Bloomberg Markets Full Show (11/30/2021)
From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. You had some backstories here on this Tuesday in Madrid a CEO warning of Omicron could evade existing vaccines and regeneration says its antibody is less effective against the variant S&P lower on this risk off day. But by the dip. J.P. Morgan says the new variant won't derail that global equity rally. We're going to talk to Laurie Calvert Cena RBC Capital Markets to get her view and the rate hike chorus. Bank of America joining Goldman and predicting three Fed hikes in 2022 starting in June will bring you day one a Powell and Yellen testimony to Congress. From New York. I'm Alix Steel my co-host in London. Guy Johnson welcome to Bloomberg Markets Guy. I also have to wonder this is the last trading day of
November. As then we enter that a short in December. And I wonder how much of that is also playing into the price action. I think Stephanie part of it it is something you want to think about. I'm keeping an eye on what's happening with volatility because that's gonna have a meaningful impact on risk that is being whipsawed. Clearly there is a huge debate about what that rate hike story is going to look like. There is clearly a pain trade right now that everybody's trying to work out but a lot of people being squeezed. Essentially what's happening at the front end of the curve keeping an eye on Brent as well. We're going into OPEC. That's going to be a story to keep an eye on. Yeah some are
saying that because we're seeing so much buying in the belly of the curve that actually could indicate that 20 20 three hikes might be more off the table 20 22. OK we'll see the hikes but then we kind of stop a little bit which I also thought was quite interesting. Let's talk about the data that we're getting consumer confidence now. This is data for November. This is before we started to see a meaningful pickup in the Delta variance and it's before we
obviously started talking about Omicron. But nevertheless the data coming through dipping a little bit in terms of the headline number were at 1 0 nine point five. The prior number also revised a little bit lower as well. So the prior number 113 revised to 111. The survey for this time round was 110. That's the headline number prison situation. Hundred and forty two that's down from a hundred and forty seven which had been revised lower to 145. Expectations drop quite sharply actually vs. the UN revised number of ninety one point three but that's been revised to eighty nine. We've now got Prince expectations wise of eighty seven point six. Alex the consumers started to get nervous. Now this could be because of what is happening with
the with the virus but it may also be because of inflation and what is happening with wages and the whole inflation and the income squeeze. So you wonder what's playing into this. Yeah. And you think November maybe that was about inflation but maybe December's consumer read is going to be more about what's happening with the virus. And to that point Madonna said in FTSE op ed that the new vaccine to fight the crime bearing could be ready by early 2022 if required. The company's top executives reiterated at the various mutations suggested a new vaccine will be needed. I definitely think that this threat is something that we have not seen before. The number of variations mutations on this virus are surprising. They're not theoretically impossible but extremely rare. And so we have to take it for the serious threat
that it poses. Joining us now is Eric Bana Bloomberg managing editor for Global Business. Eric why is the market taking this particular point so negatively when we all knew that potentially we could have extra boosters for this. Yeah I think that's right. There's a bit of a glass half empty glass half full thing going on with every utterance that the vaccine makers are are making at this point. We also had comments from AstraZeneca this afternoon kind of saying you know
look there is no evidence at this point that our vaccine won't work against the variant. And that was interpreted in a slightly different way from Madonna's comments that we're seeing more negatively. I mean as as the executives there have said you know all along we've known that at some point a variant might come along. It would defeat these. We don't know at this point. All the vaccine makers have said no look it's going to take a couple weeks to find this out. Bear with us. We'll have more information. But of course in that vacuum you're going to have a lot of speculation. You're gonna a lot of people placing bets
one way or the other. As that's happening though Eric we're also seeing a significant pickup in Delta area numbers both in the United States and here in Europe. Europe seems to be the epicenter of that story. What can you tell us about what governments are doing right now to deal with the immediate threat. Well there's some things happening that would have been seen as pretty extraordinary just a few weeks or a few months ago. You've got some pretty strict mandates coming under me. It started in Austria with the vaccine mandate they proposed there.
Greece today proposed fining people you know over one hundred dollars per month if they don't get a vaccine. And in Germany there's also talk of some stricter measures. We're seeing this kind of kind of groundswell really in a few places that governments are. They're running out of patients with people who haven't gotten the vaccines and they're taking you know whether it's threats or word or action the steps are starting to be pretty strong. Yeah I think Greece is like finding people over a hundred dollars for those who aren't vaccinated over 60 each week. I think Eric the return to office narrative getting back to normal fully reopening is that one hundred percent off the table for the winter.
Well I mean certainly in the short term you'd have to expect there'd be some hiccups. I mean but you know what happens next. You know with the vaccines I mean it's really hard to tell. I think at the moment people have been pretty committed to a kind of this flexible model anyway as you can see you know people working from home or the office depending on the day. And you know you'd have to think that'll continue. We in London we already had some some pretty good numbers over the last few
weeks of offices being pretty you know being pretty full. But that hasn't been reflected everywhere. Yeah I would say just anecdotally. Trains last couple of days. Definitely a little bit quieter. That may be due to the weather. Eric thank you very much indeed. Bloomberg's Eric Foner greatly appreciated. Boris Johnson Out of interest is going to speak alongside says Sanjiv Javid his health secretary. Can't speak today on what is happening in the UK. A little bit later we're gonna get that 11:00 Eastern 4:00 p.m. Here in the U.K. concerns about
the efficacy of existing vaccines against Omicron certainly putting the market in risk off mode. Investors debating whether it's time or whether we should wait to buy the debt. I've seen this economy and the stock market whether all kinds of turbulence over the years and essentially every material downturn in the market was a good buying opportunity. And I
suspect this will be just the same. You'll see that by and by the defense policy. As long as those underlying fundamentals of the job market. Personal income corporate earnings and corporate profit margins are headed in the right direction that tide is still coming in. And yes we would be a buyer of any chips.
The strength of the correction that we saw on Friday is an indication of how weak the conviction is in a stronger economy. People feel like they have to be invested in the market. These retail investors are very aggressively buying the dip still and I see that continuing for a while. Another voice into the conversation Laurie Calvert senior RBC
Capital Markets head of U.S. Equity Strategy. Laurie great to see you. We're already seeing a lot of volatility right now but ultimately does it end up in the same place i.e. the market buys the dip. I think so I think it's a question of you know how low it goes from here. Does it go lower from here. I wouldn't be entirely surprised if Friday turned out to be the lows. But I think the reality is one of the guests you just quoted a moment ago mentioned she hadn't mentioned retail investors. I don't know that they've stepped in to buy the market in a big way yet. If
you look at the AAA ISE survey from last week they had actually taken a bearish step even before this news came out. So I think that's one positive underpinning of support that's still yet to come. And when we look at institutional investors you know I think they're taking mostly a wait and see approach at this point in time. We did a survey yesterday afternoon and after Biden spoke and we found that most people in our survey said they're not really doing anything with their portfolios yet.
They need more information. So I think sentiment is a precarious thing. But I think you are right. I think we're going to end up in the same place with buying the dip. I think it's the near term that's a bit uncertain. Although Larry I did find your survey quite interesting. But I guess the question really becomes what do they do. What do they buy. What they're not
going to buy the dip yet when they do. What's it going to be. So if you look at Friday's price action versus yesterday's price action you saw two very very different markets. Friday was kind of panic and fear and defensive floated to the top. Things like health care and staples. And yesterday we saw the secular growth oriented sectors like technology do quite well. And we're seeing that in early trading again today. And I think at least while we're in this information vacuum while we're trying to figure
out exactly where this virus is headed that's very nice headed. I think investors are going to not go back into defensives. I think they're going to go back into what they were buying yesterday and this morning they're going to stick with tech consumer discretionary in those sorts of things. And we saw actually really interesting tidbits of this in our survey. Among those who are actually doing something with their portfolios and it's it's a minority but it was sort of split between those who said they're buying secular growth and quality around 20 percent of the survey respondents. And then there was another bunch similar percent that was buying cyclicals. So you have a camp that's buying the dip and they are split between whether or not they're buying aggressively or buying cautiously. My money is on cautious buying for at least the next few weeks. Laura you're going to hear from the Fed chair in just a moment speaking on Capital Hill. Do you think he's got the markets
bank. I think investors are confused about where the Fed is going. I mean that's something we probed in our survey as well just to figure out what the market's pricing in. And we found that almost half think that there's going to be no impact on the taper. In terms of hike we found that there's a decent minority around 20 percent or so again that think that hikes get pushed back. But we also saw a similar number who said that it wasn't. So I think we're going to take a lot of cues off today's testimony. Yeah we'll get deeper into that in just a moment. I wonder Laurie you mentioned sort of what they're going to buy on the dip but over the next four weeks we're going to have some rebalancing into the end of the year. And typically we talk about that Santa Claus rally. And I want to know what you think
these next four weeks are going to bring. Are we going to see more a sell the winners kind of thing. I think we're going to see people grow back into the longer term structural winners which is going to be sort of the tech stocks the Internet stocks some of those big kind of secular growth oriented consumer discretionary names. You know we've seen areas like energy and financials have quite a good year. I don't necessarily think that you're going to see people you know kind of trying to buy some of those trades on a very recent weakness. I think people are really going to be focused on just sort of the longer term stocks that they happen to like and look and look for safety in those kinds of names. I don't know if we'll see that kind of typical like leaders laggards trade like we normally see.
What are the financials in all of this. Laurie. The financials are hostage held hostage to bond yields. I mean that's really all you need to know about how that sector is going to trade relative to the broad market. And I wish you know as a strategist I could give you better color than that. They're super cheap. I think that they look great outside that bond yield issue. And I think the value trade gets going again. It's going to be a fantastic place to be but I do think that it could be challenged in the short term. One thing that we've seen historically value doesn't work when Kobe cases are rising. What
about oil. Oil I think is even you know a little bit more challenged in the short term. Bad or I would say the energy sector rather than the financials because I do think that you know sort of regular investors are willing to make bets in financials. But I think that energy just tends to get caught up in kind of the oil macro trade. And so when you're really scared on the macro that is an easy place to pull some thoughts. Fair enough. All right. Laurie Covid RBC Capital Markets. You'll be sticking with us when we get more into the Palin Yellen testimony. The Senate Banking Committee chairman Sherrod Brown is currently giving the opening statements. We're going to bring you those tech testimony the
Senate Banking Committee later on in the hour. This is Bloomberg emergency has passed earlier this month. I was glad to see the Fed finally announce a long overdue taper of its bond buying program. Quantitative easing should be used in emergencies only. And we are well past the need for such support. Including by providing free preschool free paid leave free childcare just to name a few. Democrats are attempting to hide the unprecedented enormity of this tax and spending spree through budget gimmicks according to the Senate Banking Committee ranking member Senator Patrick Toomey. He is speaking right now. We are waiting for charity. Palin Treasury Secretary Janet Yellen testimonies in front of the
Senate Banking Committee. We want to bring in Bloomberg economics and policy correspondent Michael McKee. Michael got the statements. What stood out to you. What are you looking for him. Not a whole lot stands out in the statements because both the treasury secretary and the Fed chair are trying to be as circumspect as possible because as you've repeated over and over again on the show in the immortal words of William Goldman the screenwriter nobody knows anything about this new variant yet. We're still waiting to find out. So the question is how hard does Jay Powell push back on the idea that the Fed is going to taper faster or does he push back at all. Take a look at his statement today. And you see all this poses risks increased uncertainty could reduce would slow a lot
of conditionals in there as the Fed chair tries to keep his options open. And here's why. Unlike Mr. Market has to trade every minute of every day the Fed does not have to make a move every day. Their next meeting is December 15th. And here's a fact the Fed sees which you could probably expect Jay Powell to talk about today. The U.S. economy has performed better during
each successive wave of the Corona virus. And so if that's going to be the case then the Fed isn't going to be as concerned with what happens. You can see there the. Well I understand that the treasury secretary is cutting me off. Almost almost right. We're looking at the Treasury Secretary Janet Yellen again delivering her testimony the Senate Banking Committee to pass the largest infrastructure package in American history. November 5th it turned out was a particularly consequential day because earlier that morning we received a very favorable jobs report. Five hundred and thirty one thousand jobs have it. It's never wise to make too much of one piece of economic data. But in this case it was in addition to a mounting body of evidence that points to a clear conclusion. Our economic recovery is on
track. We're averaging half a million new jobs per month since January. And GDP now exceeds its pre pandemic levels. Our unemployment rate is at its lowest level since the start of the pandemic. And our economy is on pace to reach full employment two years faster than the Congressional Budget Office had estimated. Of course the progress of our economy or our economic recovery can't be separated from our progress against the pandemic. And I know that we're all following the news about the Omicron variant. As the president said yesterday we're still waiting for more data but we're remains true is that our best protection against the virus is the vaccine. People should get vaccinated and boosted at this point. I'm confident that our
recovery remains strong and is even quite remarkable when put in context. We should not forget that last winter there was a risk that our economy was going to slip into a prolonged recession. And there is an alternative reality where right now millions more people cannot find a job. We're losing the roofs over their heads. It's clear that what is separated us from that counterfactual are the bold relief measures Congress has enacted during the crisis. The Carers Act the Consolidated Appropriations Act and the American Rescue Plan Act. And it's not just the passage of these laws that has made the difference but their effective implementation. Treasury as you know was tasked with administering a large
portion of the relief funds provided by Congress and under those bills. During our last quarterly hearing I spoke extensively about the state and local relief program. But I wanted to to update you on some other measures. First the American rescue plans. Expanded child tax credit has been sent out every month since July putting about 77 billion dollars in the pockets of families of more than 61 million children. Families are using these funds for essential needs like food and in fact according to the Census Bureau. Food insecurity among families with children dropped 24 percent after
the July payments which is a profound economic and moral victory for the country. Meanwhile the emergency rental assistance program has significantly expanded providing much needed assistance to over two million households. This assistance has helped keep eviction rates below pre pandemic levels. This month we also released guidelines for the 10 billion dollar State Small Business Credit Initiative program which will provide targeted lending in investments that will help small businesses grow and create well-paying jobs. As consequentialist November was December
promises to be more so. There are two decisions facing Congress that could send our economy in very different directions. The first is the debt limit. I cannot overstate how critical it is that Congress address this issue. America must pay its bills on time and in full. If we do not we will eviscerate our current recovery in a matter of days. The majority of Americans would suffer financial pain as critical payments like Social Security checks and military paychecks would not reach their bank accounts and that would likely be followed by a deep recession. The second action involves the build back better agenda. I
applaud the House for passing the bill and I'm hopeful that the Senate will soon follow. Build back better is the right economic decision for many reasons. It will for example in the child care crisis in this country letting parents return to work. These investments we expect will lead to a GDP increase over the long term without increasing the national debt or deficit by a dollar. In fact the offsets in these bills mean they actually reduce annual deficits over time. Thanks to your work we have ensured that America will recover from this pandemic. And now with this bill we have the chance to ensure America thrives in a post pandemic world. With that I'm happy to take your questions. Thank you. Secretary on chair Paul you're recognized. Thank you
for joining us. Thank you Chairman Brown and Ranking Member Toomey and other members of the committee for the opportunity to testify today. The economy has continued to strengthen. The rise in Delta variant cases temporarily slowed progress this past summer restraining previously rapid growth in household and business spending intensifying supply chain disruptions and in some cases keeping people from returning to work or looking for a job. Fiscal and monetary policy and the healthy financial positions of households and businesses continue to support aggregate demand. Recent data suggests that the post September decline in cases
corresponded to a pickup in economic growth and GDP appears on track to grow about 5 percent in 2021 the fastest pace in many years. As with overall economic activity conditions in the labor market have continued to improve. The Delta variant contributed to slower job growth this summer as factors related to the pandemic such as caregiving needs and fears of the virus kept some people out of the labor force.
Despite strong demand for workers nonetheless October saw job growth of five hundred and thirty one thousand and the unemployment rate fell to four point six percent indicating a rebound in the pace of labor market improvement. There is still ground to cover to reach maximum employment for both employment and labor force participation and we expect progress to continue. The economic downturn has not fallen equally in those least able to shoulder the burden have been the hardest hit in particular despite progress. Joblessness continues to fall disproportionately on African-Americans and Hispanics. Pandemic related supply and demand imbalances have contributed to notable price increases in some areas. Supply chain problems have made it difficult for producers to meet strong demand
particularly for goods. Increases in energy prices and rents are also pushing inflation upward as a result. Overall inflation is running well above our 2 percent longer run goal with the PCC Price Index up 5 percent over the 12 months ending in October. Most forecasters including at the Fed continue to expect that inflation will move down significantly over the next year as supply and demand imbalances abate. Is difficult to predict the
persistence and effects of supply constraints. But it now appears that factors pushing inflation upward will linger well into next year. In addition with the rapid improvement in the labor market slack is diminishing and wages are rising at a brisk pace. We understand that high inflation imposes significant burdens especially on those less able to meet the higher costs of essentials like food housing and transportation. We are committed to our price stability goal. We will use our tools both to support the economy and a strong labor market and to
prevent higher inflation from becoming entrenched. The recent rise in Covid-19 cases and the emergence of the Macron variant. Post downside risks to the employment and economic activity and increased uncertainty for inflation. Greater concerns about the virus could reduce people's willingness to work in person which would slow progress in the labor market and intensify supply chain disruptions. To conclude we understand that our actions affect communities families and businesses across the country. Everything we do is in service to our public mission. At the Fed we'll do everything we can to support a full recovery and employment and achieve our price stability goal. Thank you
very much. Thank you. Sure. Secretary Ellen thank you for your comments about that when the debt ceiling we have two more weeks. We know failing to get this done will hurt families and small businesses and our whole economy. I want to ask you about something else though. The Wall Street Journal reported two weeks ago that two thirds of the largest publicly traded companies had larger profit margins in 2021 than in 2020 than 10 2019 before Covid-19 in 2020. Top CEOs made 351 times the income that a typical worker made even during an ongoing pandemic. When faced with increased demand and supply chain issues big corporations refuse to cut their own profits.
They raise prices on people. They complain about having to pay workers more. Never mind the fact they've been giving themselves raises for years without it impacting their prices. Meanwhile the costs of housing and medical care and almost everything else for most workers has been rising for years. You've said Secretary Yellen. You've said the bipartisan infrastructure bill and build back better will bring costs down for most Americans. Could you explain that. Yes the build back better plan contains support for households to help address some of the most burdensome and most rapidly rising costs that they face. For example the cost of child care which is virtually unaffordable
for many American families. There is subsidies for quality child care that will bring down the cost for the great majority of American families. Universal pre-K for 3 and 4 year olds. Those end end child tax credit and all of that will bring down the costs of child care. And for families that are facing crushing burdens for example rental very high rental costs in many areas. The additional money that they get through the child tax credit will help them keep a roof over their family's heads. And as I indicated in my opening remarks is already helping them
put food on the table with respect to the costs of caring for of the elderly build back better contains support for those who are disabled in the elderly to get care in their homes there. There are subsidies in increase in the Pell Grant and money for education and for workforce training that will make that more affordable. And reductions in the cost of prescription drugs. These are some of the most burdensome items in family budgets. Ones that have risen more rapidly than the general level of prices over time. And the the bill will I hope families meet those meet those burdensome expenditures. Thank you Madam Chair. Madam Secretary I miss your chair pounds. Is it still your belief that higher prices in certain sectors
are chiefly chiefly caused by the upheaval we're experiencing as a result of the global pandemic. And then as the pandemic eases so too should inflationary pressure. So I guess I would say it this way. Generally the higher prices we're seeing are related to the supply and demand imbalances that that can be traced directly back to the pandemic and the reopening of the economy. But it's also the case that that price increases have spread much more broadly in the recent few months across the economy and I think the risk of higher inflation has increased. Thank you. The dollar is convinced is a question for both of you. The is
controlled by the American people but stable coins are controlled by opaque secretive technology companies over and over on issue after issue. We've seen tech firms put profits ahead of the public interest. With our elections with our privacy with competition our markets. Is it risky. And start with you Madam Secretary. Is it risky to let control over our money fall into the hands of these companies. I believe that stable coins it can result in some greater efficiencies in the payment system and could contribute to easier and more efficient payments. But only if they're adequately regulated. And the President's working group that I chair recently issued a
report indicating that there are significant risks associated with these currencies risks of to the payment system risks of runs and risks related to the concentration of economic power. And we have called upon Congress to put in place force these stable coins a regulatory framework that would make them safe and protect consumers and put them on a level playing field with other other providers of similar services such as banks. Sure. Paul do you agree with that. Yes I do. Thank you. In closing out my time I think it's important to look at a bit of historical perspective as both of you have explained to me in other conversations in the late 90s and early 2000s over-the-counter derivatives and subprime mortgages were billed as financial innovations. Financial regulators at the time pushed to weaken safeguards saying that a cloud of legal uncertainty hung over the RTS derivatives markets and regulations. Again their words could discourage innovation
and growth and drive transactions offshore. Later the banking lobby argued that regulating subprime mortgages would decrease borrower choice and reduce access to capital. The Financial Crisis Inquiry Commission cited derivatives and sub prime mortgages as key factors in the crisis. It looks again again again like the financial industry's uses these same arguments
for stable coins in decentralized finance platforms. Today all of us on this committee and both parties should be concerned about that should understand the historical parallels and should listen to this very bipartisan panel the secretary of the Treasury and the chair of the Federal Reserve. Senator Toomey. Thank you Mr.. Thank you Mr. Chairman. Since the topic of the debt ceiling came out let me just remind all of us of something that we know very well and that is our Democratic colleagues can raise the debt limit all by themselves anytime they want. And there's nothing Republicans could do to stop them. The tools have been available to them all year long. And in fact Republicans have offered to expedite the process. There is only one reason that our Democratic colleagues refuse to use reconciliation to raise the debt limit and that is because they would have to specify the amount of debt they want to inflict on the American economy. They want to avoid accountability for this
terrible spending spree they're engaged in by obfuscating and not specifying a dollar amount. I think we should be very clear about what's going on here. Mr. Powell under the Fed's new flexible average inflation targeting the inflation target remains at 2 percent but now it's on an average over an unspecified timeframe. P.S. The Fed's preferred inflation metric is running about above 2 percent over the past five years nearly three percent over the past two years and four point one percent over the past year. So it's above target. It has been above target and it's accelerating. Yet the Fed has maintained an extraordinary emergency monetary policy stance. It looks to me like this framework appears to be a weakening of the Fed's commitment to stable prices. Now I know you believe this is transitory but everything's transitory. Life is transitory.
How long does inflation have to run above your target before the Fed decides. Maybe it's not so transitory. Well first of all the the the test that we've articulated I think clearly has been met. Now you know you're absolutely right. Inflation is run well above 2 percent for long enough that if you look back a few years inflation averaged 2 percent. So I think I think we can say that that that is it was not the case going into this episode have been many years since we had inflation at 2 percent. So I think the word transitory has different meanings to different people. To many it carries a time a sense of a short
lived. We we tend to decide to use it to mean that it won't leave a permanent mark in the form of higher inflation. I think it's it's probably a good time to retire that that word and try to explain more clearly what we mean. Well. Now it's still it strikes me as just extraordinary that the economy has. It's long past recovery. We're in a full blown expansion. Unemployment's down to four point six. We have record high asset prices. Housing is leading the way to the point where in many markets houses are just unaffordable for many people. And yet the Fed is going to purchase 35 billion dollars in mortgage backed securities in December alone and scheduled to continue purchasing mortgage backed securities for months on end. I would strongly urge you to reconsider the pace of the
tapering. Secretary Alan I want to follow up on the discussion about payments stable coins in the president's working group payments. Stable coins were defined. And the definition is and I quote those stable coins that are designed to maintain a stable value relative to a fiat currency and therefore have the potential potential to be used as a widespread means of payment. End quote. End quote. Well that certainly covers every major stable coin that exists right now. And what strikes me as perplexing is that the president's working group recommendation is that all such stable coins.
Be required to be issued by depository institutions only. But yet as you know the mechanism by which the value of the stable coin is maintained relative to a fiat currency they vary significantly. Some some arguably look somewhat like depository institutions. Others look much more like money market accounts. Still others look like something wholly new. Why. Suggests that they all must be regulated the same way and treated as depository institutions.
Well they they all have the potential to be used as a means of payment regardless of how they are used at the outset when they're introduced and the structure that they espouse and and adhere to which is that they have a stable value relative to a fiat currency that is really what depository institutions guarantee. I would just suggest that we really think this through. I think that very fundamentally different designs suggest that there might be different regulatory approaches are I'm gonna run out of time here. So Mr. Chairman I just want to note that pillar one of the Biden administration's international tax agreement will be the most significant international tax change in 100 years to implement that every one of our bilateral trade outside our bilateral tax treaties would need to be modified. There is no historical precedent for bypassing the Senate treaty process
to implement Pillar 1. Secretary Yellen during a recent Finance Committee briefing I asked you to acknowledge that administration would need to come to the Senate for treaty approval to implement Pillar 1. You responded that Treasury has yet to determine whether a treaty will be needed or not. In my view and that of many of my colleagues implementing Pillar 1 would require modifications to our existing bilateral tax treaties and those modifications must be approved by two thirds of the Senate. The executive branch cannot ignore the Senate on a matter that is clearly our constitutional responsibility.
Thank you Mr. Chairman. Thanks Senator Reid. Senator Reid is recognized from Rhode Island. Thank you Mr. Chairman. First let me thank Secretary Yellen for being our guest speaker at the Providence Chamber of Commerce last week. Thank you Madam Secretary. And I learned something there. I always do when I'm with the secretary. She is the only person that has been chairman of the president's Council of Economic Advisers chairman of the Federal Reserve and secretary of the Treasury.
So thank you for your work. And let me first of all extend my congratulations through your reappointment to the Federal Reserve. Thank you Chairman Paul. We've seen as you've both discussed the steady job growth. What is troubling though is the leverage participation rate has remained depressed. And until we get that participation rate up higher we're going to have the complaint that we receive the ability to get workers etc.. How do we do that. And what's that. What do you think of the causes of this falloff in the participation rate. You didn't catch the very end of that. The causes of the cause and the participation rate. And then how do we rectify those causes.
So it's very surprising since June of last year the unemployment rate has dropped six and a half percent and participation is basically moved up to two tenths it's sort of moved sideways which was surprising I think when unemployment insurance enhanced unemployment insurance ran off and schools reopened and vaccination came. We all thought there would be a significant increase in labor supply and it hasn't happened. So you ask why there's tremendous uncertainty around that. But a big part of it is clearly linked to the ongoing pandemic. People answer surveys and you know they're reluctant to go back to work. They're reluctant to to leave their caregiving responsibilities and go back to work because they feel like schools might be closing again. Things like that. So it's an issue. And I think we're taking what I'm taking on board is that it's going to take longer to get labor force force participation back. We're not going right back to the same economy. And really it's going to take often labor force participation is a lagging indicator. It
follows big improvements in the unemployment rate. And that's we're probably on track to have that happen. And that means to get back to the kind of great labor market we had before the pandemic. We're going to need a long expansion to get that. We're going to need price stability and a sense of the risk of persistent high inflation is also a major risk to getting back to such a labor market. Thank you very much Madam Secretary. Let me thank you for your maximizing the flexibility in the emergency rental assistance program. Steps like self attestation and both utility payments
have been very helpful. Rhode Island is trying to get these returns. One area that is very difficult and always difficult that is the homeless population of that. Can you look at and try to develop DRP guidelines to emphasize how funds can be properly used for homelessness. That's an extremely important area. We're very focused on it and we'll be happy to work with you on it. What I can say is that ERP funds can be used to provide so-called housing stability services a range of services to the homeless to help them find a stable shelter something that Treasury did a kind of flexibility that we built into our guidelines is ERISA statute requires that to be eligible for assistance a household has to have a so-called rental obligation. Recognizing that would be something that would be challenging for families
experiencing homelessness. We created an opportunity for ERP grantees to provide individuals with a letter of intent to pay your rental obligation. So with this letter of intent that would make it easy easier for the homeless to be able to secure housing. So those are two forms of flexibility we think will help. And we'd be glad to work with you to see if we can identify more. Thank you. Amount of 30 on communicating those provisions to local authorities would be helpful. And just a final point. So the onus is with the Homeowner Assistance Fund. I know you're looking at the state plans and if you could accelerate that to get the money out because as you well know a lot of these moratoriums on eviction are either gone or going and it would be very helpful. Get the money
out. Thank you. Yes. Thank you Mr. Mayor. I thank Senator Reid. Senator Craig of Idaho is recognized. Thank you Mr. Chairman. Secretary Yellen some appear to believe that you have announced that unless a debt limit increase or a suspension occurs before December 15 that the Treasury faces imminent default. That's not how I've read your comments. So it would be helpful for you to clarify what your current projection is for when Treasury would run out of headroom to operate below the debt limit and run dangerously low of operating cash. I also request that Treasury provide details of its latest debt
and cash projections to the Finance Committee and look forward to receiving those projections. Yes. Look let me clarify what I said. What I indicated in my most recent letter to Congress is that I have a high degree of confidence the Treasury will be able to finance the U.S. government through December 15th. But there would be scenarios in which Treasury would not have sufficient funds to continue to finance the operations of the U.S. government beyond that date.
I would note that on December 15th Treasury will invest funds from the infrastructure bill and that will use up 118 billion dollars worth of capacity when those funds are from the Highway Trust Fund are invested in government securities. And I I didn't say the theory is no way that we can make it past December 15th. There are a range. There's uncertainty about what our cash balance will be and our resources. Right now there is uncertainty about where we will be on December 15th. And there are scenarios in which we can see it would not be possible to finance the government. That doesn't
mean that there are not also scenarios in which we can. But we we think it's important for Congress to recognize that we may not be able to. And therefore to raise the debt ceiling expeditiously. Well thank you for that. Thank you for that clarification. Chair Powell inflation hit six point two percent last month
which was the highest in more than three decades. Still the administration is pushing for support of a nearly two trillion dollar social spending package. And by the way that number even accepts their budget gimmicks that hide real cost. That could mean several trillion more in spending over the next 10 years. Most of that spending does nothing to ameliorate the problems arising of rising inflation in fact will simply add fuel to the inflation fire. I'm very concerned that the administration is
not taking inflation's threat seriously and in the case of energy prices is enacting regulatory policies that themselves are threats. Do you agree that inflation is a serious threat to our economy. And how do you intend to address inflation. I do think that the the threat of persistently higher and inflation has grown. I think that my baseline expectation is still as I mentioned and most forecasters is still that inflation will move back down over the course of next year closer to our target. But clearly the risk of more persistent inflation has risen. And I think you what you've seen as you've seen us you've seen our policy adapt and you'll see it continue to adapt to you know we will use our tools to make sure that higher inflation does not become entrenched. I noted in your
opening statement that you indicated that inflation pressures will linger well into next year. You do stand by that. Yes I think we can now see certainly through the middle of next year. That's an expectation. You know we're forecasting is not a not a perfect art as you may have noticed. So but yes right into the middle of next year. And you know I would. That's our expectation. But of course what's happened is that date has been pushed out repeatedly as supply
side problems have not really improved. And if if Congress were to pass an additional two trillion plus in spending mixed with a number of increases in taxes would that add to inflationary pressures. Senator I'm sorry. I'll just just note that we had a longstanding policy of not commenting on on active legislation as you probably aren't surprised to hear.
I suspected that. One last very quick question. And for you Chair pal you've indicated that there would be a report by the Fed on its discussion paper relating to digital digital currencies and that's been delayed several times. My question to you is when can we expect the Fed's report and are there reasons for that delay. I would think very soon. I mean certainly in coming weeks and you know the reasons are just trying to get it right and trying to find the time to get it right. It's been a very busy time as it as you know. Thank you. Thank you. Thanks. Senator Warner of Virginia is recognized.
Thank you Mr. Chairman. And good to see you Secretary Yellen. And congratulate. Congratulations Temple on your reappointment. I want to start with you Sharp pal. I mean I actually think the Fed's activities during the pandemic which included extensive use of 13 facilities and some aggressive bond purchases actually helped stave off what could have been a complete economic meltdown. And while we did spend in excess of 5 trillion dollars mostly all in extraordinarily bipartisan way under both President Trump and President Biden on recovery from Covid I think history will treat those actions certain areas excessive. But I think net net from historical perspective it'll be well regarded both for the American economy and for the world's economy. But I think as you as you've indicated your pal. You know I think we're seeing our economy come back. We will
differ on on the bipartisan infrastructure plan and maybe even a bit of the build back better. But that's part of our job. But I have seen since your FOMC November meeting that the Fed signaled a shift announcing starting to move back from some of the very aggressive means you've used and announcing a tight tapering on the pace of bond purchases month by month as the economy continues to strengthen. I'd like you to get into that a little back. Which factors most influence that decision for a gradual change in course. And how long do you think it will take the Fed to gradually wind down these purchases. So we actually haven't made a decision on that but I would just say this the most recent data particularly since the November FOMC meeting show elevated inflation pressures a rapid improvement in many labor market indicators without an accompanying addition of labor supply and also strong spending that that really signals growth. Big significant growth in coming months. Remember that every dollar of asset purchases actually adds accommodation to the economy. But but at this point the economy is very strong and inflationary pressures are
high. And it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases which we actually announced at the November meeting. Perhaps a few months sooner. And I expect that we will discuss that at our upcoming meeting in a couple of weeks. Of course between now and then we will see another labour market report another inflation report and we'll also get a better sense of the new the new Covid variant as well. Before that before we make that decision well let me drill down a little bit. I mean clearly I think I was surprised. You say you were surprised. I
think most of us were surprised that coming back in September that we didn't see more folks re-enter the labor force. I believe that tapering and frankly accelerating it can kind of serve as an insurance policy. If if we don't see this return and we see these potential over overheating of the of the economy. So I do hope that you will. Move more aggressively on this tapering. I also would like to just touch again you mentioned some of the new variants with Covid.
What factors. One of things we've got to maintain is some ability to move quickly. And we obviously Congress move very quickly under President Trump sectoral management at the outset of of Covid. Hopefully we won't have to come back to those kind of actions from this entity. But with these new variants coming coming on board how will what are the markers you're going to look at to determine how that might influence Fed activity.
So at this point I think we're all looking at the same thing and we're listening to the experts which which are not I'm certainly not one of those but I talk to those people and it's really about transmissibility. It's about the ability of the existing vaccines to to address any new variant. It's about the severity of the disease once it is contracted. And we don't know. I think we're going to know. What I'm told by experts is it will know quite a bit about those answers within about a month. We'll know something though within a week or 10 days. And then then then and only then can we make an assessment of what the impact would be on the economy. As I pointed out in my testimony for now it's a risk. It's it's not. It's a risk to the baseline. It's not really baked into our forecast. Right down on my last 25 seconds. I'm not going to let you get away without at least
raising an issue I always raised with Secretary Yellen. I know Chairman Palin raised with you as well. And that's I think the very smart action that took place again actually under President Trump on investment in CTF ISE and minority depository institutions. And I want to thank Chairman Brown and people like Senator Craig Poe and so many others including Zachary Minchin that we made that investment. And you know Secretary Yellen are implementing that. We've seen a great take up rate from the asset program in terms of Tier 1 capital investment into these institutions that hit low and minor or low and moderate income individuals. I guess with this demand way exceeding the amount money we had. What else can we do to shore up these institutions. And I would love to press both of you. Maybe you
can take this partially for the record since I've gone over on how we might even be able to look at securitization of some of this city of high debt so that we can again increase the liquidity these institutions. But if you briefly recognizing I've gone over the answer that I appreciate. Thank you Mr. Chairman. Well we would be glad to work with you to discuss possibilities there. I think that the infusion of funds into CDM FIES in empty ISE. It's historic. It's going to make a tremendous difference to
their ability to support businesses particularly in minority areas. We have seen huge take up of the ISE CIP funds that have been provided. It's four billion dollars oversubscribed. We're working through applications and we'll try to make decisions on investments shortly. But it certainly shows that it's a program that has the potential to make an enormous difference to this lending. We would be happy to work with you to find ways to make it yet more effective and way over time. If you could just say yes you'll work with me to share power. That would be great. Yes I'll work with you to send around from South Dakota's recognized five. Thank you Mr. Chairman.
First of all Chairman Powell congratulations on your renomination I do look forward to supporting your nomination. I think you've provided stability during a very challenging time. Secretary Yellen it's good to see you once again. And I thank you for your service to our country.
In September when you were before this committee I asked you when you would say enough is enough when it comes to our debt and deficit. You acknowledged that debt becomes an issue when it exceeds 100 percent of GDP a level we have already hit. As you know but said also that since the cost of servicing our debt has been negative due to a long stretch of low rates our debt has been less burdensome. However due to skyrocketing inflation I think it's just a matter of time before we exit this very low interest rate environment. Do you think Secretary Yellen. Do you think it's finally time to start sounding some alarm bells with regard to the financing of our national debt. Well I wouldn't want to sound alarm alarm bells. I think that we are in a sustainable debt path. But President Biden was very clear when he proposed to build back better plan that it should be fully financed as the infrastructure bill was. And that is what CBO found that the
fiscal plans that the Biden administration have put forth in infrastructure and build back better will not worsen the debt or deficit path. And indeed by the end of the 10 year horizon build back better lowers deficits and it yields very great benefits beyond the 10 year horizon particularly from the investment in the IRS to enhance its ability to close the tax gap and to collect revenues that are due under our tax code. So it is a fiscally responsible plan that makes matters bitter rather. But we're not. Madam Secretary I guess that the reason for my question is that it's not just a matter of whether or not we
have half a trillion dollars or so that will have to be financed or more during a 10 year time period as that money comes back in for paying for programs that are four to five years and in duration under the proposal. But rather we have 29 trillion plus dollars that will not only be refinanced during a time period but may very well be refinanced at a higher rate. In fact treasuries right now have run anywhere from one point five four to one point four two percent over the last couple of days. But they're going to trend upwards. And in fact there are some people that would suggest that treasuries may very well hit three to three to three three point five percent over the next 18 months. Do you think that would be a reasonable expectation. The the forecasts that were included most recently in the mid session review assume that.