and form a posse every time inflation is making a comeback,” Mr. Yardeni said. “Clearly, they’re back in the U.S. So while it’s fine for the Fed to argue inflation will be transitory, the bond vigilantes won’t believe it till they see it.”Yields on the 10-year Treasury note hit 1.75 percent last week before falling back this week, a sharp rise from less than 1 percent at the start of the year.Not all the sellers necessarily oppose more government spending — some are simply acting on a belief that yields will move higher as economic activity picks up, or jumping on a popular trade. But the effect is the same, pushing yields higher as prices for bonds fall.Yields remain incredibly low by historical standards and even recent trading. Two years ago, the 10-year Treasury paid 2.5 percent — many bond investors would happily welcome a return to those yields given that a government note bought today pays a relative pittance in interest. And during the Clinton administration, yields on 10-year Treasurys rose to 8 percent, from 5.2 percent between October 1993 and November 1994.Still, Mr. Yardeni believes the bond market is saying something policymakers today ought to pay attention to.“The ultimate goal of the bond vigilante is to be heard, and they are blowing the whistle,” he said. “It could come back to bite Biden’s plans.”Yet evidence of inflation remains elusive. Consumer prices, excluding the volatile food and energy sectors, have been tame, as have wages. And even before the pandemic, unemployment plumbed lows not seen in decades without stoking inflation.Indeed, the bond vigilantes remain outliers. Even many economists at financial firms who expect faster growth as a result of the stimulus package are not ready to predict inflation’s return.“The inflation dynamic is not the same as it was in the past,” said Carl Tannenbaum, chief economist at Northern Trust in Chicago. “Globalization, technology and e-commerce all make it harder for firms to increase prices.”What’s more, with more than nine million jobs lost in the past year and an unemployment rate of 6.2 percent, it would seem there is plenty of slack in the economy.That’s how Alan S. Blinder, a Princeton economist who was an economic adviser to President Bill Clinton and is a former top Fed official, sees it. Even if inflation goes up slightly, Mr. Blinder believes the Fed’s target for inflation, set at 2 percent, is appropriate.“Bond traders are an excitable lot, and they go to extremes,” he said. “If they are true to form, they will overreact.”Indeed, there have been rumors of the bond vigilantes’ return before, like in 2009 as the economy began to creep out of the deep hole of the last recession and rates inched higher. But in the ensuing decade, both yields and inflation remained muted. If anything, deflation was a greater concern than rising prices.It is not just bond traders who are concerned. Some of Mr. Blinder’s colleagues from the Clinton administration are warning that the conventional economic wisdom hasn’t fully accepted the possibility of higher rates or an uptick in prices..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.Robert E. Rubin, Mr. Clinton’s second Treasury secretary, echoed that concern but took pains to support the stimulus package.“There is a deep uncertainty,” Mr. Rubin said in an interview. “We needed this relief bill, and it served a lot of useful purposes. But we now have an enormous amount of stimulus, and the risks of inflation have increased materially.”Mr. Rubin acknowledged that predicting inflation was very difficult, but he said policymakers ought to be ready to fight it. “If inflationary pressures do take off, it’s important to get ahead of them quickly before they take on a life of their own.”The Federal Reserve has plenty of options. Not only is it buying up debt, which keeps yields down, but the Fed chair, Jerome H. Powell, has called for keeping monetary policy relatively loose for the foreseeable future. If higher prices do materialize, the Fed could halt asset purchases and raise rates sooner.“We’re committed to giving the economy the support that it needs to return as quickly as possible to a state of maximum employment and price stability,” Mr. Powell said at a news conference last week. That help will continue “for as long as it takes.”While most policymakers expect faster growth, falling unemployment and a rise in inflation to above 2 percent, they nonetheless expect short-term rates to stay near zero through 2023.But the Fed’s ability to control longer-term rates is more limited, said Steven Rattner, a veteran Wall Street banker and former New York Times reporter who served in the Obama administration.“At some point, if this economy takes off bigger than any one of us expect, the Fed will have to raise rates, but it’s not this year’s issue and probably not next year’s issue,” he said. “But we are in uncharted waters, and we are to some extent playing with fire.”The concerns about inflation expressed by Mr. Rattner, Mr. Rubin and others has at least a little to do with a generational angst, Mr. Rattner, 68, points out. They all vividly remember the soaring inflation of the 1970s and early 1980s that prompted the Fed to raise rates into the double digits under the leadership of Paul Volcker.The tightening brought inflation under control but caused a deep economic downturn.“People my age remember well the late 1970s and 1980s,” Mr. Rattner said. “I was there, I covered it for The Times, and lived through it. Younger people treat it like it was the Civil War.”Some younger economists, like Gregory Daco of Oxford Economics, who is 36, think these veterans of past inflation scares are indeed fighting old wars. Any rise in inflation above 2 percent is likely to be transitory, Mr. Daco said. Bond yields are up, but they are only returning to normal after the distortions caused by the pandemic.“If you have memories of high inflation and low growth in the 1970s, you may be more concerned with it popping up now,” he said. “But these are very different circumstances today.” More

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    Larry Summers Warned About Inflation. Fed Officials Push Back.

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    Mr. Summers, the former Treasury secretary, and other economists say $1.9 trillion more in pandemic relief might overdo it. The Federal Reserve’s vice chair and a regional president disagreed.Federal Reserve officials pushed back on Thursday against concerns raised by two prominent economists — Lawrence H. Summers, the former Treasury secretary, and Olivier J. Blanchard, a former chief economist at the International Monetary Fund — that big government spending could overheat the economy and send inflation rocketing higher.Those warnings have grabbed headlines and spurred debate over the past two months as details of the federal government’s $1.9 trillion pandemic relief bill came together. Mr. Summers in particular has kept them up since the legislation passed, saying it was too much on the heels of large spending packages last year. He recently called the approach the “least responsible” fiscal policy in 40 years while predicting that it had a one-in-three chance of precipitating higher inflation and maybe stagflation, or a one-in-three chance of causing the Fed to raise rates and pushing the economy toward recession.But two leaders at the Fed, which is tasked with using monetary policies to keep inflation steady and contained, gave little credence to those fears on Thursday. Richard H. Clarida, the central bank’s vice chairman, and Charles Evans, the president of the Federal Reserve Bank of Chicago, both responded to questions specifically about Mr. Summers’s and Mr. Blanchard’s warnings.“They have both correctly pointed out that the U.S. has a lot of fiscal support this year,” Mr. Clarida said on an Institute of International Finance webcast. “Where I would disagree is whether or not that is primarily going to represent a long-term, persistent upward risk to inflation, and I don’t think so.”Mr. Clarida said that there was a lot of room for the economy to recover — some 9.5 million jobs that were lost during the pandemic are still gone — and that the effect of the government’s relief spending would diminish over time. He also said that while spenders had pent-up demand, there was also pent-up supply because the service sector had been shut for a year.“At the Fed, we get paid to be attentive and attuned to inflation risks, and we will be,” Mr. Clarida said. But he noted that forecasters didn’t see “undesirable upward pressure” on inflation over time.Mr. Evans told reporters on a call that he wasn’t sure what “overheating” — the danger that top economists have warned about — actually meant.“First off, there’s a conversation of is this the best way to spend money,” he summarized, adding that he didn’t have anything to say about that. “But then there’s sort of like, ‘Oh, this is so much that it is going to overshoot potential output, and there’s a risk that we’re going to get overheating, and then inflation.’”He continued: “What is the definition of overheating? It’s a great word, it evokes all kinds of images, but it’s kind of like potential output is always a strange concept anyway. Can output be too high?”Mr. Evans has been concerned for years that inflation is too tepid, rather than that it might pick up too much. Superweak price pressures can cause problems by risking price declines — which encourage saving and harm debtors — and by robbing the Fed of room to cut interest rates during times of trouble.“I kind of remember the ’70s, too,” a decade when inflation spiraled up and out of control in America, Mr. Evans said. “This isn’t the ’70s. We’ve had trouble getting inflation up.”Inflation has been weak in the United States, and in advanced economies broadly, the past two decades. To try to keep that from turning into a bigger problem, the Fed has been working to “re-anchor” consumer and market expectations to prevent inflation slipping lower. The central bank announced last year that it would begin to aim for 2 percent annual price gains on average over time, allowing for periods of greater increases.Still, no Fed policymaker wants inflation to suddenly spike, eroding consumer purchasing power. If that happened, the Fed might have to lift interest rates rapidly to slow down the economy, throwing people out of work and possibly causing a recession. That’s what Mr. Summers and Mr. Blanchard are warning about..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.The $1.9 trillion measure that the Biden administration ushered through Congress added to a $900 billion relief package enacted in December and a $2 trillion package last March.Mr. Blanchard, in a March 5 post on Twitter, compared the fresh government spending to a snake swallowing an elephant: “The snake was too ambitious. The elephant will pass, but maybe with some damage.”He more recently said that he had “no clue as to what happens to inflation and rates” but that there is a lot of uncertainty and that things “could go wrong.”Mr. Summers, who led the Treasury Department from 1999 to 2001, wrote in a Feb. 4 Washington Post column that, while it was hugely uncertain, “there is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation.”He said in a Bloomberg Television interview last week that “we are running enormous risks.”But Fed officials don’t think big government outlays will be enough to rewrite the world’s low-inflation story. And if it does stoke a slightly faster pickup, that might be a welcome development.Mr. Clarida acknowledged that price gains were likely to speed up over the next few months, but said he expected most of that “to be transitory” and for inflation to return to “or perhaps run somewhat above” 2 percent in 2022 and 2023.“This outcome would be entirely consistent with the new framework we adopted in August 2020,” he said. More

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    Fed Lets Break for Banks Expire but Opens Door to Future Changes

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    The central bank had exempted safe assets from a crucial regulatory requirement, in a bid to keep markets chugging last year.The Federal Reserve said on Friday that it would not extend a temporary exemption of a rule that dictates the amount of capital banks must keep in reserve, a loss for big banks and their lobbyists, who had been pushing to extend the relief beyond its March 31 expiration.At the same time, the Fed opened the door to future tweaks to the regulation if changes are deemed necessary to keeping essential markets functioning smoothly. Banks are required to keep easy-to-access money on hand based on the size of their assets, a requirement known as the supplementary leverage ratio, the design of which they have long opposed.The Fed introduced the regulatory change last year. It has allowed banks to exclude both their holdings of Treasury securities and their reserves — which are deposits at the Fed — when calculating the leverage ratio.The goal of the change was to make it easier for the financial institutions to absorb government bonds and reserves and still continue lending. Otherwise, banks might have stopped such activities to avoid increasing their assets and hitting the leverage cap, which would mean having to raise capital — a move that would be costly for them. But it also lowered bank capital requirements, which drew criticism.As a result, the debate over whether to extend the exemptions was a heated one.Bank lobbyists and some market analysts argued that the Fed needed to keep the exemption in place to prevent banks from pulling back from lending and their critical role as both buyers and sellers of government bonds. But lawmakers and researchers who favor stricter bank oversight argued that the exemption would chip away at the protective cash buffer that banks had built up in the wake of the financial crisis, leaving them less prepared to handle shocks.The Fed took a middle road: It ended the exemption but opened the door to future changes to how the leverage ratio is calibrated. The goal is to keep capital levels stable, but also to make sure that growth in government securities and reserves on bank balance sheets — a natural side effect of government spending and the Fed’s own policies — does not prod banks to pull back.“Because of recent growth in the supply of central bank reserves and the issuance of Treasury securities, the Board may need to address the current design and calibration of the S.L.R. over time,” the Fed said in its release. It added that the goal would be “to prevent strains from developing that could both constrain economic growth and undermine financial stability.”The Fed said it would “shortly seek comment” on measures to adjust the leverage ratio and would make sure that any changes “do not erode” bank capital requirements.“The devil’s going to be in the details,” said Jeremy Kress, a former Fed regulator who teaches at the University of Michigan. “I want to make sure any changes the Fed makes to the supplementary leverage ratio doesn’t undermine the overall strength of bank capital requirements.”The temporary exemption had cut banks’ required capital by an estimated $76 billion at the holding company level, although in practice other regulatory requirements lessened that impact. Critics had warned that lowering bank capital requirements could leave the financial system more vulnerable.That is why the Fed was adamant in April, when it introduced the exemption, that the change would not be permanent.“We gave some leverage ratio relief earlier by temporarily — it’s temporary relief — by eliminating, temporarily, Treasuries from the calculation of the leverage ratio,” Jerome H. Powell, the Fed chair, said during a July 2020 news conference. He noted that “many bank regulators around the world have given leverage ratio relief.”Other banking regulators, like the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, took longer to sign on to the Fed’s exemption, but eventually did.Even though the exemption had been a tough sell in the first place, persistent worries over Treasury market functioning had raised the possibility that the Fed might keep it in place.The government has been issuing huge amounts of debt to fund pandemic relief packages, pumping Treasury bonds into the market. At the same time, reserves are exploding as the Fed buys bonds and the Treasury Department spends down a cash pile it amassed last year. The combination risks filling up bank balance sheets. The fear is that banks will pull back as a result.That’s because the supplementary leverage ratio measures a bank’s capital — the money it can most easily tap to make through times of trouble — against what regulators call its “leverage exposure.” That measure counts both its on-balance sheet assets, like Treasurys, and exposures that do not appear on a bank’s balance sheet but may generate income.If banks fail to keep capital on hand that matches with their assets, they are restricted from making payouts to shareholders and handing executives optional bonuses.Banks desperately want to avoid crossing that line. So if there is any danger that they might breach it, they stop taking on assets to make sure that they stay within their boundaries — which can mean that they stop making loans or taking deposits, which count on their balance sheets as “assets.”Alternatively, banks can pay out less capital to make sure their ratio stays in line. That means smaller dividends or fewer share buybacks, both of which bolster bank stock prices and, in the process, pay for their executives.The Financial Services Forum, which represents the chief executives of the largest banks, has argued that the temporary exemption should be rolled off more slowly and not end abruptly on March 31. Representatives from the group have been lobbying lawmakers on the issue over the past year, based on federal disclosures. And the trade group — along with the American Bankers Association and the Securities Industry and Financial Markets Association — sent a letter to Fed officials asking for the exemptions to be extended.“Allowing the temporary modification to leverage requirements to expire all at once is problematic and risks undermining the goals that the temporary modification are intended to achieve,” Sean Campbell, head of policy research at the forum, wrote in a post this year.Some banks have themselves pushed for officials to extend the exemption.“This adjustment for cash and Treasury should either be made permanent or, at a minimum, be extended,” Jennifer A. Piepszak, JPMorgan Chase’s chief financial officer, said on the bank’s fourth-quarter earnings call.Ms. Piepszak added that if the exemption for reserves was not extended, the supplementary leverage ratio would become binding and “impact the pace of capital return.” She has separately warned that the bank might have to turn away deposits.Prominent Democrats have had little patience for such arguments.“To the extent there are concerns about banks’ ability to accept customer deposits and absorb reserves due to leverage requirements, regulators should suspend bank capital distributions,” Senators Elizabeth Warren and Sherrod Brown, both powerful Democrats on the Senate Banking Committee, wrote in a letter to Fed leadership.Banks and their lobbying groups had little to say about the Fed’s move to kill the exemption. The eight largest banks have enough capital to cover their leverage ratios.“A few weeks ago, it seemed like the consensus was that they would do an extension,” said Ian Katz, an analyst at Capital Alpha. He added that the Fed’s thinking might have been: “The banks were in solid enough shape to absorb this, they were going to have to end this some time, and this seemed like a good time to do it.”Stacy Cowley More

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    Fed Projects Patience Even as Economic Outlook Brightens

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    The Federal Reserve’s economic estimates show rates at near zero for years, along with faster growth and higher inflation.The Federal Reserve Chair, Jerome H. Powell, said on Wednesday that he expects the economy to continue improving this year but plans to keep interest rates near zero until employment increases.Jim Wilson/The New York TimesFederal Reserve officials signaled on Wednesday that they are in no rush to dial back support for a pandemic-damaged economy, releasing a fresh set of projections that showed the central bank’s policy interest rate on hold at near zero for years to come — even as the outlook rapidly improves.After a painful 2020 in which the Fed pledged to do whatever it took to prevent lasting virus-inflicted economic damage, the decision underscored that the policy response has moved into a new stage: As long as it takes.Fed officials, who cut their policy rate to near zero last March, maintained that setting on Wednesday, as was widely expected. Keeping it at rock bottom lowers borrowing costs across the economy, fueling demand and stoking growth.But their new forecasts sent a remarkably patient message about the path ahead. Most policymakers expected interest rates to remain near zero through 2023, even as they penciled in faster growth, rapidly falling unemployment and inflation rising above 2 percent.By promising continued help in the face of a brightening outlook, the central bank underlined its key priorities, which center on coaxing the job market back to full health while nudging prices — which have been sluggish for years — sustainably higher. And it made clear that it is more concerned with standing by the fledgling rebound than with warnings that inflation could get out of control.“We’re committed to giving the economy the support that it needs to return as quickly as possible to a state of maximum employment and price stability,” Jerome H. Powell, the Fed chair, said during a news conference on Wednesday. That help will continue “for as long as it takes.”Fed officials noted in their postmeeting statement that some parts of the economy were improving, and Mr. Powell said Covid-19 vaccines and fiscal stimulus had driven his colleagues’ sunnier economic expectations. But he also pointed out that the unemployment rate remained elevated, and that 9.5 million jobs that had disappeared during the pandemic were still missing from the economy.“It’s just a lot of people who need to get back to work, and it’s not going to happen overnight, — it’s going to take some time,” Mr. Powell said. “The faster, the better. We’d love to see it come sooner rather than later.”Fed officials now think that unemployment will fall to 4.5 percent this year as growth surges, a quicker decline than previously anticipated, and that inflation will pop to 2.4 percent in 2021 before easing. They see it hovering around 2.1 percent by the end of 2023.That they are willing to allow inflation to move higher without reacting backs up the central bank’s new approach to monetary policy. The Fed said last year that it would stop raising rates pre-emptively to choke off coming inflation and would aim for 2 percent as an average goal — meaning it welcomes periods of slightly faster price gains.“You look at their economic forecasts, they are all better,” said Priya Misra, head of global rates strategy at TD Securities. “They’re telling the market that they will let inflation go above 2 percent.”Wednesday’s release of economic projections was closely watched on Wall Street, in part because the central bank had a lot of new information to digest and incorporate into its policy guidance.Since the Fed last updated its economic projections three months ago, Congress and the White House have passed two large spending packages — a $900 billion bill in December and a $1.9 trillion measure this month. That huge infusion of government cash will put money in consumer bank accounts and could help to avert economic damage that Fed officials had worried about, like bankruptcies and evictions.The Treasury Department said on Wednesday that 90 million direct checks to individuals, totaling more than $242 billion, had already been disbursed.Americans are also receiving vaccinations at a steady pace, spurring hope that the pandemic might abate enough to allow hard-hit service industry companies to reopen more fully at some point this year.To add to those positive developments, coronavirus cases have eased, and the unemployment rate suggests that the economy continues to slowly heal. Joblessness fell to 6.2 percent in February, the latest Labor Department data showed, down from a peak of 14.8 percent in April.But there is a long way to go — a broader measure of joblessness that Fed officials often cite is around 9.5 percent — and Mr. Powell pointed out repeatedly that uncertainty remained high.“The path of the virus continues to be very important,” he said, noting that new and virulent strains have emerged. “We’re not done, and I’d hate to see us take our eye off the ball before we actually finish the job.”Congress has tasked the Fed with guiding the economy back to full employment and stable prices. Mr. Powell and his colleagues have been clear that they want to see both a healthy job market and inflation that has risen slightly above 2 percent, and is expected to stay there for some time, before lifting interest rates.The March economic projections showed that officials widely expect the economy to take years to clear those hurdles. Just seven officials penciled in rate increases by the end of 2023, while 11 saw rates remaining on hold.The Fed is also buying $120 billion in bonds per month. It has been less clear about the criteria for slowing those purchases, saying it needs to see “substantial” further progress.Mr. Powell indicated on Wednesday that the Fed was not ready to even start talking about when it might reduce that support. When it is, he said, it will signal so “well in advance of any decision to actually taper.”Markets have been on edge in recent weeks. An improving economic outlook and the prospect of slightly higher inflation have pushed up rates on longer-term Treasury securities. That has at times caused stocks to swoon — share prices tend to fall as interest rates increase — though key indexes remain near record highs.Some of that unease ties directly to Mr. Powell’s central bank. Investors have come to expect that the Fed will be less patient than they previously anticipated against the brightening backdrop, pulling forward estimates of when the Fed might lift interest rates.In fact, some prominent economists and commentators have warned that the government’s big spending, which dwarfs the response to the 2008 crisis, risks pushing prices much higher by pumping so many dollars into an already-healing economy. That could force the Fed to lift rates sharply to control them.But Fed has consistently downplayed those concerns, pointing out that the problem of the modern era has been weak prices — which could risk destabilizing outright price declines, and which saps the Fed’s ability to cut inflation-inclusive interest rates in times of trouble. If prices do take off, officials often say, they have the tools to deal with that.“They want a rapid recovery, even more than usual,” said Diane Swonk, chief economist at Grant Thornton. “The Fed doesn’t want to get in the way of it because of a transitory jump in inflation.” More

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    Jerome Powell Promises Not to Take Away the Punch Bowl

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    If the economy turns into a giant party, the Fed is promising not to be an uptight host.Jerome Powell, the Fed chair, outside the Federal Reserve late last year. One of his big tasks is to convince the financial world that he means what he says.Nate Palmer for The New York TimesIt was once said that the governor of the Bank of England had the power to guide the behavior of Britain’s banks with the mere raise of an eyebrow. For the Federal Reserve in 2021, the equivalent may be Jerome Powell’s chuckle.Mr. Powell, the Fed chair, was asked at a news conference Wednesday whether — in light of its forecast that the economy would recovery quickly in the months ahead — it was time to “start talking about talking about” slowing the central bank’s buying of $80 billion in bonds each month.He let out a half-laugh before answering, “Not yet.”His dismissiveness at the idea that the Fed would even consider slowing its efforts to strengthen the economy was one of many chances he took in Wednesday’s session to convey one simple message: The central bank will not waver in its aggressive efforts to encourage growth until the economy is truly and unquestionably back to health.It almost surely won’t be the last time he faces questions that second-guess that resolve.If the economy evolves as Mr. Powell and most private forecasters think it will, a veritable boom will be underway later this year. As a result, he and his colleagues at the Fed would face a continuing test of their willingness to follow through on the approach they unanimously agreed to last summer. That new policy framework ended an era in which the Fed pre-emptively raised interest rates because falling unemployment risked future inflation.Mr. Powell’s job on Wednesday was to persuade financial markets and everyone who makes economic decisions that the Fed was serious about this plan. That it won’t be swayed by all the things that, based on its history, might cause an increase in interest rates and choke off the expansion prematurely.If prices for certain goods and services were to surge as the economy came back, it would, in this view, be a one-time bulge rather than a continuing rise in inflation to which the Fed might need to respond. The central bank’s officials now project 2.4 percent inflation this year, overshooting their 2 percent target, with a projected return to the target in 2022.An old metaphor holds that the Fed’s job is to take away the punch bowl just as the party gets going. The official view of the central bank’s leaders now is that it has been an overly stingy host, taking away the punch bowl so quickly that parties were dreary, disappointing affairs.The job now is to persuade the world that it really will leave the punch bowl out long enough, and spiked adequately — that it will be a party worth attending. They insist punch bowl removal will be based on actual realized inebriation of the guests, not on forecasts of potential future problematic levels of drunkenness.Mr. Powell’s dismissive chuckle was just one piece of the messaging. It was the prevailing idea that he returned to in multiple ways (emphasis added in these quotations):“We will continue to provide the economy the support that it needs for as long as it takes.”“We’re not going to act pre-emptively based on forecasts for the most part, and we’re going to wait to see actual data. And I think it will take people time to adjust to that, and the only way we can really build the credibility of that is by doing it.”“People start businesses, they reopen restaurants, the airlines will be flying again — all of those things will happen, and it will turn out to be a one-time bulge in prices, but it won’t change inflation going forward.”He also played down the release of the Fed’s “dot-plot” of when to expect it to be time to raise rates. Four of 18 Fed officials thought that rate increases would be warranted by the end of 2022, and seven by the end of 2023. Mr. Powell emphasized that a comfortable majority envisioned no rate increases in the next three years.The questions he faced from the press Wednesday were just the beginning of what figures to be a perennial topic whenever he or other leaders of the central bank face lawmakers, business leaders or the news media. The tone and details may vary, but will all mean: “Are you sure you’re not going to start tightening the money supply?”The questions might tie into inflationary pressures. For example, many conservatives have started to complain about rising gasoline prices. Based on the experience of past Fed leaders, Mr. Powell can expect plenty of questions about that in his next visit to Capitol Hill.Or the questions could focus more on booming financial markets and whether the Fed needs to raise rates to rein in speculation.Moreover, even if Mr. Powell sticks to the plan, the diffuse nature of power within the Federal Reserve system will make it easy for mixed messages to emerge. There are 12 presidents of regional Fed banks and seven governors in Washington (with one slot vacant). This means only a handful need to develop cold feet about the strategy — and start talking about it publicly — to cause markets and businesses to doubt the Fed’s commitment.In many ways, it is the inverse of the situation that Paul Volcker faced as Fed leader in the early 1980s, as he engineered aggressive rate increases to curtail the high inflation of that era. To prevail, he had to resist pressure from fellow Fed appointees who had not fully bought into the strategy, even threatening to resign rather than lose a close vote.The situation is certainly not that dramatic — yet — in 2021, given the unanimous vote on the new policy framework and the apparent strong majority on the committee who believe rates need to stay low.But if history is a guide, and inflation trends and financial markets are as unpredictable in the months ahead as they have been in the recent past, it may take more than a laugh for Mr. Powell to dismiss questions from the tight-money crowd. More

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    The Financial Crisis the World Forgot

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesRisk Near YouVaccine RolloutGuidelines After VaccinationCredit…Jasper RietmanSkip to contentSkip to site indexThe Financial Crisis the World ForgotThe Federal Reserve crossed red lines to rescue markets in March 2020. Is there enough momentum to fix the weaknesses the episode exposed?Credit…Jasper RietmanSupported byContinue reading the main storyMarch 16, 2021, 5:00 a.m. ETBy the middle of March 2020 a sense of anxiety pervaded the Federal Reserve. The fast-unfolding coronavirus pandemic was rippling through global markets in dangerous ways.Trading in Treasurys — the government securities that are considered among the safest assets in the world, and the bedrock of the entire bond market — had become disjointed as panicked investors tried to sell everything they owned to raise cash. Buyers were scarce. The Treasury market had never broken down so badly, even in the depths of the 2008 financial crisis.The Fed called an emergency meeting on March 15, a Sunday. Lorie Logan, who oversees the Federal Reserve Bank of New York’s asset portfolio, summarized the brewing crisis. She and her colleagues dialed into a conference from the fortresslike New York Fed headquarters, unable to travel to Washington given the meeting’s impromptu nature and the spreading virus. Regional bank presidents assembled across America stared back from the monitor. Washington-based governors were arrayed in a socially distanced ring around the Fed Board’s mahogany table.Ms. Logan delivered a blunt assessment: While the Fed had been buying government-backed bonds the week before to soothe the volatile Treasury market, market contacts said it hadn’t been enough. To fix things, the Fed might need to buy much more. And fast.Fed officials are an argumentative bunch, and they fiercely debated the other issue before them that day, whether to cut interest rates to near-zero.But, in a testament to the gravity of the breakdown in the government bond market, there was no dissent about whether the central bank needed to stem what was happening by stepping in as a buyer. That afternoon, the Fed announced an enormous purchase program, promising to make $500 billion in government bond purchases and to buy $200 billion in mortgage-backed debt.It wasn’t the central bank’s first effort to stop the unfolding disaster, nor would it be the last. But it was a clear signal that the 2020 meltdown echoed the 2008 crisis in seriousness and complexity. Where the housing crisis and ensuing crash took years to unfold, the coronavirus panic had struck in weeks.As March wore on, each hour incubating a new calamity, policymakers were forced to cross boundaries, break precedents and make new uses of the U.S. government’s vast powers to save domestic markets, keep cash flowing abroad and prevent a full-blown financial crisis from compounding a public health tragedy.The rescue worked, so it is easy to forget the peril America’s investors and businesses faced a year ago. But the systemwide weaknesses that were exposed last March remain, and are now under the microscope of Washington policymakers.How It StartedThe Fed began to roll out measure after measure in a bid to soothe markets.Credit…John Taggart for The New York TimesFinancial markets began to wobble on Feb. 21, 2020, when Italian authorities announced localized lockdowns.At first, the sell-off in risky investments was normal — a rational “flight to safety” while the global economic outlook was rapidly darkening. Stocks plummeted, demand for many corporate bonds disappeared, and people poured into super-secure investments, like U.S. Treasury bonds.On March 3, as market jitters intensified, the Fed cut interest rates to about 1 percent — its first emergency move since the 2008 financial crisis. Some analysts chided the Fed for overreacting, and others asked an obvious question: What could the Fed realistically do in the face of a public health threat?“We do recognize that a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain,” Chair Jerome H. Powell said at a news conference, explaining that the Fed was doing what it could to keep credit cheap and available. But the health disaster was quickly metastasizing into a market crisis.Lockdowns in Italy deepened during the second week of March, and oil prices plummeted as a price war raged, sending tremors across stock, currency and commodity markets. Then, something weird started to happen: Instead of snapping up Treasury bonds, arguably the world’s safest investment, investors began trying to sell them.The yield on 10-year Treasury debt — which usually drops when investors seek safe harbor — started to rise on March 10, suggesting investors didn’t want safe assets. They wanted cold, hard cash, and they were trying to sell anything and everything to get it.How It WorsenedNearly every corner of the financial markets began breaking down, including the market for normally steadfast Treasury securities.Credit…Ashley Gilbertson for The New York TimesReligion works through churches. Democracy through congresses and parliaments. Capitalism is an idea made real through a series of relationships between debtors and creditors, risk and reward. And by last March 11, those equations were no longer adding up.The Coronavirus Outbreak More