Connect with us

Business

Growth, jobs and inflation clash in Biden Fed choice

Published

on

November 17, 2021

By Howard Schneider

WASHINGTON (Reuters) – U.S. President Joe Biden’s nominee as the next chair of the Federal Reserve, expected as soon as this week, will inherit an economy headed for the fastest annual growth in a generation with wage increases flowing to the lowest-paid workers, strong hiring, and household bank accounts flush with cash.

They’ll also inherit a situation where homes, cars, food, and clothing are becoming steadily more expensive, and whether it’s current chair Jerome Powell for a second four-year term or a promotion for current Fed Governor Lael Brainard, dealing with that inflation shock carries risks for both the president, the economy and the Fed.

Advertisement

Rising prices have already begun to sour the public mood, pushing Biden’s approval numbers to the lowest point of his presidency, cited in polls as a concern that crosses party lines and income brackets and which is shared even among those for whom higher prices have been offset by ongoing government payments.

For the Fed, it has presented an old problem in fresh circumstances – with tangled global supply chains, a hard-to-read and potentially diminished U.S. labor market, and rising prices potentially forcing them to raise interest rates and slow growth before the economy recovers the jobs and workforce levels seen before the coronavirus crisis.

It’s a choice both Biden and the Fed hoped could be avoided in a drive to push job growth further and deeper into the economy, on the expectation inflation would behave roughly the same as it did before the pandemic. It hasn’t.

“Six percent inflation is not the right level of inflation, we can all agree on that,” said Nela Richardson, chief economist for payroll processor ADP, citing recent consumer price increases, at a 30-year high, that have wiped out rising wages and far outstripped the Fed’s 2% target.

The Fed still expects that high pace of price increases to be “transitory,” but “wealthier consumers have the luxury of time,” Richardson said. “Low-income less-skilled consumers do not. As much as I understand the transitory argument, waiting it out is not the best option for some people.” Inflation sours sentiment for U.S. consumers, https://graphics.reuters.com/USA-ELECTION/zdvxonkmbpx/chart.png

Advertisement

‘A LOT OF CONTINUITY’

Biden said Tuesday he would make a decision on the Fed in around four days. Powell’s current term ends in February and whether Biden chooses him or Brainard – both have been interviewed – the nominee will need to go through a confirmation hearing and vote in a closely divided Senate.

But a process that began as a somewhat clear-cut choice – stick with the Republican Powell for continuity and bipartisanship or tap the Democrat Brainard to reward supporters and pursue a broader remake of the central bank – has turned trickier.

Both are practiced central bankers who have worked together for years and shared in remaking Fed policy to put more emphasis on jobs and allow some higher inflation to do so. Both will have to wrestle in coming months with the same dilemma of how far to let those inflation risks run before taking action.

“No matter how this comes out there would be a lot of continuity in Fed policy. Both of these players have long track records,” St. Louis Federal Reserve President James Bullard said Tuesday on Bloomberg Television.

Advertisement

But politically the landscape for Biden has changed from one where the Fed could keep its prime focus on jobs to one where the fortunes of the president and his party may need a dose of inflation fighting as well.

INFLATION A ‘VERY BIG CONCERN’

Objectively much is going right. The economy added more than half a million jobs in October and analysts expect strong employment growth ahead given the near-record number of openings reported by firms and the willingness to offer higher wages.

Households are still sitting on large cash balances as a result of pandemic stimulus programs – and are willing to spend based on retail sales that continued strong in October. Families with children are receiving monthly payments that have cut poverty rates and should, ostensibly, ease the sting of higher food and gas prices.

Yet Biden seems to have gotten little or no credit for that. In a recent Reuters/Ipsos poll inflation was cited by strong majorities of Democrats and Republicans as a “very big concern for me,” an opinion that did not vary by much across education levels, income or among parents, many of whom receive the monthly child tax credits.

Advertisement

Republicans have zeroed in on the issue as a potent one for next year’s midterm elections, and some Democratic lawmakers and economists as well have called on the Fed for tougher action.

The Biden administration, like many at the central bank, also believes the current run of inflation is a temporary byproduct of ramping up the global economy after the pandemic.

But a Biden adviser said fears about inflation and the economy in general were the main reason for Biden’s decline in the polls in recent months – and that it was incumbent on Democrats to show they understand the issue and are trying to solve it.

How that plays into the Fed choice remains unclear.

Brainard, at the margin, may be the more “dovish” choice, willing to show more patience in raising rates. Still, she’s also a Phd economist schooled in the downside of letting inflation spiral and unlikely to let it happen on her watch.

Advertisement

Powell, a private equity lawyer but convert to the strategy of pushing broad employment gains, may have an easier road to confirmation, with announced support already among Senate Republicans and Democrats.The president himself has begun putting inflation more center stage.

“Many people remain unsettled about the economy, and we all know why,” Biden said last week. “They see higher prices. They go to the store…or go online and they can’t find what they always want and when they want it. We’re tracking these issues and trying to figure out how to tackle them head on.”

(Reporting by Howard Schneider; Additional reporting by Trevor Hunnicutt; Editing by Andrea Ricci)

Advertisement
Continue Reading
Advertisement

Business

Arnault-backed group launches second SPAC listing

Published

on

December 7, 2021

By Emma-Victoria Farr

LONDON (Reuters) – France’s richest man Bernard Arnault and former UniCredit head Jean Pierre Mustier will publicly list a second blank cheque vehicle in Amsterdam, raising 200 million euros ($226 million), the bookrunners on the deal said.

Earlier this year, the duo raised half a billion euros from their special purpose acquisition company (SPAC), Pegasus Acquisition Company Europe B.V., which is searching for takeover targets in the financial sector.

Advertisement

On Tuesday, the same group of backers announced they would list a second vehicle with a similar focus, Pegasus Entrepreneurial Acquisition Company Europe, in Amsterdam.

SPACs are listed on a stock exchange by a group of entrepreneurs, who use the money raised to target a private company – allowing the target to get a stock market listing without the arduous process of launching a public listing.

Mustier is working with former Bank of America banker Diego De Giorgi and entrepreneur and investor Pierre Cuilleret in launching the 200 million euro listing.

Several SPACs have listed in Amsterdam, potentially boosting the Dutch financial capital’s credentials as a hub for fast-growing companies. London has only hosted one major SPAC in 2021, after updating its rules to make them easier.

Pegasus is backed by institutional sponsors Tikehau Capital and Financière Agache and by sponsors De Giorgi, Cuilleret and Mustier. Citi, Goldman Sachs and BNP Paribas are the bookrunners on the deal.

Advertisement

($1 = 0.8860 euros)

(Reporting by Emma-Victoria Farr; editing by John O’Donnell and Louise Heavens)

Continue Reading

Business

Bulls back in charge as Omicron worries wane

Published

on

December 7, 2021

By Marc Jones

LONDON (Reuters) – Waning Omicron COVID-19 variant worries and a timely booster shot of Chinese stimulus lifted world stock markets and oil on Tuesday and left traders offloading safe-haven currencies and bonds again.

The FTSEurofirst 300 index was on track for its first back-to-back run of plus 1% gains since February while Asia saw record bounces from some of China’s biggest firms such as Alibaba and Baidu. [.SS][.EU]

Advertisement

The risk-on mood also helped the dollar climb against safe haven currencies such as the Japanese yen,, which had lost 0.6% overnight, as the confidence-sensitive Australian dollar also found buyers. [FRX/]

Safe-harbour government bonds went the other way with yields – which move inverse to bond prices – up 2.5% on Germany’s benchmark 10-year Bund after falling to a three-month low on Monday. [GVD/EUR]

Reports in South Africa said Omicron cases there had only shown mild symptoms and the top U.S. infectious disease official, Anthony Fauci, told CNN “it does not look like there’s a great degree of severity” so far.

“Good news relating to the severity of Omicron should be taken with a pinch of salt. Faster transmission could offset the benefits of milder symptoms,” researchers at ING said in a note. “More broadly, it is still early days, even if markets are starting to display Omicron fatigue.”

The gains also came after China’s central bank on Monday injected its second shot of stimulus since July by cutting the amount of cash that banks must hold in reserve.

Advertisement

There was still uncertainty about its property sector as Evergrande teetered on the brink of default again but data showing much stronger import growth was “a positive sign on the strength of domestic demand”, RBC analyst Adam Cole said.

Elsewhere, Australia’s S&P/ASX200 rose 0.95%, while Japan’s Nikkei advanced 2.1% as risk-on sentiment pushed markets higher.

MSCI’s main Asia ex-Japan benchmark has lost about 5% so far this year, with Hong Kong markets figuring among the big losers, while Indian and Taiwan stocks outperformed.

Shares in embattled developer Evergrande edged up 1.7% after hitting a record low on Monday as markets waited to see if the real estate giant has paid $82.5 million with a 30-day grace period coming to an end.

Elsewhere, markets were supported by gains on Wall Street, where economically sensitive stocks outperformed.

Advertisement

“While epidemiologists have rightly warned against premature conclusions on Omicron, markets arguably surmised that last week’s brutal sell-off ought to have been milder,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, said in a note.

“After all, early assessments of Omicron cases have been declared mild, spurring half-full relief.”

Also supporting the dollar in FX markets was the expectation the Federal Reserve will accelerate the tapering of its bond-buying programme when it meets next week in response to a tightening labour market.

Oil prices jumped another 2% to $74.60 a barrel, adding to a near 5% rebound the day before as concerns about the impact of Omicron on global fuel demand eased. [O/R]

Copper prices also ticked higher while gold was steady at $1,778.5 per ounce on expectations U.S. consumer price data due later this week will show inflation quickening.

Advertisement

(Additional reporting by Anshuman Daga in Singapore; Editing by Nick Macfie)

Continue Reading

Business

Exclusive: EU antitrust regulator seeks input on Microsoft’s $16 billion Nuance deal

Published

on

December 7, 2021

By Paresh Dave

(Reuters) – EU’s antitrust regulator is taking a deeper look into Microsoft Corp’s $16 billion deal for transcription technology company Nuance Communications Inc, asking customers and competitors to draw up a list of concerns, according to a questionnaire from last month seen by Reuters.

The previously unreported outreach is the most extensive by an antitrust authority since the companies announced the acquisition in April, according to a person familiar with the matter.

Advertisement

Microsoft declined to comment, and Nuance did not respond to a request for comment.

After minimal review, the U.S. Department of Justice in June and the Australian Competition Commission in October said they would not contest the deal. The companies filed for approval from the European Commission’s competition bureau last month, and the regulator has until Dec. 21 to clear the deal or open a bigger investigation.

The companies had expected to close the deal by the end of this year, but said last month the timeline could slip to early next year.

The questionnaire asks whether Microsoft and Nuance are competitors and whether a tie-up could affect clients and rivals, including whether Microsoft could favor Nuance over competing services.

Nuance primarily sells transcription technology that is popular among doctors and call centers that want to automate note-talking. Analysts view the deal as bolstering Microsoft’s presence in the healthcare market, and bringing it new voice and medical data to train artificial intelligence offerings in health, speech and biometric security.

Advertisement

Like other big tech companies, Microsoft for years has grown its business through acquisitions, such as in advertising and video gaming. But in the last decade, Microsoft has avoided the target that recently has dogged its competitors Alphabet Inc’s Google, Facebook Inc, Apple Inc and Amazon.com Inc, all of which are facing antitrust lawsuits and investigations on numerous issues.

Steven Weber, a University of California Berkeley professor studying the intersection of technology and health care, said possible concerns about the pending deal could include Microsoft forcing its Office suite on Nuance customers by bundling them together.

Nuance has said it serves 77% of U.S. hospitals.

A key to its success has been has ensuring in deals with customers that it could use their data to advance its voice recognition systems, according to former chief executive Paul Ricci and another former employee.

For instance, a Nuance contract with Augusta University Medical Center, obtained by Reuters this year through a public records request, reads, “Customer shall provide Nuance access to voice and text data…and grants Nuance a perpetual, royalty-free license to copy, use and analyze such data for speech recognition research.”

Advertisement

Big cloud vendors such as Amazon and Microsoft typically do not have unfettered access to customers’ data for research and development. But the opportunity to acquire those relationships and data explains Microsoft’s interest in Nuance, the former employees said.

Other providers of health transcription technologies include 3M Co and Philips.

(Reporting by Paresh Dave; Editing by Kenneth Li and David Gregorio)

Advertisement
Continue Reading
Advertisement

Trending