THIS MORNING’S HEADLINES ARE DOMINATED BY Joe Biden’s meeting with Vladimir Putin later today, the stalled infrastructure talks, and an increasingly serious drought in the U.S. West.
BUT IT STRIKES US that the Big Story, a genuine game-changer, is the opening up of economies everywhere in recent days, from California to Toronto to France.
CALIFORNIA — WITH THE FIFTH LARGEST ECONOMY IN THE WORLD — essentially opened up yesterday. The streets were packed over the past weekend in Toronto, which has the fourth largest population in North America. And we’re seeing mask-less people in Europe. Restaurants are swamped.
THERE ARE NUMEROUS IMPLICATIONS for the Federal Reserve, which has to weigh this economic surge with temporary inflation in commodity prices (which are already falling) and a potentially more serious labor shortage.
HOW CAN THE FED POSSIBLY make any definitive conclusions this week with the economy in such un-charted waters? Are sliding 10-year bond yields telling us something? Could the fiscal spending surge be subsiding? Can anyone fully trust recent economic data? The Fed surely is not ready for major policy shifts.
CHAIRMAN JEROME POWELL will have to acknowledge today that a discussion about tapering of asset purchases has begun, at least informally. And the central bankers may have to speed up their anonymous “dot plots” to acknowledge a possible rate hike late next year as full employment arrives sooner than expected.
BUT THIS IS A GOOD THING: The economy — especially the service sector — is roaring back. Timing is everything, especially for politicians like Gavin Newsom, the California governor who seems assured of surviving a recall vote.
ON THE NATIONAL STAGE, Republicans will try to make inflation a major issue in the 2022 elections, but they have two major problems: inflation may not be a huge fear by next year, and GOP activists seem disinterested with economic issues and more focused on social themes — which don’t resonate with a majority of the electorate.
POWELL’S PRESS CONFERENCE CERTAINLY will be worth watching this afternoon, almost as important as Biden’s post-summit remarks. Both men will set a tone — for the Fed, a continued accommodative stance for a while longer; for foreign policy, a re-set in relations between the U.S. and Europe — and a willingness to stand up to Moscow and Beijing.
Related: Could the Fed Support a New Currency?
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