Breitbart Business Digest: Jerome Powell Brings Back the 3-D Glasses

The Fed Chair Goes Three Dimensional

Prior to this week, Federal Reserve Chair Jerome Powell mostly spoke about the Fed’s monetary policy along two dimensions. The first was the level of interest rates and the second was the duration.

This week Powell introduced a third dimension: the pace of interest rate hikes. This is a significant change because Powell had earlier downplayed the pace of hikes, and many analysts assumed that the Fed was not going to return to a faster rate of hiking.

The Fed had stepped down from the three-quarters of a point hike to a half point and then to a quarter of a point. The debate was simply over how many quarter-point hikes we might get and how long the Fed would stay that high.

The hotter-than-expected data for January—and the upward revisions to prior months—changed all that. The economy no longer appears to be slowing down. The Atlanta Fed’s GDPNOW reads the economy growing at a 2.6 percent annual pace. While that is likely an exaggeration, it illustrates how far from the expected slump in growth we are.

So now the Fed is very likely going to return to a faster pace of hikes. The market now anticipates not just one 50-basis point hike but two, which is a big change from the idea that the Fed would pause after just another 25 basis points.

Get Ready for the Most Important Jobs Friday in Recent Memory

The Italian diplomat Niccolò di Bernardo dei Machiavelli famously said that fortune is a woman. We mention this not just because we neglected to mention International Women’s Day in our missives this week but because one of the implications of Machiavelli’s assertion is that Lady Fortuna often plays coy.

So, it is fitting that by chance of the calendar we have had to wait until the tenth day of the the month to get a reading on the labor market in February. Ordinarily, the Department of Labor releases the jobs report on the first Friday of the month. When the first Friday falls too close to the survey week, however, it can be delayed. This month’s release is just about the latest possible.

Economists are expecting that around 225,000 workers were added to payrolls in February. That would be a big downshift from the 517,000 reported in January. Even still, any figure above 200,000 is likely to lock in a 50-basis point hike at the next meeting of the Federal Open Market Committee (FOMC).

A weak reading on jobs will point the other way. If February saw jobs gains of under 200,000, Fed officials are likely to see January’s surge as an anomaly and hike their interest rate target by just a quarter of a point.

Biden Throws Down a Budget Gauntlet

As little attention paid to the details of Biden’s budget proposal, the better. It is not a serious attempt at policy-making but rather a gauntlet thrown onto the field to challenge Republicans.

Perhaps the most important thing to notice about the proposal is that it makes no attempt at bipartisanship. This raises the risks of a protracted fight over the debt ceiling, in our estimation. Biden had an opportunity to offer an olive branch to the GOP and instead he pushed a stick in the eye of his political rivals.