Month: August 2022

Jackson Hole has begun and the hawkish messaging is clear.

Kansas City Fed President Esther George said:

“It’s very important that we are clear in our communication about the destination we are headed… We have to get interest rates higher to slow down demand and bring inflation back to our target.“

Perhaps most notably, George stressed that:

“We want financial conditions to tighten along with the direction we are moving around policy.”

And as Nomura’s Charlie McElligott has been stressing recently, the market just isn’t acquiescing. In fact, since the start of July, despite all the hawkish FedSpeak, financial conditions have eased dramatically as traders price in the “Fed Pivot”…

Source: Bloomberg

In fact financial conditions are now easier that they were before The Fed started hiking rates…

Source: Bloomberg

This hawkish messaging was confirmed by ‘pause’-man himself, Atlanta Fed President Raphael Bostic, who warned in a WSJ interview that:

“I think it’s going to be really important that we resist the temptation to be too reactionary, and really make sure that we get inflation well on its way to 2 percent before we take any steps to increase accommodation in our policy stance.”

Ironically, this hawkishness is set against a tailwind of highly debatable / highly politicized global fiscal stimulus:

• In US (farcical Student Loan relief & IRS ex post facto waving of COVID late fees -announcements yesterday…while overnight, we see a fresh directive from the White House’s budget office to stop weighing medical debt in Federal loan approvals);

• Chinese fiscal stimulus (adds another 1T Yuan / $146B USD of special local govt bond funding and lending quotas last night targeting infrastructure spending, on top of other easings and stim since June and recent rate cuts); and

• European fiscal stimulus / Energy subsidies for consumers (Bloomberg estimates $279B of “energy crisis rescue cash” from governments in total now—helping German IFO top consensus and seeing GDP revised marginally higher as well, largely thanks to said Energy price caps from the govt to shield consumers).

As McElligott warns, these ‘stimmies’ are likely act to incentivize short-term CONSUMPTION and DEMAND CONSTRUCTION, at a time when central banks are attempting to create DEMAND DESTRUCTION to re-gain control of the inflation spiral.

So, looking int tomorrow, the Nomura strategist warns that this already feels like yet another Jerome Powell “nothingburger” with low expected signaling output, where I’d assign a rather “SAD!” 90% prob that the Fed Chair can only disappoint versus purportedly “hawkish” expectations.

As a reminder, even Goldman questioned “did Powell really mean to be so dovish?”

With the last two weeks seeing STIRs shifting significantly hawkishly…

Source: Bloomberg

McElligott exclaims that Powell SHOULD BE “leaning-in” hawkishly at this juncture in order to push-back against the following:

• Easier FCI now than since the Fed hiked rates 75bps in July

• A backdrop where global Energy prices are once-again reaccelerating higher (WTI $95, Brent $101.50, US Nat Gas highs since ’08, Asian LNG benchmark JKM LNG +17.6% on the day to a new record high, aforementioned new record highs in 1y fwd German and French electricity)

• Still- overheating US Labor, with the US U-Rate at 50 year lows and Wage Growth at all-time highs

• Services CPI (less Energy), Atlanta Fed Sticky CPI 12m, Cleveland Fed Trimmed-Mean CPI and Dallas Fed Trimmed-Mean PCE 1Y all still at their highs

Accordingly, McElligott fears that Powell risks instead being interpreted as “de facto dovish,” because he will not do the one thing needed to tighten FCI from here, and that would be for him to increase “terminal rate” expectations – because:

1) he doesn’t have next month’s CPI or Jobs data yet – so he wont risk a “bad guide” now that they’re out of that business;

2) he will likely offset his “stay the course” inflation message by simultaneously mentioning “increased pain” in the economy as per recent US survey data, which various Fed staff has recently done in acknowledging rising recession risk; and

3) all with the potential that he too may have “weak” Core PCE Deflator and Personal Spending / Personal Income data in-hand after being released earlier Friday morning, which very well could continue to support the “past peak inflation” feel-good “comfort blanket” for markets.

As Mohamed El-Erian warned:

“I know what they should do, which is they should not blink…”

“The Fed has to focus on inflation and has to do it in a more committed fashion than it has done it so far.”

So, the real question / the real danger moving forward, however, is not whether “inflation has peaked”, the question is “how sticky” will it be on the way down, especially with the unemployment rate this low and Wage Growth this high (trimmed mean and services remaining near highs and energy picking back-up, although we are getting inventory glut and supply chain easing in other spots, while areas like used cars continue to give back).

In other words, as McElligott concludes, this is a scenario where inflation tension is simply perpetuated even longer into the future, which also points to my buzzline “higher rates / more restrictive policy for longer,” then naturally increasing “hard landing” odds (hence EDM3-Z3 Jun23-Dec23 still pricing 35bps of CUTS for the back half of 2023).

This then brings me back to that idea I’ve been speaking too, where in 4Q22 or 1Q23, there is one last Equities scare, as growth is def slowing much more definitively (currently it’s “just” Housing and Surveys / Biz Cycle Indicators leading the data slowdown), but inflation remains problematically “sticky higher” than most anticipated – which is what I’ve termed the “now what?!” Stagflation scenario.

Perversely, McElligott notes that it is only once we begin seeing negative NFP prints that you can start getting constructive US Equities, because that will allow the Fed to move the goalposts back towards their dual-mandate of price stability AND full employment which will allow them to exit restrictive policy territory via “easing” and / or early cessation of QT likely in back part of ’23.

In other words, the news is not bad enough to be good enough for a sustained rally in stocks… yet!

Authored by Nour Al Ali via Bloomberg,

Saudi Arabia’s recent verbal intervention in the oil market is all that was needed to tip the odds in the bulls’ favor, propelling Brent futures back around the $100 mark. If nothing else, this sends a clear message to the market: for the Saudis, that’s the appropriate floor for the global crude benchmark.

There had recently been a tug of war between the bulls and the bears in the market. Along with thin liquidity during the summer, Brent fell to around $91 from ~$110 in a matter of weeks. For the bears, this shift in sentiment was overdue as demand destruction became the likely outcome of slowed global economic growth. We’ve already seen evidence of subdued fuel demand out of China, and prospects of Iranian oil streaming through the market again alleviated concerns about tightness in the market.

But for the world’s largest crude exporter, the downward disconnect between prices and the physical market made little sense. Saudi Arabia’s oil minister said on Monday that the “self-perpetuating vicious circle” of thin liquidity and extreme volatility that the paper oil market has fallen into is undermining the market’s efficiency. He also said that the market is “in a state of schizophrenia” and thus OPEC+ may be forced to cut oil production.

The unusual intervention, as Javier Blas puts it, is one for history books.

Saudi Arabia’s preference for oil heading up, not down, is not particularly new.

When Russia’s annexation of Crimea rattled markets in 2014, Ali Al-Naimi, the Saudi oil minister at the time, famously said:

“One-hundred dollars is a fair price for everybody – consumers, producers, oil companies […] It’s a fair price. It’s a good price.”

What’s new, however, is the country’s willingness to cut supply at a time when the physical market remains thinly stretched. OPEC watchers from those days will remember Al-Naimi’s whimsical spirit, but more so the stance the country had:

“People like our oil.”

Now, when we’ve again got a Saudi oil minister that relishes trading barbs with the market, that sentiment appears even more true: Yes, the world not only likes Saudi oil but needs it.

Europe is casting about for any substitute for Russian energy it can get its hands on this coming winter, including nearing an agreement with Iran in nuclear talks. Saudi Arabia has simply reminded the market that there’s a price for everything. And that is Brent at around $100. Lo and behold, traders have heeded, putting the 23-nation alliance back in the driver seat once again.

A few days ago we mocked the relentless China newsmill, saying that “Every day there are 5 stories about some new imminent stimulus out of China and every day nothing at all happens.”

Every day there are 5 stories about some new imminent stimulus out of China and every day nothing at all happens.

— zerohedge (@zerohedge) August 17, 2022

Well, it appears that someone in Beijing heard us because just days later we got not one but two major “stimmy” developments:

The first one hit early on Monday when we learned that to contain the collapse of China’s critical housing sector, which at $62 trillion is the world’s largest asset class…

… Beijing would offer 200 billion yuan ($29.3 billion) in “special loans” to ensure stalled housing projects are delivered to buyers. This new lending program “would make it the biggest financial commitment yet from Beijing to contain a property crisis that’s seen home prices slump and real estate sales plummet, at a time when growing housing market instability also means a growing threat to political stability during the sensitive run-up to the Communist Party’s leadership transition later this year.

The second stimulus hit overnight, when China unexpectedly stepped up its economic stimulus with a further 1 trillion yuan ($146 billion) of funding focused on infrastructure spending, support which analysts quickly calculated won’t go nearly far enough to either counter the damage from repeated Covid lockdowns and a property market slump, or to reboot the struggling Chinese economy which has is on the verge of contraction.

On Wedneseday, the State Council – China’s Cabinet – outlined a 19-point policy package on Wednesday, including another 300 billion yuan that state policy banks can invest in infrastructure projects, on top of 300 billion yuan already announced at the end of June. Local governments will be allocated 500 billion yuan of special bonds from previously unused quotas.

At a meeting chaired by Premier Li Keqiang, the State Council vowed to make use of “tools available in the toolbox” to maintain a reasonable policy scale in a timely and decisive manner, and announced a series of growth supportive measures, including an additional 300bn yuan credit support by policy banks and RMB 200bn bond issuance by power generating central SOEs. Li also pledged to accelerate infrastructure investment project approvals, and urged local governments to better utilize the RMB500bn local government bond issuance allowance accumulated from previous years’ unused quota.

The Chinese Premier also urged local governments to distribute RMB10bn subsidies to the agricultural sector, and further urged relevant government institutions to announce detailed implementation plans for these measures; and stated that policymakers would approve a batch of infrastructure investment projects (though he also required policymakers to ensure the quality of these projects).

The 19 measures came on top of several recent stimulus steps: policy banks have been allocated a total of 1.1 trillion yuan of financing for infrastructure projects since June; the central bank delivered a surprise 10 basis-point interest rate cut last week; and in May, Beijing announced about 1.9 trillion yuan of support measures in a 33-point policy package, including targeting small businesses. The State Council on Wednesday also pledged to approve a batch of infrastructure projects. Local authorities are encouraged to use city-specific credit policies to support reasonable housing demand, it said.

However, to counter speculation that Beijing is finally turning the tide on years of fiscal frugality, the State Council also said the economy won’t be flooded with excessive stimulus, and that China won’t “overdraw” on the room it has to take more policy action to protect longer-term growth – reiterating the cautious stance officials have taken toward stimulus in recent years.

The meeting sent a signal: “Don’t expect massive additional stimulus,” according to Bruce Pang, head of research and chief economist for Greater China at Jones Lang LaSalle Inc. He added that the language used in the announcement suggested “the possibility of adopting extraordinary tools such as special sovereign bonds or increasing official budget deficit has decreased.”

Commenting on the stimulus, Goldman said that in its view, the RMB300bn credit support (equivalent to around 0.3% of GDP) is a new supportive measure, while the RMB 500bn potential local government special bond issuance echoes the statement in the July Politburo meeting, but was significantly smaller than the RMB 1.5tn difference between the allowed total LGSB outstanding (RMB 21.8tn) and the actual outstanding (RMB 20.4tn). Whether the RMB200bn bond issuance by power generating central SOEs represents incremental policy support remains to be seen.

The bank also believes that these measures could help offset the sharp contraction in government revenue and support infrastructure investment growth to some degree in coming months. However, with a very weak property sector, and headwinds to activity growth from local Covid outbreaks and related control measures, barring major policy easing measures, we think overall growth would remain sluggish during the rest of this year (Goldman recently downgraded its 2022 full-year GDP growth to 3.0% yoy).

“We’re getting easing, but it’s not quickly enough to keep up with the pace of deterioration in the broader economy,” said Andrew Tilton, chief economist for Asia Pacific at Goldman Sachs, in an interview on Bloomberg TV. “More domestic policy easing and improved growth and domestic demand is going to be key as we get into 2023.”

Others agreed: Bloomberg economists Chang Shu and David Qu wrote that “China’s latest package isn’t enough to turn the economy around. It will create more public demand that will partially fill a growing hole left by a retreating private sector — giving some support to growth. What it won’t do is deliver a confidence boost that’s needed to prompt households to spend more and companies to invest more.”

The 500 billion yuan in additional local government special bonds this year is smaller than what some analysts had expected, given the estimated amount of unused quota could be as high as 1.5 trillion yuan. Local authorities have accelerated their issuance of the bonds — a major source for infrastructure investment — this year compared with previous years, and have used up most of the 3.65 trillion yuan in official quota set early this year.

Nomura economists led by Lu Ting said Thursday the measures aren’t “game-changers.” That’s partially because the property sector is still in deep trouble, they wrote in a research note, pointing out that in previous easing cycles, real estate played a major role in pumping up credit demand among households, companies and local governments.

Indeed, Despite the surprise one-two stimulus punch out of China this week, economists were downbeat on the measures, while financial markets were muted. The yield on 10-year government bonds rose 2 basis points to 2.65%. China’s CSI 300 Index of stocks rose as much as 0.6% before paring gains to trade up 0.3%.

 

Authored by Tom Ozimek via The Epoch Times (emphasis ours),

Congressional lawmakers are probing allegations made by Twitter’s former chief of security in an explosive whistleblower complaint that includes claims of deception around data security and privacy and misleading tech entrepreneur Elon Musk about the number of bots on the platform.

Peiter Zatko, the whistleblower who served as Twitter’s head of security for around 14 months before being fired earlier this year, alleged in a disclosure obtained by The Epoch Times that Twitter’s security and privacy systems were grossly inadequate and that the company misled regulators, investors, and Musk about fake “spam” bots on the platform.

While Twitter CEO Parag Agrawal has called Zatko’s claims a “false narrative,” U.S. lawmakers seem determined to make up their own minds and are investigating.

‘Serious Concerns’

Sen. Dick Durbin (D-Ill.), chair of the Senate Judiciary Committee, said in a statement that he is looking into Zatko’s allegations.

“The whistleblower’s allegations of widespread security failures at Twitter, willful misrepresentations by top executives to government agencies, and penetration of the company by foreign intelligence raise serious concerns,” Durbin said.

“As chair of the Senate Judiciary Committee, I will continue investigating this issue and take further steps as needed to get to the bottom of these alarming allegations,” he said, adding that if the whistleblower’s claims are accurate, there may be “dangerous” risks for Twitter users in terms of data privacy and security.

Sen. Ed Markey (D-Mass.) sent a letter (pdf) to the Federal Trade Commission (FTC) and the Department of Justice expressing “significant concerns” about the whistleblower’s allegations.

“According to Peiter Zatko, Twitter’s former head of security, Twitter has systematically and repeatedly failed to take basic security measures to protect its user data and has misled investors, regulators, and the public about the strength of its security systems,” Markey said in a statement.

Markey added that Zatko’s allegations suggest Twitter has again “flagrantly violated” its consent decree with the FTC just months after the company agreed to pay a $150 million penalty for failing to keep Twitter users’ data secure.

“I strongly urge the federal government to investigate Zatko’s claims and, if necessary, take strong and swift action against Twitter to ensure Twitter user data is properly protected,” the senator wrote.

Rep. Frank Pallone (D-N.J.), who chairs the House Energy and Commerce Committee, said in a statement that he was “carefully reviewing this whistleblower disclosure and assessing next steps.”

“These allegations are alarming and reaffirm the need to pass my comprehensive privacy legislation to protect Americans’ online data,” Pallone added, referring to the American Data Privacy and Protection Act that he co-sponsored.

Several other lawmakers have issued similar statements.

The Epoch Times reached out to Twitter with a request for comment on Zatko’s claims but received no response.

‘False Narrative’

Twitter spokesperson Anna Hughes was cited by The Washington Post as saying that Zatko’s complaint seems to contain “inconsistencies and inaccuracies” and takes things out of context.

“Mr. Zatko’s allegations and opportunistic timing appear designed to capture attention and inflict harm on Twitter, its customers and its shareholders,” she said, according to the outlet.

In a similar vein, Twitter’s CEO also pushed back on Zatko’s claims, reportedly writing in a message to staff that was shared on social media by CNN’s Donie O’Sullivan that the whistleblower’s complaint appears to be a “false narrative that is riddled with inconsistencies and inaccuracies, and presented without important context.”

“We will pursue all paths to defend our integrity as a company and set the record straight,” he added.

Key Takeaways from Whistleblower Complaint

Zatko claims that, despite Twitter agreeing in its settlement with the FTC to put in place stronger data security protections, the situation over time actually became worse.

His complaint alleges that Twitter’s internal systems let far too many employees access users’ personal data that they didn’t need for their jobs, opening the door to potential abuse.

Read more here…

The Russian energy giant Gazprom is set to reduce its natural gas supply to Germany further at the end of the month, sending power prices to record highs this week. To address the historic energy crisis, one German member of parliament has dreamed up a novel solution: Russia’s Nord Stream 2 NatGas pipeline could help solve the crisis. 

“Even if the gas storage facilities are full, there will be enough for about three months this winter. And then what? Ideology has to give way to a real fact-oriented policy… The only sensible solution is to launch Nord Stream 2,” Bundestag MP Steffen Kotre told Russian state-owned news agency TASS, who is a member of the German parliamentary committee on energy and climate protection. 

Kotre’s comments come as the cost of powering Germany has jumped to a new record high on Thursday. German power prices for next year soared 13% to a mind-numbing 725 euros ($726) a megawatt-hour, piling even more financial pressure on households and businesses. 

To put that in context with global energy costs, German power prices are trading at an equivalent to a $1,200 barrel of oil – far worse than the prior cold season, highlighting the debilitating economic impact on the country. 

Tighter NatGas from Russia is driving the exponential rise in power prices as capacity on Nord Stream 1 has been reduced to 20% and soon could be slashed to zero on Aug. 31. Some fear next week’s temporary cut on the pipeline may not resume. 

The German government affirmed earlier this month there are no plans to launch the Nord Stream 2 pipeline. It was completed last year but never awarded certification to operate.

Some German politicians are waking up to the absurdity of the whole ‘stick it to Putin’ by ditching cheap Russian energy supplies is a bad idea because it will mean a very dark winter of people freezing, energy hyperinflation, and recession risks where cold and hungry citizens could result in social instabilities. 

This may suggest growing discontent in German government that sacrificing the economy and households for NATO’s proxy fight against Russia in Ukraine might not be in their best interest. The question remains if Germany folds into winter. 

By Elwin de Groot and Bas van Geffen, Macro Strategists at Rabobank

When reading the financial press these days, one could be forgiven for getting the impression that right now it’s “all about the Fed’s next move and what Powell is going to say on Friday”. Our colleague Philip Marey gave his views in yesterday’s Global Daily and with his key message basically being that it is time now that market participants are to be told ‘the truth’. And the truth, unfortunately, is not a happy message: inflation is already so much entrenched now that the Fed cannot afford to take its foot off the brakes, no matter what the economy or the labor market do in the foreseeable future.

Yet in the grander scheme of things, one could also ask: does it even matter whether the Fed adds another 75bp or 50bp? It would neither speed up nor prevent the multiple trainwrecks that seem to be coming our way. Although Joseph Stiglitz, in an interview in Germany, argued that too forceful rate hikes could even exacerbate inflation if higher interest rates slow down the necessary investments to alleviate supply shortages. Is he now in the Erdogan camp? But it is difficult to argue against his observation that rate hikes don’t solve energy and food shortages; a point we have been making from the start of this crisis.

So the awful truth is that it’s real and potentially (very) bad, not matter how you twist or turn things. The current scorching European summer is likely to end up in the history books as one of the driest in centuries. Those who have visited the south of Europe in recent months can probably attest: extremely dry fields, trees shedding their leaves, the closure of nuclear plants due to lack of cooling water, and water-saving measures all around. The impact on harvests could be significant and the impact on electricity prices is already a fact. The French 1m forward baseload power contract briefly hit EUR 700/MWh on Monday, where some EUR 50/MWh was the norm in the five years up to 2021 (an average household in France uses about 5.5MWh per year).

But now China has also joined the Drought Club or, rather, the country is dealing with both drought and floods. Heavy rainfalls in the north of the country have triggered severe flash foods, whereas high temperatures have caused significant water shortages in the south. The latter is not only affecting hydropower output in the region (18% of its energy production in 2020), forcing greater use of coal, but also puts food production at risk. Particularly along the Yangtze River and the Sichuan basin, where around half of the nation’s rice is produced, the situation is said to be perilous. Xinhua news reported that, “as of Monday, drought has affected 3.4 million people and 48.48 million mu [3.23 million hectares] of farmland in 10 provincial-level regions in the Yangtze River basin, including Chongqing, Sichuan and Hubei.”. China’s Cabinet said it will set aside CNY 10bn to support rice production.

However, should the droughts force China to increase food imports, this could put further pressure on global food commodity prices. The sharp decline in the FAOs food price index in July –albeit after even sharper gains since January– was met with some relief last month. But this index has probably risen again in August, underscoring that the risk of global food shortages has not receded. Far from that, actually. And the recent rise in natural gas prices is only aggravating the longer-term risks. Yesterday, CF Industries Holdings Inc., a major fertilizer producer, said that its UK unit intends to temporarily halt ammonia production as it’s “uneconomical” at current gas and carbon prices. This obviously spells more trouble ahead. According to the UN’s FAO nearly 30% of the global population was experiencing modest to severe food insecurity (up from 25% in 2015) and it’s hard to believe that this trend has reversed in the past two years.

As we have noted before, the squeeze on households’ incomes is real. And Western governments are looking at ways to soften the blow. Yesterday, US President Biden has announced plans to forgive up to $10,000 in student loans, which are a burden for many Americans. The amount of federal student debt outstanding amounts to $1.6 trillion, and then there are the loans that were issued by private parties. About one in five Americans has a student loan, although the amounts will be relatively small for most of them (less than $20,000). That said, these borrowers often find it hardest to repay their debt – simply because these smaller amounts are held by former students that moved on to lower paying jobs. So Biden’s policy will certainly help many US households. The Biden administration boasted that 90% will go to those earning under $75,000 per year. Technically, that may be true. However, it will mostly go towards the middle class, while the lowest income quintile benefits much less – simply because this group is less likely to have attended tertiary education.

Meanwhile, there are concerns that this waiver could further boost inflation. After all, it gives these households a little more disposable income. And that burden would also partly fall on the shoulders of lower income households, many of which are already struggling to cope with higher prices, e.g. for electricity. Although the increase in US energy bills pales in comparison to the price hikes faced by Europeans, there are now 20 million households in arrears on their utility bills, which could see the power being shut off (temporarily) for many Americans. Yet, the US government does not seem to be in a hurry to offer any assistance on that front – unlike the quick measures that are taken as soon as prices at the gas station rise significantly.

Consider the source…

Jason Furman is an American economist and professor at Harvard University’s John F. Kennedy School of Government and a Senior Fellow at the Peterson Institute for International Economics.

On June 10, 2013, Furman was named by President Barack Obama as chair of the Council of Economic Advisers.

Ok so having explained the “who”, here is the “what”…

Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless. Doing it while going well beyond one campaign promise ($10K of student loan relief) and breaking another (all proposals paid for) is even worse.

— Jason Furman (@jasonfurman) August 24, 2022

Furman’s thread continues…

The White House fact sheet has sympathetic examples about a construction worker making $38K and a married nurse making $77,000 a year.

But then why design a policy that would provide up to $40,000 to a married couple making $249,000? Why include law and business school students?

BTW, those examples also contradict the baseline some have concocted to claim that this won’t raise inflation. The claim it won’t raise inflation is based on the construction worker going from permanently paying $0 interest to paying $31 a month at an annual cost of $372. 

You can’t use one baseline (interest payments suspended) to argue this will constrain demand & then a different baseline (interest payments restored) to describe the benefits. That is incoherent, inconsistent & indefensible cherry picking–I hope the White House doesn’t do it.

Also need to be careful with all of the distributional numbers because the beneficiaries will tend to have higher lifetime incomes than current incomes. A 24 year-old making $75,000 is likely to be at a relatively high percentile on a lifetime basis.

There are a number of other highly problematic impacts including encouraging higher tuition in the future, encouraging more borrowing, creating expectations of future debt forgiveness, and more.

Most importantly, everyone else will pay for this either in the form of higher inflation or in higher taxes or lower benefits in the future. I did a thread on this last night but given the new announcement you need to double everything in it.

3 possibilities if transferring $250b to a group:

1. They raise their consumption (now and/or in future). Total output unchanged or rises by less–consumption of others falls.

2. Same but total output rises commensurately–others held harmless.

3. They never raise consumption.

— Jason Furman (@jasonfurman) August 24, 2022

The stimulus is relatively small (a multiplier of ~0.1). So the inflation impact is likely to be about 0.2-0.3pp. That is $150-200 in higher costs for a typical household.

If the stimulus matched what advocates used to argue the inflation would be higher.

1. Biden-Harris can cancel billions of dollars in student loan debt, giving tens of millions of Americans an immediate financial boost and helping to close the racial wealth gap. This is the single most effective executive action available for a massive economic stimulus.

— Elizabeth Warren (@SenWarren) November 12, 2020

That is a relatively small inflation number. But would take about 50-75bp on the fed funds rate to extinguish that much inflation. Is the Fed going to try to offset this? Or will it do what it did with the American Rescue Plan and ignore that rapidly changing fiscal landscape?

Finally, it’s not obvious to me that this is reasonable for a President to do unilaterally. A number of lawyers (and political leaders) have argued inconsistent with the law. Even if technically legal I don’t like this amount of unilateral Presidential power. 

We look forward to hearing Biden’s chief economic adviser Jared Bernstein’s arguments ‘for’ the vote-buying bailout… once again, consider the source.