Thought vs. Performative: I wouldn’t hire 95% of people cheesing on LinkedIn …

In all my years of work, my friends never knew what I did.  I was like the character ‘Tommy’ on the old Martin show.  No one knew what ‘Tommy’, played by the late Thomas Mikal Ford, did for a living.

And I liked it that way.  I always believed that it was the individual’s personality and values that were of tantamount importance in a personal relationship.  That view, however, should end at the doorway to your office building.

What the Great Pandemic exposed that too many people were getting away with leveraging their personalities at work.  Master networkers had been building books of contacts versus books of business.  Nothing wrong with that as we need strategic partnerships in the work place in order to exchange ideas and garner advocates for the ideas we want to sell.  But in a shifting global competitive production environment, is that going to be enough?

The images I see on digital social networks like LinkedIn, a division of Microsoft (NasdaqGS: MFST), tell me that selling personality is given higher priority by some employees and too many job hunters and college graduates. 

From a resource perspective, I have very little to no knowledge about a LinkedIn subscriber’s productive capacity.  It is exceedingly rare where job hunters display their portfolios i.e., book of past business, former clients, products they have designed or built, etc., It is even worse for recent graduates who share, at the most, that their faith in a higher power or the Flying Spaghetti Monster got them through a dissertation or what not.

Sharing job promotions or graduation celebrations is being used by subscribers to digital platforms as a derivative of the only asset that matters: the ability to critically think and produce a good or service that solves a problem.  These performative acts provide me no insights into whether these individuals can critically think and provide solutions.

It is not difficult, given today’s digital technology, to establish one’s self as a thought leader.  For example, Mark Cohen, chairman of The Digital Legal Exchange, encourages every lawyer to blog. Why? Because digital content is easier to access than law review journals gathering dust on a library shelf.  More importantly, a law blog provides the lawyer the opportunity to share knowledge that demonstrates her ability as a thought driver. 

Thought is the genesis of everything in our world, physical and metaphysical.  It underlies insights and innovation.  It is the most valuable currency.

I think if America is to compete effectively in a changing global environment, it will have to severely de-emphasize performative activity of its labor force and promote the thought sector.  We are in a new era of work.  It is time to celebrate the thinker.

Alton Drew

11 June 2022     

The Manchurian Candidate:  What triggers our political behavior?

My oldest sister passed away ten days ago.  The news was gut wrenching, the realization that I would not see her again or hear her voice saddened me greatly.  The event also caused me to reflect on what I would do with the rest of my working life.  To spend my last years in this physical realm not maximizing my best self or skills would be a waste, so I decided to step up my writing efforts; to do what I am best at.

It is easy to get distracted, to get bombarded by life’s distractions, to have its wind shears cut through you.  And it is easy to feel alone especially if those closest to you make you a tactical part of their agenda while totally disregarding your self-interests.

Fear not.  This is a political blog where I tie motion pictures and the political narrative of the day so I won’t wax too sentimental, but this personal event along with the war in Eastern Europe, the midterm elections, the economy, and recent and on-going mass shootings had me thinking about what triggers our behavior.  With this in mind, I thought about revisiting the movie, The Manchurian Candidate, for my case study.

Released in 1962 in the midst of the Cold War, The Manchurian Candidate has as its backdrop the story of ‘Raymond Shaw’, a Korean War soldier, who has been mentally manipulated (brainwashed) by Chinese and North Korean intelligence to kill a U.S. presidential candidate.  Laurence Harvey gave what is touted as one his best performances, playing an aloof ex-soldier who was summarily hated by his fellow squad members and his mother, played by Angela Lansbury

His cold, humorless persona made him no friends, but I found his ice-cold character as not soulless.  Shaw turns out to be the perfect canvas that portrays his struggle to control his own destiny, to push back against what seems to be his mother’s plans for young Shaw’s political career which we see are really her plans for increased political power.

One of the poignant moments in the movie is where we see Shaw’s cold exterior melt away as he finds love with and acceptance by ‘Jocelyn Jordan’, played by Leslie Parrish, and her father, ‘Senator Jordan’, played by John McGiver. Seeing Shaw go from steely exterior to smiling and laughing at the dinner table with the Jordans gave me a glimpse at what could have been for the character had his environment been loving.  The ability of Mr Harvey to portray the two sides of the character to me is what made his performance in this movie the more powerful.

In the end, Shaw could not find a peaceful way to defeat the mental manipulation.  The tragedy was that he lost his battle for his soul.  When he says to his former commanding officer, ‘Bennett Marco’, played convincingly by Frank Sinatra, “They can make me do anything, Ben”, that, to me, foreshadowed a tragic ending.

It is easy post 2019 to be a little cynical by echoing Shaw’s observation that “They can make me do anything.”  The American labor markets were disrupted by government restrictions on entry into public places without masks or other health screenings.  The payout of stimulus checks to the workforce encouraged people to delay return to work which in part resulted in backlogs in delivery of goods and services. 

The economic recovery is too hot, however, as an inflation rate of 8.3% year-over-year and full employment as exemplified by a 3.6% unemployment rate now has monetary policymakers raising interest rates to cool things down.

And adding to the economic distractions are the social unrest.  Blacks are asking (still) whether this government is committed to protecting our physical persons when white teen-agers are able to access semi-automatic rifles and murder blacks en masse from a place of racial animus.

I have heard rumblings that there must be a cabal pushing buttons behind a green curtain.  The conspiratorial view is heightened when groups like the World Economic Forum get together at Davos and opine and strategize about new world orders, reminding us, as the late comedian and social commenter George Carlin did, that there is a club calling the shots and “you ain’t in it.”

I think in the end, what really triggered ‘Shaw’ and what really triggers us is fear.  Fear that we cannot be our true selves; that any attempt at self-awareness will be blocked by lack of support from our traditional social agents with an agenda of their own.  Our social agents whether family, religious groups, government institutions, have as their goal the maintenance and expansion of their existence which depends on the individual playing his or her role in that expansion.

To keep from being triggered, we may have to develop the power that is already within, trust it, and develop a roadmap for navigating the external turbulence.

As ‘Shaw’ found out, it is easier said than done … but it’s necessary.

The Manchurian Candidate (1962)

Alton Drew

8 June 2022

Survey Shows Consumers see Future Tax Increases and Expansions of Government Assistance and Insurance Programs as Increasingly Unlikely

NEW YORK—The Federal Reserve Bank of New York’s Center for Microeconomic Data today released the April 2022 Public Policy Survey, which is part of the broader Survey of Consumer Expectations (SCE), and provides information on individuals’ expectations regarding future changes in a wide range of public policies.  Tracking individuals’ subjective beliefs about future policy changes is important for understanding their behavior as consumers and workers. These data have been collected every four months since November 2015 and have been released publicly since October 2019. In addition to several assistance programs, the survey measures respondents’ expectations about social insurance programs, labor market policies, taxes, and fees. For each program or policy, the survey asks respondents to assign the percent chance of an increase/expansion, a decrease/reduction, or no change over the next twelve months.

The April 2022 survey shows several interesting changes in the public’s expectations regarding federal assistance and social insurance programs. Following the outbreak of the pandemic in March 2020 and the 2020 general election, and lasting until about August 2021, there was a steady rise in the average likelihood respondents assign to an increase or expansion in housing, welfare, and unemployment benefits, in subsidized preschool education and in federal student aid. Since then, the survey shows a strong reversal in the average likelihood of expansions in these programs as respondents increasingly expect no changes in these policies over the next twelve months. As shown in the interactive charts on the survey website, largely similar patterns emerge for expansions in Medicare, social security benefits, parental leave policies, and for an increase in the federal minimum wage.

While expectations of future program expansions in April 2022 remain somewhat above pre-pandemic levels, this is a notable turnaround in the general public’s beliefs, one that followed the implementation of large economic stimulus and relief packages and coincided with a gradual improvement in economic conditions and a changing political landscape less conducive for such expansions. Interestingly, this pattern also appears for expectations of increased student debt forgiveness. While current readings of an average 32 percent chance of such an increase remains well above the December 2019 level of 18 percent, it has seen a meaningful decline since reaching a peak of 43 percent in April 2021, revealing a considerable decline in optimism about an increase in student loan forgiveness.

With the recent reductions in perceived prospects of future expansions in government support programs, the survey also reveals a decline in the reported likelihood of future tax increases. Following a steady rise in the perceived likelihood of an increase in capital gains, income, payroll and gas tax rates between December 2019 and April/August 2021, the survey shows a decline in such expectations since. For most tax rates, consumers consider it increasingly likely that these rates will remain unchanged in the year ahead. In the case of gas taxes, in addition to an increased expectation of no-change, the survey also shows a considerable uptick in the perceived chance of a cut in gas taxes.

Finally, the results reveal little change in respondents’ expectations regarding future changes in the mortgage interest deduction and in public college tuition, and a slight rise in the prospect of higher public transportation fees.

Key findings from the April 2022 Survey are:

Expectations about Public Assistance Programs

  • The average perceived likelihood of an increase in housing assistance and affordable housing over the next twelve months declined to 37 percent in April 2022, from a peak of 52 percent in August 2021.
  • The mean probability of an expansion in free or subsidized preschool education dropped to 34 percent from 40 percent in April 2021, and a peak of 43 percent in August 2021.
  • The average probability assigned to an increase in federal student aid or Pell grants dropped to 28 percent from a series high of 39 percent in April 2021, with the average percent chance of no change in student aid increasing by about the same amount. The mean probability of an expansion in federal student debt forgiveness fell to 32 percent from a series high of 43 percent in April 2021.
  • Prospects of an increase in welfare or unemployment benefits declined sharply over the past year, with the average probability assigned to an increase falling from, respectively, 49 percent and 45 percent in April 2021 to 35 and 26 percent in April 2022.
  • Similarly, the average perceived likelihood of a rise in Medicare or social security retirement benefits dropped to 24 and 25 percent from series highs of 31 and 29 percent, respectively in August 2021.
  • The mean probability assigned to an increase in the federal minimum wage declined to 39 percent from a series high of 50 percent in April 2021. In contrast there was no meaningful change in the perceived prospects of a rise in the state minimum wage.
  • The average likelihood of an expansion over the next twelve months in paid parental leave fell to 26 percent, from a peak of 34 percent in August 2021.
  • The recent declines in the measures above were largely broad-based across age, gender, education, and income groups.

Expectations about Taxes and Fees

  • The average perceived likelihood of an increase over the next twelve months in the capital gains tax rate declined to 42 percent in April 2022, from a peak of 52 percent in August 2021.
  • The mean probability assigned to an increase in gasoline taxes decreased sharply to 47 percent from 61 percent in December 2021 and 63 percent in April 2021. The average probability of a gas tax decline jumped to 15 percent from 7 percent in December 2021.
  • The average perceived likelihood of an increase in the average income tax rate declined to 45 percent from a series high of 53 percent in August 2021. The average likelihood of an increase in income tax rate for the highest income bracket declined to 49 percent from a series high of 65 percent in December 2020.
  • The average probability assigned to an increase in the payroll tax rate also declined to 40 percent from a series high of 50 percent in August 2021.
  • Expectations about year-ahead changes in the mortgage interest deduction were largely stable over the past year.
  • Similarly, the mean perceived likelihood of an increase in public college tuition was mostly unchanged.
  • Finally, the average probability assigned to an increase in the cost of public transportation increased to 49 percent from 42 percent in April 2021, a new series high.

Detailed results are available here.

Source: Federal Reserve Bank of New York

23 May 2022

Remarks by President Biden Before Meeting with Small-Business Owners

2:08 P.M. EDT

THE PRESIDENT:  Good afternoon, everyone.  We’re joined today by five small-business owners who are helping power America’s economic recovery.

And I want — I want to welcome the Administrator of the Small Business Administration, Isabella Guzmán.  Nice to have you, kiddo. 


THE PRESIDENT:  And these enterprises and entrepreneurs know that an American economy is strong because America’s small businesses are strong.

Small businesses typically account for more than 40 percent — people don’t realize it — 40 percent of the gross domestic product of the United States.  They create two thirds of all new jobs.  And they employ nearly half — nearly half of all the private sector workers.

And today, thanks to the economic strategy, more — more small businesses are being created, and small businesses are creating more jobs faster than ever before.

Thanks in large part to the American Rescue Plan, last year, Americans applied to start 5.4 million — 5.4 million new businesses, 20 percent more than any other year on record. 

We saw businesses with fewer than 50 workers create 1,900,000 jobs for the first three quarters of 2021 alone.  That’s the highest rate of small-business creation ever — ever recorded in a single year.  And we have some of the folks right here who did it. 

We have every indication that this trend is going to continue.  The reason for that is because we’re giving people financial security to take a risk and pursue their small-business dreams.

This boom has been particularly strong for entrepreneurs of color.

Hispanic entrepreneurs started new businesses in 2021 at a faster rate in more than a decade, 23 percent faster than the pre-pandemic levels.

And, you know, the five folks that join me today exemplify what a difference it makes when — when everyone gets a fair shot.

Jennifer was — was able to start growing her engraving business last year because of the Child Care Tax Credit and the small-business support of the Small Business Administration.

Jeff and Nicolas are master coffeemakers — roasters — who were able to open their first brick-and-mortar café last year.

And Eddie and Daniel were able to turn their food truck into a brick-and-mortar company of their own.  (Laughs.)  That must feel pretty good, huh?

And they’re just some of the folks driving this economic recovery and reminding us that everything — that anything and everything is possible in America.

And my administration is working tirelessly to open doors for more outstanding entrepreneurs.  You know, unfortunately, Republicans have a different approach.

The Republican plan, led by Senator Rick Scott of Florida, Chairman of the National Republican Senatorial Campaign Committee, would tax half of our small-business owners an extra $1,200 a year on average.

Not only do they oppose making big corporations pay their fair share, they want middle-class families and small-business owners to pay more.

Our administration estimates that the Republican proposal would raise taxes on 6.1 million small-business owners, including 82 percent of small-business owners who earn less than $50,000 a year.

That just doesn’t — that’s — that’s just not right.

Our administration wants to make it easier to start a business, easier for a small business to succeed.  And our plan is to, one, expand access to capital for small businesses; make historic investments in technical assistance programs to help entrepreneurs thrive; and direct hundreds of billions of dollars in government contracts to small businesses in every community; and level the playing field — and I mean level the playing field for small business, making sure the largest corporations in America begin to pay their fair share.

And now I’m looking forward to discussing my plan and hearing from these remarkable entrepreneurs.  Thank you for being here.

2:12 P.M. EDT

Source: The White House

The Executive Office of the President appears more about narrative development than policy development …

I did a review of the Executive Office of the President to identify any pertinent messaging on the currency markets. Almost 14 months into Joe Biden’s first term and I could not find any major policy proposals regarding the currency, at least from within the EOP. The EOP appears to amplify the President’s most important political tool: the power to persuade. Created in 1939 by President Franklin Delano Roosevelt, the EOP is the day-day extension of the “bully pulpit”, from whence data-supported arguments are supposed to be made and woven into the President’s narrative.

Two of the most important units within the EOP are the Council of Economic Advisers, which is chaired by Dr. Cecilia Rouse, and the National Economic Council, which is headed by Brian Deese. The CEA was established by the Congress in 1946 to advise the president on economic policy. Along with Dr. Rouse are two other council members who together are expected to analyze economic events and provide the President with policy recommendations. Almost 50 years later, President William J. Clinton established the NEC to coordinate domestic and foreign economic policies and implement policy according to the Administration’s economic agenda. In American football parlance, Mr Deese is supposed to be President Biden’s offensive coordinator.

For the purpose of the trader who is trying to parse pertinent political information out of the noise coming out of Washington, she should be mindful that Washington is about narrative building, maintenance, and transmission. The EOP’s explicit mission is to support the messaging and policy agenda of the President and this support helps the President win votes. The implicit mission of the EOP is to convince the electorate, and more specifically those who trade in the American political economy, that this jurisdiction is superior to the other 200 countries on the globe. America is supposed to be the better business model.

At this point in the electoral cycle, the EOP is still trying to keep the electorate supportive of President Biden’s Build Back Better legislation, which is currently still in the Senate. While the pandemic has been a constant cloud over Washington politics, the issues of inflation and the invasion of Ukraine by Russia have sucked the policy oxygen out of the room. The infrastructure legislation passed last year goes into effect today and while touted as a way to expand productive capacity leading to reduction in inflation, effects from that plan, having just gone into effect this year, will take a while to germinate.

One final note is how to avoid the narrative cross fire. Take inflation for example. There are two competing narratives regarding the cause of inflation. The Democratic Party are selling the narrative that supply chain issues are the major cause of inflation and if the United States is to reduce inflation head on, the infrastructure deal and broader social net agenda contained in Build Back Better are necessary in order to expand the economic and social infrastructure thus reducing physical and social supply congestion and constraints.

The Republican Party, on the other hand, are making the argument that inflation is more closely related to the supply of money, where there is too much money chasing too few goods, and that increased fiscal spending will only make inflation worse.

The trader, again, should keep in mind that she should separate out the “vote buying” aspect of the narrative from the “market making” aspect of the narrative. The focus should be on how whether fiscal or monetary policy provides better insights on where inflation and interest rates are going.

Right now, nothing out of Executive Office of the President is helping to quell the noise.

Alton Drew


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Biden’s strategy on Ukraine can push Russia to find an alternative to SWIFT and price oil in yuan …

Elected officials and financial analysts have been expressing concerns that China’s currency, the yuan, could become the world’s reserve currency, replacing the American dollar as the go-to currency when seeking out a safer haven of assets like U.S. Treasurys or American real estate. In response to Russia’s invasion into Ukraine last weekend, the United States and a number of its European allies announced an initiative to remove certain banks from the Society for Worldwide Interbank Financial Telecommunication, a financial communications network used by 11,000 financial institutions in 200 countries for the movement of financial transactions. The United States, as a leader of the effort, hopes to hasten Russia’s withdrawal from Ukraine by making it very expensive for Russia to maintain a military presence in the country.

It’s not like Russia has been opting for staying in reactive mode to such a move. Russia and the rest of the world watched as the United States was able to persuade other SWIFT members to give Iran the boot.

Russia has a number of alternatives, albeit slower in today’s world of digital communications including telex, phone, and email. Russia also has the Structured Financial Messaging Solution, a communications system similar to SWIFT but used inside the country.

But what about cross-border payments? SWIFT connected Russian banks to 11,000 other financial institutions in 200 countries. SFMS is not comparable. But suppose Russia was amenable to pricing and selling its oil in yuan versus rubles? That would facilitate the use of a neighbors cross-border payments system–CIPS.

CIPS, the Cross Border Interbank Payments System, facilitates international payments for the People’s Republic of China. Twenty three Russian banks are already connected to the network, connecting these banks with between 1,189 and 1,253 financial institutions in over 100 countries.

And I should mention that the world’s second largest country, India, is also exploring a cross border financial communications network where Russia could be incentivized to circumvent SWIFT by importing more India goods.

Politically, an aggressive move to implement these alternatives to SWIFT could serve to weaken President Biden’s weaponized finance option. If Russia is able to sell oil priced in yuan and China is able to persuade more countries to use yuan for payment of exports, Mr Biden may have to convince his “coalition of the willing” to put boots on the ground to end Mr Putin’s “war of choice.” Mr Biden would also be the president who governed during the dollar’s fall from reserve currency grace.

Alton Drew


Interbank Market News Scan: Traders should be mindful of the difference between brokers; Treasury provides assessment of US economy.

Interbank. Why do market-makers provide high leverage? Given that a high percentage of forex traders lose money, do these brokers take advantage of traders’ risk? Or do brokers pass the orders to the interbank network and make money off of spreads? Here are a few answers. Source: FXStreet.

Interbank, Ghana. As expected, the Monetary Policy Committee of the Bank of Ghana has kept the policy rate at 14.5%. Source: MyJoyOnline.

Interbank, U.S. Treasury. The U.S. Department of the Treasury announces marketable borrowing estimates.

Interbank, U.S. Treasury. Benjamin Harris, Treasury Department assistant secretary, issues statement on U.S. economic status and expectations.

Foreign exchange rates of interest










Source: OANDA

Janet Yellen describes local government role in turning around the US economy….

January 19, 2022

As prepared for delivery

Thank you, Mayor Suarez, and thank you all for welcoming me. More than that, thank you all for your tireless work over the past two years. 

There have been few harder – or more crucial – jobs during this pandemic than being a mayor. Local governments have been the first line of defense against this pandemic, and as much as anything else, it has been the work of the city that has kept our recovery on track. That’s what I want to talk about today.  

Almost exactly a year ago – 364 days this morning, to be precise – I was putting on a very large coat and getting ready to drive to the National Mall to watch President-elect Biden and Vice President-elect Harris take the oath of office. 

It was a historic day for the country, but one that played out against the backdrop of real jeopardy:

Roughly thirty-nine hundred Americans would die of COVID that day – and the next. 
More Americans were applying for unemployment insurance than during the worst week of the 
Great Recession, and millions of people said they didn’t have enough food to eat. Some economists were making dire predictions – that the pandemic would plunge our economy further into recession, with many more jobs lost. 

Of course, such predictions never materialized. In fact, if somehow you transported a group of economists – including me – from that moment to today… and just showed us the current topline data… we would be quite thrilled. Unemployment is now at 3.9 percent – the sharpest one-year drop in the rate ever. GDP now exceeds pre-pandemic levels, and 2021 witnessed one of the biggest reductions in child poverty and child hunger in American history. 

Yes, Omicron has presented a challenge and will likely impact some of the data in the coming months, but I am confident it will not derail what has been one of the strongest periods of economic growth in a century. 

None of this was guaranteed. I think it’s important we recognize that. There’s a very real counterfactual where Omicron did derail our recovery; a scenario where the new variant hurdled our economy backwards towards its state on Inauguration Day 2021. 

It’s an important question to ask: Why didn’t that happen? 

Well, there are innumerable reasons. One, obviously, is that most of the country is now vaccinated. But it’s also quite clear that you – that mayors – had something to do with it. The reason January 2022 is not January 2021 is, in large part, due to what’s happening in local governments. 

I think the best place to begin the story is 10 months ago, in March. That was the pivotal moment, a time where the future could’ve forked in different directions. In fact, it was the last time I spoke to many of you at a gathering of city leaders. The American Rescue Plan – or the ARP – had passed the Senate and awaited a final vote in the House.  

Many of you had teleconferenced into various congressional offices to push the bill to that point and to the make the case for one of its largest programs: The State and Local Fiscal Recovery Fund, $350 billion dollars to help communities make it to the other side of the pandemic.  

At the time, I think we all believed that state and local funding was important; that it was essential. In retrospect, though, that program in particular – and the ARP in general – proved absolutely essential. You can draw a straight line between the ARP’s passage and our economic performance during Delta and Omicron. 

As this group knows better than anyone, the first year of the pandemic decimated government budgets, forcing states and communities to layoff or furlough a collective 1.3 million workers. 
These were the employees we rightly called “essential” – teachers, first responders, public health officials. 

How would your cities be different if those essential workers stayed off the job? It’s a question that probably has a very unpleasant answer. I think about the challenge schools are facing now, and then I imagine how they’d navigate that same challenge… but with hundreds of thousands fewer teachers and other school staff. I expect that would’ve been the case without the ARP. 

Of course, you are the experts, but it seems hard to overstate how quickly and completely the ARP changed the everyday institutions that keep our society working.  Hawaii, for instance, had planned to furlough 10,000 employees, but on the day President Biden signed the Rescue Plan they cancelled the layoffs. Denver was able to rehire for 265 city staff positions left vacant because of pandemic-related cuts, while Wichita, Kansas is hiring for 161 jobs, everything from animal control officers… to security screeners… to street and park maintenance workers.  

Many places have used the ARP funding not only to hire for public sector jobs, but to rebuild elements of the private sector that are essential to weathering pandemic. Columbus, Ohio, for example, is providing $1,000-dollar signing bonuses for new teachers at childcare centers. They’re also granting scholarships to low-income families so their kids can attend. 

This, I think, is some of what the $350 billion did: When Omicron started spreading around our cities, it did not find them broke and broken; it found them much readier to respond. 

In some ways, the ARP acted like a vaccine for the American economy, protecting our recovery from the possibility of new variants. The protection wasn’t complete, but it was very strong – and it prevented communities from suffering the most severe economic effects of Omicron and Delta. 

Of course, the relief package did not predict when exactly those variants would emerge, but it did anticipate that our recovery would run up against some unforeseen barriers. The pandemic produced a highly unusual economic crisis – one tied not to the movements of markets but to the spread and evolution of microbes. The crisis could ebb and flow. It would hit different places in different ways at different times. The state and local fund was designed with that in mind, too. 

Rather than one burst of money that could only be spent in certain ways, it called for sustained funding, and our Treasury team has worked hard so you can use the money as flexibly as possible. 

Indeed, in response to Omicron, cities and states across the country have used ARP money to put on a clinic in quick and creative government. Many have provided extra support to vaccine campaigns. Others have built up their public health infrastructure. In recent weeks, Minnesota has authorized over $80 million in ARP funds for everything from the distribution of rapid COVID tests to emergency surge staffing in hospitals. 

Then are cities like St. Louis, which saw that two trends were colliding: the spread of new variants and the expiration of the nation’s eviction moratorium. There was a risk that people were going to lose the roofs over their heads, something that would not only complicate our efforts to stop the spread but also complicate people’s lives for years to come.   

St. Louis had been busy dispersing dollars from the ARP’s emergency rental assistance program, but also chose to use $58 million of its state and local dollars to keep people in their homes and shelter those experiencing homelessness.  

Today, eviction filings are 60 percent below their pre-pandemic levels in large part because of work like that. We’ve avoided a national eviction crisis because mayors like you have helped build the infrastructure to deliver over three million rental assistance payments into the pockets of renters.  

In this country, we don’t often recognize the crises that do not happen; we don’t celebrate the bridge that doesn’t collapse. But maybe in this case, we should. Last year, the first time I spoke to a group of mayors, I said that fiscal policy often finds humanity in the city budget. But in 2021, it may have been that our economy found its salvation in the city budget. 

Of course, the job of fully implementing the ARP is not done yet, and our team is ready to continue working with you on projects from building affordable housing… to rehiring of educators… to the laying of broadband. But there’s a good argument that without your work thus far – and without the Biden Administration’s relief funding – we would be reliving something approximating the early days of the pandemic. And not just now, but for some time to come.  

That was the lesson of 2008. During the Great Recession, when cities and states were facing similar revenue shortfalls, the federal government didn’t provide enough aid to close the gap. It was a profound error. Cities had to slash spending, and that undermined the broader recovery. One study concludes that for every $1 local governments cut in spending during a recession, there is a corresponding drop in GDP of more than $1 – and possibly as much as $3. After 2008, state government employment didn’t recover from the Great Recession until 2019.

Today, I can state unequivocally: That history will not repeat itself. 

More than just protecting and accelerating our recovery, I think that the passage of the American Rescue Plan finally allowed us to do what most of us came to government for – not simply to fight fires and resolve crises, but to build a better country. It gave us a window to start building a better post-COVID world. 

By helping us alleviate the immediate crisis, the American Rescue Plan created the environment for new, transformational legislation: the infrastructure bill, the biggest investment we’ve made since Eisenhower built the Interstate. 

And congressional negotiations are ongoing regarding the Build Back Better legislation. While we don’t know the final form this will take, it will revolutionize how we care for children in this country, invest in climate change, and overhaul the international tax system to ensure 
corporations pay their fair share. 

Paired together, these pieces of legislation amount to a once-in-a-generation transformation of our economy. They will lead to higher rates of productivity, an expanded labor force, and greater GDP growth. 

None of it would’ve been possible without the American Rescue Plan and your partnership with Treasury to implement it. I am forever grateful for your partnership during the last ten months, and I look forward to continuing to work with you over the years ahead.

Thank you for having me.   

Source: U.S. Department of Treasury

Interbank market news scan: Lael Brainard provides detailed description of the inflationary bump expected from the American Recovery Plan …

The following remarks by Federal Reserve Governor Lael Brainard were delivered yesterday before the annual conference of the National Association of Business Economics …

“It has now been a year since the onset of COVID-19 in the United States. The past year has been marked by heartache and hardship, especially for vulnerable communities, as well as by the resilience and extraordinary efforts of Americans everywhere, particularly those on the front lines. The past year has also seen determined efforts on the part of policymakers—public health, fiscal, and monetary—to do what is necessary and stay the course until we return to full strength.1

These determined efforts have contributed to a considerably brighter economic outlook. A comparison between the median of the most recent Federal Open Market Committee (FOMC) Summary of Economic Projections (SEP) and the first projection following the onset of the pandemic, in June of last year, highlights the improvement in the outlook. The change in the SEP median suggests an improvement in the projected level of gross domestic product of 6 percent at the end of 2021 and 2022, a decline in the unemployment rate of 2 percentage points at the end of 2021 and 1-1/2 percentage points at the end of 2022, and an upward revision to the headline inflation rate of 0.8 percentage point at the end of 2021 that narrows to a 0.3 percentage point upward revision at the end of 2022.2 The expected improvements in the outlook reflect progress on controlling the virus, nearly $3 trillion in additional fiscal support, and forceful and timely support from monetary policy.

Although the outlook has brightened considerably, the fog of uncertainty associated with the virus has yet to lift completely, and current employment and inflation outcomes remain far from our goals. The focus on achieved outcomes rather than the anticipated outlook is central to the Committee’s guidance regarding both asset purchases and the policy rate. The emphasis on outcomes rather than the outlook corresponds to the shift in our monetary policy approach that suggests policy should be patient rather than preemptive at this stage in the recovery.

Recent data indicate that activity has picked up this year. After a dip in the final months of 2020, personal consumption expenditures (PCE) stepped up considerably so far this year, and spending on durable goods has been particularly strong. This pattern appears consistent with a quick spend-out from the Consolidated Appropriations Act (CAA) stimulus checks at the turn of the year, particularly among lower-income households that may have previously exhausted the funds provided in the CARES Act (Coronavirus Aid, Relief, and Economic Security Act).3

Like the spending data, the labor market data turned more positive in January and February following weakness at the end of 2020. Although the unemployment rate has moved down 1/2 a percentage point since December, the K-shaped labor market recovery remains uneven across racial groups, industries, and wage levels.4 The employment-to-population (EPOP) ratio for Black prime-age workers is 7.2 percentage points lower than for white workers, while the EPOP ratio is 6.2 percentage points lower for Hispanic workers than for white workers—an increase in each gap of about 3 percentage points from pre-crisis lows in October 2019.

Workers in the lowest-wage quartile continued to face staggering levels of unemployment of around 22 percent in February, reflecting the disproportionate concentration of lower-wage jobs in services sectors still sidelined by social distancing.5 The leisure and hospitality sector is still down almost 3.5 million jobs, or roughly 20 percent of its pre-COVID level. This sector accounts for more than 40 percent of the net decline in private payrolls since February 2020. Overall, with 9.5 million fewer jobs than pre-COVID levels, we are far from our broad-based and inclusive maximum-employment goal.

Inflation similarly remains far from the goal of 2 percent inflation on average over time. Both headline and core PCE inflation were below 2 percent on a 12-month basis throughout 2020 and came in at 1.5 percent in January.

Finally, while vaccinations are continuing at an accelerating pace, over two-thirds of the adult population have yet to receive their first dose, and there are risks from more contagious strains of the virus, social-distancing fatigue, and vaccine hesitancy.6

As the economy reopens, the potential release of pent-up demand could drive stronger growth in 2021 than we have seen in decades. However, it is uncertain how much pent-up consumption will be unleashed when social distancing completely lifts, and how much household spending will result from the new stimulus and accumulated savings. With PCE accounting for roughly 70 percent of the economy, this uncertainty about consumption spending contributes to uncertainty about activity, employment, and inflation.

In part, the outcome will hinge on distributive questions that are imperfectly understood. Households accrued considerable additional savings that led to a $2.1 trillion increase in liquid assets by the end of last year.7 Higher-income households appear to have cut back on discretionary services spending over the past year and increased their purchases of durable goods, which may see some satiation going forward. For moderate-income households that are not cash constrained, it is possible there will be a lower near-term spend-out from the American Rescue Plan payments relative to the CAA payments, given that less than 75 days elapsed between the two rounds of payments. Households whose cash flows were improved by the CAA stimulus may save more of the most recent stimulus for precautionary reasons. That said, there is upside risk if a substantial fraction of stimulus payments and accumulated savings are spent in 2021 rather than more slowly over a longer time period.

On the other side, there is potential for some leakage abroad if, as anticipated, foreign demand growth in some regions is weaker than in the United States. Imports soared during the second half of last year and grew further in January, even with worsening backlogs at U.S. ports. As port congestion and supply chain bottlenecks ease, international spillovers could lead to some slippage between the increase in domestic demand and resource utilization, which has implications for employment and inflation.

In the labor market, as vaccinations continue and social distancing eases, businesses in hard-hit services sectors will increase hiring, accelerating the pace at which workers find employment. The strong and timely support from fiscal as well as monetary policy likely reduced the extent of scarring during the pandemic, which should aid the pace of hiring at in-person services establishments once the virus is well controlled.

The speed of further improvement in the labor market following the initial rush of reopening is less clear, however. Some employers may be cautious about significantly increasing payrolls before post-COVID consumption patterns are more firmly established. Others may be implementing measures to stay lean and contain costs. In the December Duke CFO survey, roughly one-half of CFOs from large firms and about one-third of those from small firms reported “using, or planning to use, automation or technology to reduce reliance on labor.”8

In addition to greater use of technology, there is likely a significant amount of slack on the participation and part-time margins. The EPOP ratio among workers ages 25 to 54 is still a full 4 percentage points below its pre-COVID level, and the number of workers working part time because they cannot find a full-time job is 1.7 million higher than pre-COVID.

Although core and headline PCE inflation came in at 1.5 percent on a 12-month basis in January, the well-anticipated base effects from price declines in March and April of last year will cause inflation to move above 2 percent in April and May. It also seems likely that a surge of demand may be met by some transitory supply bottlenecks amid a rapid reopening of the economy, leading PCE inflation to rise somewhat above 2 percent on a transitory basis by the end of 2021.

Entrenched inflation dynamics are likely to take over following the transitory pressures associated with reopening. Underlying trend inflation has been running persistently below 2 percent for many years.9 In addition, research suggests that although increasing labor market tightness may show through to wage inflation, the pass-through to price inflation has become highly attenuated.10 These results suggest that businesses tend to respond to increased labor costs by reducing margins rather than increasing prices later in the cycle. Thus, as resource utilization continues to tighten over coming years, recent decades provide little evidence to suggest there will be a material nonlinear effect on price inflation.

The FOMC has communicated its reaction function under the new framework and provided powerful forward guidance that is conditioned on employment and inflation outcomes. This approach implies resolute patience while the gap closes between current conditions and the maximum-employment and average inflation outcomes in the guidance.

By focusing on eliminating shortfalls from maximum employment rather than deviations in either direction and on the achievement of inflation that averages 2 percent over time, monetary policy can take a patient approach rather than a preemptive approach. The preemptive approach that calls for a reduction of accommodation when the unemployment rate nears estimates of its neutral rate in anticipation of high inflation risks an unwarranted loss of opportunity for many of the most economically vulnerable Americans and entrenching inflation persistently below its 2 percent target.11 Instead, the current approach calls for patience, enabling the labor market to continue to improve and inflation expectations to become re-anchored at 2 percent.

One simple illustration of this difference is the way in which FOMC communications under the new framework have shifted market expectations around the conditions associated with the lift off of the policy rate from the lower bound. This shift is suggested by a comparison of the surveys of primary dealers and market participants conducted by the Federal Reserve Bank of New York in the most recently available surveys, in January 2021, and under the prior policy framework, in March 2015. In the January 2021 surveys, the median respondent expected the unemployment rate to be a bit below 4 percent at the time of liftoff, as compared with 5.3 percent in the March 2015 surveys. Similarly, in the January 2021 surveys, the median respondent expected a 12-month headline PCE inflation rate of 2.2 to 2.3 percent at the time of liftoff, as compared to roughly 0.5 percent in the March 2015 surveys. The most recently available surveys suggest that market participants expect policy to look through the rolling off of base effects as well as possible transitory price increases due to short-term supply-demand imbalances.

The FOMC has stated that in order to anchor inflation expectations at 2 percent, it seeks to achieve inflation that averages 2 percent over time. This language recognizes that the public’s expectations of inflation are linked to the experience of inflation outcomes. In the nine years since the Committee formally defined price stability as annual PCE inflation of 2 percent, the average 12-month PCE inflation reading has been 1.4 percent. Persistently low inflation creates the risk that households and businesses come to expect inflation to run persistently below target and change their behavior in ways that reinforce low inflation.12

With inflation expected to rise above 2 percent on a transitory basis, I will be closely monitoring a dashboard of indicators to assess that inflation expectations remain well anchored at levels consistent with the Committee’s objective. These indicators include survey and market-based measures, along with composite measures like the staff’s Index of Common Inflation Expectations.13 Survey measures have picked up a little but remain around pre-COVID levels. Meanwhile, five- and 10-year TIPS (Treasury Inflation-Protected Securities)-based measures of inflation compensation have moved up almost 1 percentage point since last summer and are now at levels last seen in 2013 and 2014. These changes likely reflect both the improvement in the anticipated outlook and market participants’ understanding of the Committee’s new reaction function.14

The overall price-stability objective of achieving inflation that averages 2 percent over time provides an important guidepost for assessing the path of inflation. Along with realized inflation, I will be monitoring a range of average inflation concepts in the literature to assess the path of policy that would be consistent with closing the inflation gap under a variety of make-up strategies.15

While the outlook has brightened considerably, with jobs nearly 10 million below the pre-COVID level and inflation persistently below 2 percent, the economy remains far from our goals, and it will take some time to achieve substantial further progress. By taking a patient approach based on outcomes rather than a preemptive approach based on the outlook, policy will be more effective in achieving broad-based and inclusive maximum employment and inflation that averages 2 percent over time. The combination of patient monetary policy, together with accelerating progress on vaccinations and substantial fiscal stimulus, should support a strong and inclusive recovery as the economy reopens fully.”