economic recovery

Powell discusses FOMC meeting, forward-guidance and economic recovery

Business

Michael D’Angelo, Staff

Marketwatch

Pictured above is Federal Reserve Chairman Jerome Powell. Powell led this week’s FOMC meeting, forward-signaling the Fed’s monetary policy strategy and lending clarification to eager market makers.

Since the Federal Reserve’s inception in 1913, the central bank has made a profound impact on the nation’s commercial banking sector, monetary policy and the world. The Federal Reserve, or the Fed, operates as our nation’s commercial banking regulator, monetary policy interventionist and financial stabilizer. The Fed is made up of 12 member banks which assist an assigned geographic area around the country and help with banking services and compiling data in the area. The Fed’s main goals are price stability, maximum employment and maintaining moderate long-term interest rates. 

The Fed meets eight times a year with members from other area banks known as the Federal Open Market Committee (FOMC). The FOMC consists of 12 members, which come from the Board of Governors of the Fed and Reserve Bank presidents. The FOMC is responsible for managing the country’s money supply.  

The current chairman of the Fed is Jerome Powell. Powell has served in this role since 2018. An alumnus of Princeton and Georgetown, Powell worked shortly in investment banking in his early career and later went on to start working in public service under Former President George H. W. Bush. Since his time at the Fed, Powell has neither been described as either a dove, which is a policymaker interested in low unemployment and low interest rates,  nor a hawk, which is a policymaker more concerned with stifling inflation. Instead, Powell has been described as a major mediator: one to find a consensus in monetary policy and the economy. He has been known to listen to many different members of Congress’ views on the economy. 

The FOMC met live today at 2:30 p.m. to discuss the economy’s recovery. With three vaccines in full swing and a new stimulus package passed, many of the challenges induced by the coronavirus pandemic are seeming smaller, and recovery has been top-of-mind among regulators. As a result, speculators are expected to grow more eager to reenter the market after a tumultuous year.

Many investors are concerned with the recent rise in treasury yields and inflation. Powell has discussed inflation a few weeks ago, and he does not believe inflation to be a major concern. As expected, he reiterated this point during today’s FOMC meeting. The Fed’s Summary of Economic Projections in December estimated GDP to be 4.2 percent, unemployment to be at 5 percent, and core inflation to be at 1.8 percent for 2021. Some believe these estimates rely on optimistic outcomes regarding vaccine rollouts and business reopenings. 

Market conditions indicated investors were not expecting a change in interest rates announced at the meeting, and there was none. Powell made it clear that the Fed would employ ample forward signaling before implementing any drastic, market-moving changes such as a tapering of treasury yields. In a Q&A with reporters, Powell made it clear that there needs to be significant progress made in economic recovery to consider the action. Currently, the federal funds target rate (the rate commercial banks lend to each other) is set from 0 to 0.25 percent. This was set low by the Fed to stimulate credit markets and encourage lending to businesses afflicted by the economic shutdown that occurred last March in response to spiking COVID-19 transmission rates.  As we recover from the pandemic, the economy’s fate will be placed not only in the hands of the FOMC and the Fed but in the average American’s consumer confidence and their ability to spend money. A recovery in consumer confidence followed by an economic recovery will likely prompt the Fed to change course, when that will happen remains an uncertainty.

dangelom2@lasalle.edu

Fiscal policy moves: long-awaited COVID-19 relief bill faces approval

Business

Elizabeth McLaughlin, Staff

Getty Images

President Joe Biden delivered a speech at the White House after the Senate’s passage of the American Rescue Plan on Saturday, March 6.

On Wednesday, March 10, the House plans to finalize the Senate-approved COVID-relief bill, dubbed the American Rescue Plan, after many months of debate. Among other provisions, the bill includes $1,400 checks; in December, President Trump permitted $600 checks and in March, the amount was $1,200. That means Congress has allocated a total of $2,400 in stimulus to the average American throughout the pandemic. Additionally, the relief bill offers $300-a-week federal jobless benefits. On March 5, Senate Democrats spent more than nine hours debating the amount of jobless benefits the government should offer in the bill. 

Senator Joe Manchin (D-WV) stated that “we have reached a compromise that enables the economy to rebound quickly while also protecting those receiving unemployment benefits from being hit with [an] unexpected tax bill next year.” The deal allows the first $10,200 of the jobless benefits to be non-taxable for those with incomes of up to $150,000. Tax rules on excess business loss limitations were extended for one year, through 2026. Senator Manchin stated, “those making less than $150,000 and receiving unemployment will be eligible for a $10,200 tax break.” 

Under the bill, the Pandemic Unemployment Assistance program (PUA) and the Pandemic Emergency Unemployment Compensation program (PEUC) are extended until Sept. 6. PUA is open to workers who don’t qualify for typical unemployment benefits, such as gig workers, freelancers and independent contractors. The PEUC, on the other hand, provides additional weeks of unemployment insurance once state benefits have been exhausted.

The unemployment benefits were especially crucial because, if Congress does not pass this bill, 11.4 million workers will lose their benefits between March 14 and April 11. Given the fact that more than 80 million people have filed for unemployment benefits since the pandemic began, any sort of assistance that the government can provide is critical to the improvement of the economy.

The relief bill also provides funding for vaccine distribution and testing. Moreover, the bill provides money for K-12 schools and higher education institutions. Democrats have argued that the bill will help alleviate child poverty “and help households afford food and rent while the economy recovers from the pandemic,” according to reporting from CNBC.). Republicans have criticized Democrats for focusing on policies seemingly unrelated to the pandemic.

The bill is poised to make its final passage through the House on Wednesday, March 10; if it does, President Biden can sign it by the weekend. There is a deadline on Sunday, March 15, to renew unemployment aid, so President Biden must sign the bill before then. House Democratic Caucus Chair Hakeem Jeffries (D-NY) said he is “110 percent confident that the votes exist to pass.” There is no telling when stimulus checks will be distributed to individual bank accounts, but the IRS has had a relatively quick turnaround with the two previous stimulus checks. Unfortunately, for many Americans, the aid cannot come soon enough.

mclaughline7@lasalle.edu