Infrastructure is finally getting its week. But inflation and jobs have not gone away.


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Louisville Urban League employees speak to job seekers at a Jobs USA careers fair in Louisville, Ky.

Luke Sharrett / Bloomberg

The changes brought about by the Covid-19 pandemic are gradually moving into focus and with them the political reactions. The way we work or not work is different than it was before the pandemic. At the same time, things that have not been addressed for a long time are belatedly recognized.

In the latter case, Washington finally took steps last week to address the country’s obvious deficiencies in its infrastructure. It’s time. At the end of 2016 I wrote in a Barrons Cover story that a divided America could only agree on to repair crumbling bridges, roads and transportation systems.

After numerous “infrastructure weeks”, Washington only now wants to invest in projects to make the economy more productive. But of course, a plan could only be cobbled together through an obscure two-step process: first, things that a bipartisan group can agree on in Congress, second, a package that can only be passed with the support of Slim’s Democratic Majorities in the House and Senate.

So there’s the $ 559 billion total bipartisan package to fund clearly needed projects for transportation, power grids, broadband, and the like, with no tax hikes but past unused spending approvals, heightened IRS enforcement, and things like sales The Strategic Petroleum Reserve is financed in part. It’s almost like looking for money in Uncle Sam’s sofa cushions.

Part two, in a series of advanced initiatives that President Joe Biden calls “human infrastructure,” can only go through the budget reconciliation process, which only requires 50 votes in the Senate. House Speaker Nancy Pelosi (D., California) and Senate Majority Leader Chuck Schumer (D., NY) said they would bring the two bills together. Could that mean none of the measures get through? The answers to these key fiscal questions will be in place next month, during which Congress must also raise the sovereign debt ceiling, which is suspended until July 31.

It is perhaps telling that the bond market reacted only minimally to the prospect of further government spending. But stocks of companies that could see a bonanza of dollars pouring out of DC saw double-digit gains for the week, and the indices posted average gains of around 3%

S&P 500

ends with a record.

At the same time, the treasury market continues to focus on macro data and the expected response from the Federal Reserve. A flood from Fedspeak showed that a number of district presidents were in favor of tightening monetary policy relatively quickly. But the real center of power around Chairman Jerome Powell, particularly New York Fed President John Williams – a permanent voter on the Federal Reserve’s Open Markets Committee – advocated the slow approach of buying further from the central bank’s current ultra-light stance last week, remove $ 120 billion in securities a month while keeping the policy rate near zero.

The Fed admitted that it had started talking about reducing its massive bond purchases while inflation is well above its 2% target. But it seems that jobs, not prices, are the real goal of the central bank.

“Many investors are focused on the potential for increased inflation, which could force the Fed to hike rates earlier than currently expected, but it is progress in returning to ‘maximum employment’ that will determine the timing of the Fed’s first rate hike – and potentially the rate at which interest rates rise once policies start to tighten, ”writes Jonathan Laberge in the July issue of Bank Credit Analyst.

The June employment release this Friday will be closely watched for clues as to progress in the labor market. But the social upheaval caused by the pandemic continues to override normal economic forces. Two data points get to the point: while the number of employees has fallen by almost eight million, there are more than nine million vacancies.

The standard explanation for this inequality is the combination of reluctance to return to work while Covid persists, childcare requirements during school closings, and generous unemployment benefits. Demography is also at work. Employment participation rates have only partially recovered among those of prime working age, but those over 55 have fallen sharply and stayed there, according to a research note by Ian Lyngen, head of US rate strategy at BMO Capital Markets.

The June job report is being scrutinized for evidence of a return to normal. But watch out for statistical quirks. JP Morgan economist Daniel Silver writes in a research report that seasonally adjusted factors could boost education jobs, which could push the wage bill to 800,000 versus consensus demand for a 700,000 increase. The irony is that there are plenty of anecdotes from teachers who are retiring after this demanding year. Statistics can collide with reality again.

Read more Up and Down Wall Street:Hungry for Income? Look at these 4 funds.

Write to Randall W. Forsyth at [email protected]


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