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    Biden Administration Faces Legal Fight Over State Aid Restrictions on Tax Cuts

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    The litigation came amid growing pushback from Republican lawmakers and state officials to a provision in the relief package that the Treasury Department said was constitutional.WASHINGTON — State backlash against a restriction in the $1.9 trillion economic relief legislation that prohibits local governments from using aid money to cut taxes emerged as the Biden administration’s first major legal battle on Wednesday, as Ohio sued to block the provision and other states considered similar action.The litigation came amid growing pushback from Republican lawmakers and state officials, who say that the strings attached to the Covid relief money are a violation of state sovereignty and that imposing tax cut restrictions is an infringement on a state’s right to set its own fiscal policies.On Tuesday, 21 Republican attorneys general wrote a letter to Treasury Secretary Janet L. Yellen seeking clarity on the portion of the law that prevents them from using the federal funds “to either directly or indirectly offset a reduction in the net tax revenue” resulting from state tax cuts.The attorneys general called the provision “the greatest attempted invasion of state sovereignty by Congress in the history of our Republic.”But the Biden administration showed no signs of backing down, saying on Wednesday that the restriction on how states can use their federal funds is constitutional and that those governments should not use stimulus money meant to combat the coronavirus crisis to subsidize tax cuts.The fight could slow the rollout of more than $200 billion in relief funds that states are expected to receive to help cover Covid-related costs, including money for schools and infrastructure investments.States, which are expected to share $220 billion worth of stimulus funds, are anxiously awaiting guidance about whether the restrictions apply to the use of federal dollars to offset new tax cuts, or if it blocks them from cutting taxes for any reason, even if the cuts were in the works before the law passed.In a court filing on Wednesday, Dave Yost, Ohio’s attorney general, sought a preliminary injunction that would bar the federal government’s ability to enforce what he described as the “tax mandate.”“The federal government should be encouraging states to innovate and grow business, not holding vital relief funding hostage to its preferred pro-tax policies,” Mr. Yost, a Republican, said in a statement.Ohio is expected to receive $5.5 billion in federal relief funds. Mr. Yost said that states should not have to choose between accepting the money and maintaining their rights to cut taxes.But the Treasury Department said on Wednesday that if a state that took relief money cuts taxes, that state must repay the amount of lost revenue from those cuts to the federal government.“It is well established that Congress may establish reasonable conditions on how states should use federal funding that the states are provided,” said Alexandra LaManna, a Treasury spokeswoman. “Those sorts of reasonable funding conditions are used all the time — and they are constitutional.”She added that the new law “provided funds to help states manage the economic consequences of Covid-19, and gave states flexibility to use that money for pandemic relief and infrastructure investments.”.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 Treasury Department rejected the idea that the provision, which was added to the relief legislation at the last minute, was prohibiting states from cutting taxes. States are free to decline the federal funds, or they can repay the money if they are in fiscal shape to cut taxes.“The law does not say that states cannot cut taxes at all, and it does not say that if a state cut taxes, it must pay back all of the federal funding it received,” Ms. LaManna said. “It simply instructed them not to use that money to offset net revenues lost if the state chooses to cut taxes. So if a state does cut taxes without replacing that revenue in some other way, then the state must pay back to the federal government pandemic relief funds up to the amount of the lost revenue.”The amount of aid that a state will receive is tied to its jobless rate, and there are strict requirements to ensure that the money is used for purposes related to the coronavirus or to offset revenues that have been lost because of the health crisis. The Treasury Department plans to closely scrutinize how the money is spent.In their letter to Ms. Yellen, the attorneys general said that if they did not receive a formal response by March 23, they would take “appropriate additional action.”More lawsuits could soon follow. Attorney General Patrick Morrisey of West Virginia said such action would include seeking a court ruling “that the unprecedented and micromanaging provision violates the U.S. Constitution.”At a briefing with reporters on Wednesday, Mr. Morrisey said he had been working on a draft of a complaint. He has been talking to other states about the mechanics of the legal challenge and where it should be filed.“There are huge legal and constitutional problems with this provision,” Mr. Morrisey said. “This may be one of the greatest attempted invasions of state sovereignty by Congress in the history of our Republic.” More

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    Biden, Pitching Stimulus, Promises Milestones for Covid-19 Vaccines and Checks

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    #masthead-section-label, #masthead-bar-one { display: none }Biden’s Stimulus PlanBiden’s AddressWhat to Know About the BillAnalysis: Economic RescueBenefits for Middle ClassAdvertisementContinue reading the main storySupported byContinue reading the main storyBiden, Pitching Stimulus, Promises Milestones for Vaccines and ChecksThe president kicked off a week of events to promote his $1.9 trillion American Rescue Plan by appointing Gene Sperling, a longtime Democratic aide, to oversee spending under the bill.“The American Rescue Plan is already doing what it was designed to do: make a difference in people’s everyday lives,” President Biden said in a brief address from the White House on Monday.Credit…Stefani Reynolds for The New York TimesJim Tankersley and March 15, 2021Updated 8:23 p.m. ETWASHINGTON — President Biden said on Monday that his administration was on pace to achieve two key goals by March 25: 100 million shots of Covid-19 vaccines since his inauguration and 100 million direct payments under his economic relief bill.The announcement was the first in what promises to be a series of end-zone dances that Mr. Biden and administration officials are set to stage this week as they promote the $1.9 trillion package that the president signed into law last week.“Shots in arms and money in pockets. That’s important,” Mr. Biden said in a brief address from the White House. “The American Rescue Plan is already doing what it was designed to do: make a difference in people’s everyday lives.”Over the weekend, the Treasury Department began issuing direct electronic payments of $1,400 per person, as authorized by the law, to low- and middle-income Americans. The United States has administered 92.6 million vaccine doses since Jan. 20, when Mr. Biden took office, according to data released on Monday by the Centers for Disease Control and Prevention. At the current pace of vaccinations, the country will pass 100 million doses before the end of the week, well ahead of the president’s promise of March 25.Mr. Biden had set the goal of 100 million doses before taking office, and he has repeatedly heralded the country being on pace to meet it, though many public health experts say it is relatively easily attainable.The relief plan also includes dozens of other provisions that have yet to be carried out, such as new monthly checks for parents, $350 billion for state and local governments and additional relief for the unemployed.With so much money at stake and Republicans criticizing the package as wasteful, Mr. Biden vowed to bring “fastidious oversight” to the relief bill in order to ensure that it is distributed quickly and equitably.He introduced Gene Sperling, a longtime Democratic policy aide who advised Mr. Biden’s presidential campaign last year, as his pick to oversee spending from the relief package. Mr. Sperling will be a senior adviser to the president and a White House employee, operating independently from an oversight commission established by Congress during the pandemic that consists of inspectors general from various agencies.“We have to prove to the American people that their government can deliver for them, and do it without waste or fraud,” Mr. Biden said.His remarks came as his team prepared to fan out across the country for a week of sales pitches for a bill that has proved very popular with voters but garnered zero Republican votes.Mr. Biden will visit Delaware County, Pa., on Tuesday and appear with Vice President Kamala Harris on Friday in Atlanta, which helped deliver Democrats the Senate majority that made the relief plan possible.A group of administration officials, including the first lady, Jill Biden, and Ms. Harris’s husband, Doug Emhoff, will make their own trips. Ms. Harris and her husband landed in Las Vegas for an event on Monday afternoon, while Dr. Biden finished an event in New Jersey.The road show is an effort to avoid the messaging mistakes of President Barack Obama’s administration, which Democrats believe failed to continue vocally building support for his $780 billion stimulus act after it passed in 2009. The challenge for the Biden administration will be to highlight less obvious provisions, including the largest federal infusion in generations of aid to the poor, a substantial expansion of the child tax credit and increased subsidies for health insurance.Mr. Sperling’s challenge will be to meet Mr. Biden’s promises of transparency and accountability for those programs.The president and White House officials called Mr. Sperling well qualified for the task. He was the director of the National Economic Council under Mr. Obama and President Bill Clinton. In the Obama administration, where he first served as a counselor in the Treasury Department, Mr. Sperling helped to coordinate a bailout of Detroit automakers and other parts of the administration’s response to the 2008 financial crisis..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.He advised Mr. Biden’s campaign informally in 2020, helping to hone the campaign’s “Build Back Better” policy agenda. Friends have described Mr. Sperling in recent months as eager to join the administration; he had been mentioned as a possible appointee to lead the Office of Management and Budget after Mr. Biden’s first nominee for that position, Neera Tanden, withdrew amid Senate opposition.Mr. Sperling’s challenge with the rescue plan will be different than the one Mr. Biden faced in 2009, because the relief bill differs starkly from Mr. Obama’s signature stimulus plan. The Biden plan is more than twice as large as Mr. Obama’s. It includes money meant to hasten the end of the pandemic, including billions for vaccine deployment and coronavirus testing. The plans also have similarities, including more than $400 billion each in total spending for school districts and state and local governments.Oversight of the $1.9 trillion relief legislation is currently expected to rely on the byzantine oversight architecture that was established in the stimulus packages Congress passed last year.The new effort will continue to rely on the Government Accountability Office and the Pandemic Response Accountability Committee, a panel of inspectors general from across the federal government.Less clear is the fate of the Congressional Oversight Commission, the five-person bipartisan panel that was created to oversee the $500 billion Treasury Department fund that supported the Federal Reserve’s emergency lending programs and loans to airlines and companies that are critical to national security. The commission currently has only three members, and the Fed programs concluded at the end of last year.The commission’s report in January said that it planned to continue “analyzing loans, loan guarantees and investments that were made prior to program termination” and producing reports.It is not clear if the existing mechanisms will be sufficient for overseeing the money in the new relief package, which will pump billions of dollars into states and cities. Additional oversight measures are likely to be needed.A Treasury official said that the department would set up a process to monitor the use of funds that are being sent to states to ensure that they are used according to the eligibility requirements in the law.Like many Americans in the pandemic, Mr. Sperling will have to coordinate and navigate those efforts virtually, at least at first. Jen Psaki, the White House press secretary, said on Monday that Mr. Sperling would work remotely from his home in California until he is vaccinated.AdvertisementContinue reading the main story More

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    Treasury to Invest $9 Billion in Minority Communities

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyTreasury to Invest $9 Billion in Minority CommunitiesTreasury Secretary Janet Yellen is making Community Development Financial Institutions central to achieving an inclusive economy.Sunshine Foss at her wine and spirits store, Happy Cork, in Brooklyn in November. Her store focuses on Black- and other minority-owned labels.Credit…Joshua Bright for The New York TimesMarch 4, 2021Updated 4:13 p.m. ETWASHINGTON — The Biden administration unveiled a plan on Thursday to invest $9 billion in minority communities, taking an initial step in fulfilling its promise to ensure that those who have been hit hardest by the pandemic have access to loans as the economy recovers.The Treasury Department said it was opening the application process for its Emergency Capital Investment Program, which will provide a major infusion of funds to Community Development Financial Institutions and Minority Depository Institutions as they look to step up lending.The effort is a priority of Treasury Secretary Janet L. Yellen, who has warned that the fallout from the pandemic is exacerbating inequality in the United States.“America has always had financial services deserts, places where it’s very difficult for people to get their hands on capital so they can, for example, start a business,” Ms. Yellen said in a statement. “But the pandemic has made these deserts even more inhospitable.”She added: “The Emergency Capital Investment Program will help these places that the financial sector hasn’t typically served well.”Ms. Yellen has for years been an advocate for Community Development Financial Institutions, arguing that they are an important tool for fostering a more inclusive economy.The relief programs that were rolled out in 2020, such as the Paycheck Protection Program, for small businesses, drew criticism from minority groups, who said Black- and other minority-owned businesses were at a disadvantage in applying for a limited pool of funds because many had weaker banking relationships than their white-owned counterparts. A Federal Reserve Bank of New York study last year found that Black-owned businesses suffered the sharpest rate of closures in the first part of 2020.The Treasury Department is using funds that were approved in the $900 billion stimulus package that was passed in December and signed by former President Donald J. Trump.Community Development Financial Institutions, which provide affordable lending options to low-income consumers and businesses, were largely neglected under Mr. Trump and his Treasury Department. President Biden and Ms. Yellen have signaled that they will be critical for improving racial equity in the United States.The new program will make direct investments in local lenders that support small businesses and consumers in low-income communities. The investments will have low interest rates and provide lenders with greater incentives to offer small loans to those who are most in need, both in rural areas and in places where poverty is persistent.Treasury officials said they wanted the new program to reinforce the health of Community Development Financial Institutions. The department is also putting in place two separate programs to that will provide an additional $3 billion in grants and other support to the lenders.AdvertisementContinue reading the main story More

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    What the Bond Market Is Telling Us About the Biden Economy

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    AdvertisementContinue reading the main storyUpshotSupported byContinue reading the main storyWhat the Bond Market Is Telling Us About the Biden EconomyA recent rise in interest rates hints that a recovery is on the way, but it could also mean harder choices ahead on spending.Feb. 23, 2021, 5:00 a.m. ETTreasury Secretary Janet Yellen, right, at a White House meeting this month. She has emphasized that interest rates are crucial in determining how much the government should borrow and spend.Credit…Carlos Barria/ReutersWhile Washington debates the size of a new economic rescue plan, the bond market is sending a message: A meaningful acceleration in both growth and inflation in the years ahead looks more likely now than it did just a few weeks ago.That would be mostly good news, suggesting an economy recovering quickly from the pandemic. Interest rates remain very low by historical standards, even for the longest-term securities. Bond prices imply that inflation will be consistent with the Federal Reserve’s target of 2 percent annual rises in consumer prices, not a more worrisome spiral.[embedded content]But the surge in rates has brought an end to a period of several months when borrowing was essentially free, seemingly far into the future. For the Biden administration and the Federal Reserve, that implies that the free-lunch stage of the crisis is ending, and there could be harder questions ahead.In particular, it means that the downside of bad policy — federal spending that doesn’t generate much economic activity, for example — is higher than it was as recently as December.“We’re at a place where the markets are starting to grapple with the question of whether there are trade-offs between more stimulus today and potentially higher rates and more inflation down the road,” said Nathan Sheets, chief economist of PGIM Fixed Income and a former official at the Treasury and the Fed.The yield on 10-year Treasury bonds — the rate the United States government must pay to borrow money for a decade — was 1.37 percent Monday, low by historical standards but well above its recent low of 0.51 percent in August and 0.92 percent at the end of December. Those higher Treasury rates generally translate into higher mortgage rates and corporate borrowing costs, so the surge could take some of the air out of bubbly housing and financial markets.The inflation-adjusted interest rate the United States Treasury must pay to borrow money for 30 years was negative for much of the last year, meaning the government would pay investors back less in inflation-adjusted terms than it borrowed. Last week, the rate rose into positive territory for the first time since June and closed at 0.06 percent Monday. (For shorter time horizons, the “real yield” remains in negative territory.)That’s particularly striking given that Fed officials have repeatedly said they expect the short-term interest rate target they control to be near zero for quite some time — and bond investors appear to believe them. The yield on two-year Treasuries has barely budged in the same span.What is happening is known as a “steepening of the yield curve,” with long-term rates rising as short-term rates hold still. It tends to presage faster economic growth; it is the opposite of a “yield curve inversion,” which is known as a harbinger of recessions.But the flip side is that the moment appears to have passed when bond markets were giving the government an all-clear signal to do whatever was necessary to boost the economy, essentially making endless funding available at extraordinarily low cost. That could have implications for how the Biden administration approaches the rest of its economic agenda.Treasury Secretary Janet Yellen has emphasized that low interest rates, which keep the cost of debt service low, are important in her thinking about how much the government can comfortably borrow and spend.At The New York Times’s DealBook conference on Monday, Ms. Yellen, after noting that the government’s ratio of debt to the size of the economy is much larger than it was before the global financial crisis, said: “Look at a different metric, which is more important, which is what is the cost of that debt. Look for example at interest payments on the debt as a share of G.D.P.,” which is below 2007 levels.“So I think we have more fiscal space than we used to because of the interest rate environment,” Ms. Yellen told the Times’s Andrew Ross Sorkin.By implication, the further that bond yields rise, and inflation expectations along with them, the more the Biden administration would view their potential spending to be constrained. Congress is now at work on a $1.9 trillion pandemic aid package, which Democratic leaders hope to pass in March. They envision a large-scale infrastructure plan after that.Jerome Powell, the Federal Reserve chair, will face questions from Congress on Tuesday about the central bank’s policies. In other recent appearances, he has emphasized the importance of returning the economy to full health above all other goals, and stressed that inflation has been persistently too low rather than too high over the last decade.“Fed Chair Powell has taken each and every opportunity to reassure investors that the Fed would consider near-term inflationary pressure to be transitory,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management. “The market is taking the Fed at its word that short rates will be anchored at zero for a considerable time.”The gap between the prices of regular and inflation-protected bonds as of Friday’s close imply that the Consumer Price Index is expected to rise 2.29 percent a year over the next five years, and 1.99 percent a year for the five years after that. The Fed aims for 2 percent annual inflation as measured by a different index that tends to be somewhat lower, meaning these so-called “inflation break-evens” are broadly consistent with the central bank’s goals.Put it all together, and the surge in rates so far is basically an optimistic sign that the post-pandemic economy will mark the end of a long period of sluggish growth. But the speed of the adjustment is a reminder that the line between too hot and just right is a narrow one.AdvertisementContinue reading the main story More

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    How Full Employment Became Washington’s Creed

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    #masthead-section-label, #masthead-bar-one { display: none }The Jobs CrisisCurrent Unemployment RateThe First Six MonthsPermanent LayoffsWhen a $600 Lifeline EndedAdvertisementContinue reading the main storySupported byContinue reading the main storyHow Full Employment Became Washington’s CreedPolicymakers are eager to return to the period of low unemployment that preceded the pandemic and are less concerned than in previous eras about sparking inflation and taking on debt.People wait in line to receive donations at a food pantry in New York City earlier this month. Policymakers agree that a return to a hot job market should be a central goal.Credit…Mohamed Sadek for The New York TimesJan. 18, 2021, 3:29 p.m. ETAs President-elect Joseph R. Biden, Jr. prepares to take office this week, his administration and the Federal Reserve are pointed toward a singular economic goal: Get the job market back to where it was before the pandemic hit.The humming labor backdrop that existed 11 months ago — with 3.5 percent unemployment, stable or rising work force participation and steadily climbing wages — turned out to be a recipe for lifting all boats, creating economic opportunities for long-disenfranchised groups and lowering poverty rates. And price gains remained manageable and even a touch on the low side. That contrasts with efforts to push the labor market’s limits in the 1960s, which are widely blamed for laying the groundwork for runaway inflation.Then the pandemic cut the test run short, and efforts to contain the virus prompted joblessness to skyrocket to levels not seen since the Great Depression. The recovery has since been interrupted by additional waves of contagion, keeping millions of workers sidelined and causing job losses to recommence.Policymakers across government agree that a return to that hot job market should be a central goal, a notable shift from the last economic expansion and one that could help shape the economic rebound.Mr. Biden has made clear that his administration will focus on workers and has chosen top officials with a job market focus. He has tapped Janet L. Yellen, a labor economist and the former Fed chair, as his Treasury secretary and Marty Walsh, a former union leader, as his Labor secretary.In the past, lawmakers and Fed officials tended to preach allegiance to full employment — the lowest jobless rate an economy can sustain without stoking high inflation or other instabilities — while pulling back fiscal and monetary support before hitting that target as they worried that a more patient approach would cause price spikes and other problems.That timidity appears less likely to rear its head this time around.Mr. Biden is set to take office as Democrats control the House and Senate and at a time when many politicians have become less worried about the government taking on debt thanks to historically low borrowing costs. And the Fed, which has a track record of lifting interest rates as unemployment falls and as Congress spends more than it collects in taxes, has committed to greater patience this time around.“Economic research confirms that with conditions like the crisis today, especially with such low interest rates, taking immediate action — even with deficit finance — is going to help the economy, long-term and short-term,” Mr. Biden said at a news conference on Jan. 8, highlighting that quick action would “reduce scarring in the work force.”Jerome H. Powell, the Fed chair, said on Thursday that his institution is tightly focused on restoring rock-bottom unemployment rates.“That’s really the thing that we’re most focused on — is getting back to a strong labor market quickly enough that people’s lives can get back to where they want to be,” Mr. Powell said. “We were in a good place in February of 2020, and we think we can get back there, I would say, much sooner than we had feared.”The stage is set for a macroeconomic experiment, one that will test whether big government spending packages and growth-friendly central bank policies can work together to foster a fast rebound that includes a broad swath of Americans without incurring harmful side effects.“The thing about the Fed is that it really is the tide that lifts all boats,” said Nela Richardson, chief economist at the payroll processor ADP, explaining that the labor-focused central bank can set the groundwork for robust growth. “What fiscal policy can do is target specific communities in ways that the Fed can’t.”The government has spent readily to shore up the economy in the face of the pandemic, and analysts expect that more help is on the way. The Biden administration has suggested an ambitious $1.9 trillion spending package.President-elect Joseph R. Biden Jr. has appointed top officials with a job market focus.Credit…Amr Alfiky/The New York TimesWhile that probably won’t pass in its entirety, at least some more fiscal spending seems likely. Economists at Goldman Sachs expect Congress to actually pass another $1.1 trillion in relief during the first quarter of 2021, adding to the $2 trillion pandemic relief package passed in March and the $900 billion in additional aid passed in December.That would help to stoke a faster recovery this year. Goldman economists estimate that the spending could help to push the unemployment rate to 4.5 percent by the end of 2021. Joblessness stood at 6.7 percent in December, the Bureau of Labor Statistics said earlier this month.Such a government-aided rebound would come in stark contrast to what happened during the 2007 to 2009 recession. Back then, Congress’s biggest package to counter the fallout of the downturn was the $800 billion American Recovery and Reinvestment Act, passed in 2009. It was exhausted long before the unemployment rate finally dipped below 5 percent, in early 2016.At the time, concern over the deficit helped to stem more aggressive fiscal policy responses. And concerns about economic overheating pushed the Fed to begin lifting interest rates — albeit very slowly — in late 2015. As the unemployment rate dropped, central bankers worried that wage and price inflation might wait around the corner and were eager to return policy to a more “normal” setting.But economic thinking has undergone a sea change since then. Fiscal authorities have become more confident running up the public debt at a time of very low interest rates, when it isn’t so costly to do so.Fed officials are now much more modest about judging whether or not the economy is at “full employment.” In the wake of the 2008 crisis, they thought that joblessness was testing its healthy limits, but unemployment went on to drop sharply without fueling runaway price increases.In August 2020, Mr. Powell said that he and his colleagues will now focus on “shortfalls” from full employment, rather than “deviations.” Unless inflation is actually picking up or financial risks loom large, they will view falling unemployment as a welcome development and not a risk to be averted.That means interest rates are likely to remain near zero for years. Top Fed officials have also signaled that they expect to continue buying vast sums of government-backed bonds, about $120 billion per month, for at least months to come.Fed support could help government spending kick demand into high gear. Households are expected to amass big savings stockpiles as they receive stimulus checks early in 2021, then draw them down as vaccines become widespread and normal economic life resumes. Low rates might make big investments — like houses — more attractive.Still, some analysts warn that today’s policies could result in future problems, like runaway inflation, financial market risk-taking or a damaging debt overhang.In the mid-to-late 1960s, Fed officials were tightly focused on chasing full employment. As they tested how far they could push the job market, they did not try to head inflation off as it crept up and saw higher prices as a trade off for lower joblessness. When America took its final steps away from the gold standard and an oil price shock hit in the early 1970s, price gains took off — and it took massive monetary belt-tightening by the Fed and years of serious economic pain to tame them.Many politicians have become less worried about government borrowing thanks to historically low interest rates.Credit…Erin Schaff/The New York TimesThere are reasons to believe that this time is different. Inflation has been low for decades and remains contained across the world. The link between unemployment and wages, and wages and prices, has been more tenuous than in decades past. From Japan to Europe, the problem of the era is weak price gains that trap economies in cycles of stagnation by eroding room to cut interest rates during time of trouble, not excessively fast inflation.And economists increasingly say that, while there may be costs from long periods of growth-friendly fiscal and monetary policy, there are also costs from being too cautious. Tapping the brakes on a labor market expansion earlier than is needed can leave workers who would have gotten a boost from a strong job market on the sidelines.The period before the pandemic showed just what an excessively cautious policy setting risks missing. By 2020, Black and Hispanic unemployment had dropped to record lows. Participation for prime-age workers, which was expected to remain permanently depressed, had actually picked up somewhat. Wages were climbing fastest for the lowest earners.It’s not clear whether 3.5 percent unemployment will be the exact level America will achieve again. What is clear is that many policymakers want to test what the economy is capable of, rather than guessing at a magic figure in advance.“There’s a danger in computing a number and saying, that means we are there,” Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, said at an event earlier this month. “We’re going to learn about these things experientially, and that to me is the right risk management posture.”AdvertisementContinue reading the main story More

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    The Business Rules the Trump Administration Is Racing to Finish

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    #masthead-section-label, #masthead-bar-one { display: none }The Presidential TransitionLatest UpdatesHouse Moves to Remove TrumpHow Impeachment Might WorkBiden Focuses on CrisesCabinet PicksAdvertisementContinue reading the main storySupported byContinue reading the main storyThe Business Rules the Trump Administration Is Racing to FinishFrom tariffs and trade to the status of Uber drivers, regulators are trying to install new rules or reduce regulations before President-elect Joe Biden takes over.President Trump is rushing to put into effect new economic regulations and executive orders before his term comes to a close.Credit…Erin Schaff/The New York TimesJan. 11, 2021, 3:00 a.m. ETIn the remaining days of his administration, President Trump is rushing to put into effect a raft of new regulations and executive orders that are intended to put his stamp on business, trade and the economy.Previous presidents in their final term have used the period between the election and the inauguration to take last-minute actions to extend and seal their agendas. Some of the changes are clearly aimed at making it harder, at least for a time, for the next administration to pursue its goals.Of course, President-elect Joseph R. Biden Jr. could issue new executive orders to overturn Mr. Trump’s. And Democrats in Congress, who will control the House and the Senate, could use the Congressional Review Act to quickly reverse regulatory actions from as far back as late August.Here are some of the things that Mr. Trump and his appointees have done or are trying to do before Mr. Biden’s inauguration on Jan. 20. — Peter EavisProhibiting Chinese apps and other products. Mr. Trump signed an executive order on Tuesday banning transactions with eight Chinese software applications, including Alipay. It was the latest escalation of the president’s economic war with China. Details and the start of the ban will fall to Mr. Biden, who could decide not to follow through on the idea. Separately, the Trump administration has also banned the import of some cotton from the Xinjiang region, where China has detained vast numbers of people who are members of ethnic minorities and forced them to work in fields and factories. In another move, the administration prohibited several Chinese companies, including the chip maker SMIC and the drone maker DJI, from buying American products. The administration is weighing further restrictions on China in its final days, including adding Alibaba and Tencent to a list of companies with ties to the Chinese military, a designation that would prevent Americans from investing in those businesses. — Ana SwansonDefining gig workers as contractors. The Labor Department on Wednesday released the final version of a rule that could classify millions of workers in industries like construction, cleaning and the gig economy as contractors rather than employees, another step toward endorsing the business practices of companies like Uber and Lyft. — Noam ScheiberTrimming social media’s legal shield. The Trump administration recently filed a petition asking the Federal Communications Commission to narrow its interpretation of a powerful legal shield for social media platforms like Facebook and YouTube. If the commission doesn’t act before Inauguration Day, the matter will land in the desk of whomever Mr. Biden picks to lead the agency. — David McCabeTaking the tech giants to court. The Federal Trade Commission filed an antitrust suit against Facebook in December, two months after the Justice Department sued Google. Mr. Biden’s appointees will have to decide how best to move forward with the cases. — David McCabeAdding new cryptocurrency disclosure requirements. The Treasury Department late last month proposed new reporting requirements that it said were intended to prevent money laundering for certain cryptocurrency transactions. It gave only 15 days — over the holidays — for public comment. Lawmakers and digital currency enthusiasts wrote to the Treasury secretary, Steven Mnuchin, to protest and won a short extension. But opponents of the proposed rule say the process and substance are flawed, arguing that the requirement would hinder innovation, and are likely to challenge it in court. — Ephrat LivniLimiting banks on social and environmental issues. The Office of the Comptroller of the Currency is rushing a proposed rule that would ban banks from not lending to certain kinds of businesses, like those in the fossil fuel industry, on environmental or social grounds. The regulator unveiled the proposal on Nov. 20 and limited the time it would accept comments to six weeks despite the interruptions of the holidays. — Emily FlitterOverhauling rules on banks and underserved communities. The Office of the Comptroller of the Currency is also proposing new guidelines on how banks can measure their activities to get credit for fulfilling their obligations under the Community Reinvestment Act, an anti-redlining law that forces them to do business in poor and minority communities. The agency rewrote some of the rules in May, but other regulators — the Federal Reserve and the Federal Deposit Insurance Corporation — did not sign on. — Emily FlitterInsuring “hot money” deposits. On Dec. 15, the F.D.I.C. expanded the eligibility of brokered deposits for insurance coverage. These deposits are infusions of cash into a bank in exchange for a high interest rate, but are known as “hot money” because the clients can move the deposits from bank to bank for higher returns. Critics say the change could put the insurance fund at risk. F.D.I.C. officials said the new rule was needed to “modernize” the brokered deposits system. — Emily FlitterNarrowing regulatory authority over airlines. The Department of Transportation in December authorized a rule, sought by airlines and travel agents, that limits the department’s authority over the industry by defining what constitutes an unfair and deceptive practice. Consumer groups widely opposed the rule. Airlines argued that the rule would limit regulatory overreach. And the department said the definitions it used were in line with its past practice. — Niraj ChokshiRolling back a light bulb rule. The Department of Energy has moved to block a rule that would phase out incandescent light bulbs, which people and businesses have increasingly been replacing with much more efficient LED and compact fluorescent bulbs. The energy secretary, Dan Brouillette, a former auto industry lobbyist, said in December that the Trump administration did not want to limit consumer choice. The rule had been slated to go into effect on Jan. 1 and was required by a law passed in 2007. — Ivan PennAdvertisementContinue reading the main story More

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    The Year the Fed Changed Forever

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesThe Stimulus DealThe Latest Vaccine InformationF.A.Q.Jerome H. Powell, the Federal Reserve chair, has faced some of the most trying months in the central bank’s history.Credit…Nate Palmer for The New York TimesSkip to contentSkip to site indexThe Year the Fed Changed ForeverJerome H. Powell’s central bank slashed rates, bought bonds in huge sums and rolled out never-before-tried loan programs that shifted its identity. The backlash is already beginning.Jerome H. Powell, the Federal Reserve chair, has faced some of the most trying months in the central bank’s history.Credit…Nate Palmer for The New York TimesSupported byContinue reading the main storyDec. 23, 2020Updated 4:04 p.m. ETWASHINGTON — As Jerome H. Powell, the Federal Reserve chair, rang in 2020 in Florida, where he was celebrating his son’s wedding, his work life seemed to be entering a period of relative calm. President Trump’s public attacks on the central bank had eased up after 18 months of steady criticism, and the trade war with China seemed to be cooling, brightening the outlook for markets and the economy.Yet the earliest signs of a new — and far more dangerous — crisis were surfacing some 8,000 miles away. The novel coronavirus had been detected in Wuhan, China. Mr. Powell and his colleagues were about to face some of the most trying months in Fed history.By mid-March, as markets were crashing, the Fed had cut interest rates to near zero to protect the economy. By March 23, to avert a full-blown financial crisis, the Fed had rolled out nearly its entire 2008 menu of emergency loan programs, while teaming up with the Treasury Department to announce programs that had never been tried — including plans to support lending to small and medium-size businesses and buy corporate debt. In early April, it tacked on a plan to get credit flowing to states.“We crossed a lot of red lines that had not been crossed before,” Mr. Powell said at an event in May.The Fed’s job in normal times is to help the economy operate at an even keel — to keep prices stable and jobs plentiful. Its sweeping pandemic response pushed its powers into new territory. The central bank restored calm to markets and helped keep credit available to consumers and businesses. It also led Republicans to try to limit the vast tool set of the politically independent and unelected institution. The Fed’s emergency loan programs became a sticking point in the negotiations over the government spending package Congress approved this week.But even amid the backlash, the Fed’s work in salvaging a pandemic-stricken economy remains unfinished, with millions of people out of jobs and businesses suffering.The Fed is likely to keep rates at rock bottom for years, guided by a new approach to setting monetary policy adopted this summer that aims for slightly higher inflation and tests how low unemployment can fall.And the Fed’s extraordinary actions in 2020 weren’t aimed only at keeping credit flowing. Mr. Powell and other top Fed officials pushed for more government spending to help businesses and households, an uncharacteristically bold stance for an institution that tries mightily to avoid politics. As the Fed took a more expansive view of its mission, it weighed in on climate change, racial equity and other issues its leaders had typically avoided.“We’ve often relegated racial equity, inequality, climate change to simply social issues,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said in an interview. “That’s a mistake. They are economic issues.”In Washington, reactions to the Fed’s bigger role have been swift and divided. Democrats want the Fed to do more, portraying the attention to climate-related financial risks as a welcome step but just a beginning. They have also pushed the Fed to use its emergency lending powers to funnel cheap credit to state and local governments and small businesses.The Fed’s sweeping pandemic response pushed its powers into new territory.Credit…Ting Shen for The New York TimesRepublicans have worked to restrict the Fed to ensure that the role it has played in this pandemic does not outlast the crisis.Patrick J. Toomey, a Republican senator from Pennsylvania, spearheaded the effort to insert language into the relief package that could have forced future Fed emergency lending programs to stick to soothing Wall Street instead of trying to also directly support Main Street, as the Fed has done in the current downturn.Republicans worry that the Fed could use its power to support partisan goals — by invoking its regulatory power over banks, for instance, to treat oil and gas companies as financial risks, or by propping up financially troubled municipal governments.“Fiscal and social policy is the rightful realm of the people who are accountable to the American people, and that’s us, that’s Congress,” Mr. Toomey, who could be the next banking committee chairman and thus one of Mr. Powell’s most important overseers, said last week from the Senate floor.Mr. Toomey’s proposal was watered down during congressional negotiations, clearing the way for a broader relief deal: Congress barred the central bank from re-establishing the exact facilities used in 2020, but it did not cut off its power to help states and companies in the future.The Coronavirus Outbreak More

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    Buried in Covid Relief Bill: Billions to Soothe the Richest

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesThe Stimulus DealThe Latest Vaccine InformationF.A.Q.AdvertisementContinue reading the main storySupported byContinue reading the main storyBuried in Pandemic Aid Bill: Billions to Soothe the RichestThe voluminous coronavirus relief and spending bill that blasted through Congress on Monday includes provisions — good, bad and just plain strange — that few lawmakers got to read.Senator Joe Manchin III, Democrat of West Virginia, at the Capitol last week. He said leadership intentionally waited until the last minute to unveil final proposals to the spending bill.Credit…Anna Moneymaker for The New York TimesLuke Broadwater, Jesse Drucker and Dec. 22, 2020WASHINGTON — Tucked away in the 5,593-page spending bill that Congress rushed through on Monday night is a provision that some tax experts call a $200 billion giveaway to the rich.It involves the tens of thousands of businesses that received loans from the federal government this spring with the promise that the loans would be forgiven, tax free, if they agreed to keep employees on the payroll through the coronavirus pandemic.But for some businesses and their high-paid accountants, that was not enough. They went to Congress with another request: Not only should the forgiven loans not to be taxed as income, but the expenditures used with those loans should be tax deductible.“High-income business owners have had tax benefits and unprecedented government grants showered down upon then. And the scale is massive,” said Adam Looney, a fellow at the Brookings Institution and a former Treasury Department tax official in the Obama administration, who estimated that $120 billion of the $200 billion would flow to the top 1 percent of Americans.The new provision allows for a classic double dip into the Payroll Protection Program, as businesses get free money from the government, then get to deduct that largess from their taxes.And it is one of hundreds included in a huge spending package and a coronavirus stimulus bill that is supposed to help businesses and families struggling during the pandemic but, critics say, swerved far afield. President Trump on Tuesday night blasted it as a disgrace and demanded revisions.“Congress found plenty of money for foreign countries, lobbyists and special interests, while sending the bare minimum to the American people who need it,” he said in a video posted on Twitter that stopped just short of a veto threat.The measure includes serious policy changes beyond the much-needed $900 billion in coronavirus relief, like a simplification of federal financial aid forms, measures to address climate change and a provision to stop “surprise billing” from hospitals when patients unwittingly receive care from physicians out of their insurance networks.But there is also much grumbling over other provisions that lawmakers had not fully reviewed, and a process that left most of them and the public in the dark until after the bill was passed. The anger was bipartisan.“Members of Congress have not read this bill. It’s over 5000 pages, arrived at 2pm today, and we are told to expect a vote on it in 2 hours,” Representative Alexandria Ocasio-Cortez, Democrat of New York, tweeted on Monday. “This isn’t governance. It’s hostage-taking.”Senator Ted Cruz, Republican of Texas, agreed — the two do not agree on much.“It’s ABSURD to have a $2.5 trillion spending bill negotiated in secret and then—hours later—demand an up-or-down vote on a bill nobody has had time to read,” he tweeted on Monday.The items jammed into the bill are varied and at times bewildering. The bill would make it a felony to offer illegal streaming services. One provision requires the C.I.A. to report back to Congress on the activities of Eastern European oligarchs tied to President Vladimir V. Putin of Russia. The federal government would be required to set up a program aimed at eradicating the murder hornet and to crack down on online sales of e-cigarettes to minors.It authorizes 93 acres of federal lands to be used for the construction of the Teddy Roosevelt Presidential Library in North Dakota and creates an independent commission to oversee horse racing, a priority of Senator Mitch McConnell, Republican of Kentucky and the majority leader.Mr. McConnell inserted that item to get around the objections of a Democratic senator who wanted it amended, but he received agreement from other congressional leaders.Alexander M. Waldrop, the chief executive of the National Thoroughbred Racing Association, said on Tuesday that Mr. McConnell had “said many times he feared for the future of horse racing and the impact on the industry, which of course is critical to Kentucky.”The Coronavirus Outbreak More