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A tricky jobs report — Keep an eye out for signals this week from Federal Reserve officials as to whether Friday’s disappointing jobs report will slow the timing for when the central bank will begin to pull back its historic support for the economy by slowing its massive monthly asset purchases. Given Fed Chair Jay Powell’s previous messaging, it’s probably still a go.
“It wouldn’t take a knockout, great, super strong employment report. It would take a reasonably good employment report for me to feel like” the job market is strong enough to begin withdrawing support, Powell told reporters last month.
For markets, the “taper” timing has been pretty well-digested at this point. But this jobs report is somewhat foreboding. The Delta variant of the coronavirus almost certainly slowed hiring even as job openings abound, and that could mean the labor force will take some time to recover even as supply chain disruptions keep inflation elevated. Not only does this pose difficulties on both sides of the Fed’s dual mandate, but these are also difficulties that the central bank is not well-suited to solving.
Indeed Hiring Lab’s Nick Bunker: “This year has been one of false dawns for the labor market. Demand for workers is strong and millions of people want to return to work, but employment growth has yet to find its footing. Hopefully, the current decline in COVID case counts continues. That seems to be the only way out of our current situation.”
IMF chief keeps her job — The International Monetary Fund‘s executive board announced late Monday evening that Kristalina Georgieva will be staying on as managing director, just as the organization kicks off its annual fall meetings with the World Bank this week.
Georgieva has been linked to a scandal involving China and an annual report that ranked countries as investment destinations, dating back to her previous stint as CEO of the World Bank. Last month, a World Bank-commissioned investigation by law firm WilmerHale found that staff at the Bank was pressured by senior management to alter key data to improve the rankings of China and other countries in its influential “Doing Business” report. That report, now discontinued, was used to rank nations based on their business environment.
Because Georgieva — who is implicated by the report — is now at the IMF, the controversy had spilled over into questions about the integrity of data and research put out by the Fund. But the board says it won’t be removing her: “Having looked at all the evidence presented, the Executive Board reaffirms its full confidence in the Managing Director’s leadership and ability to continue to effectively carry out her duties.” It said the report did not “conclusively demonstrate that the Managing Director played an improper role.”
But the situation won’t entirely disappear. European countries probably didn’t want the turmoil of having to choose a new head or any questions about whether they should continue to have a monopoly on IMF leaders, so their backing for Georgieva makes sense. But for the U.S., the fact that the controversy involves China creates an added wrinkle; the Treasury Department might find it even more difficult to get IMF-related governance policies through Congress. “This decision reflects terribly on U.S. leadership at the IMF,” Rep. Patrick McHenry (R-N.C.) said in a statement, noting that concerns about Georgieva were bipartisan. This will “affect Congress’s deliberations on the IMF for years to come,” he said.
According to a Treasury readout, Secretary Janet Yellen told Georgieva on Monday that the WilmerHale report “raised legitimate issues and concerns” and “conveyed that Treasury will monitor follow-up closely, evaluate any new facts or findings, and that the WilmerHale report does underscore the need for shareholders to be vigilant in defending the integrity of both the Bank and the Fund.”
The timing is also awkward; WilmerHale is in the process of preparing a second report on “any potential misconduct of staff members,” according to a footnote in its initial report. But for her part, Georgieva welcomed the news: “I am pleased that after a comprehensive, impartial review of the facts, the IMF Board agrees that the allegations were unfounded.”
IT’S TUESDAY — Hope many of you all had a good long weekend. Please send any tips to me at [email protected] or @vtg2 and to Aubree Eliza Weaver at [email protected] or @AubreeEWeaver.
DRIVING THE WEEK — IMF, World Bank meetings all week … Institute of International Finance annual meeting featuring speakers like Fed Vice Chair Richard Clarida, BlackRock CEO Larry Fink, White House economic adviser Daleep Singh and Treasury undersecretary of domestic finance Nellie Liang … Minutes from Fed’s September rate-setting meeting released Wednesday at 2 p.m.
DEMS CLASH OVER AID TO FIRST-TIME HOMEBUYERS — Our Katy O’Donnell: “Democrats and advocacy groups are at odds over how to help first-time homebuyers as part of a massive social spending package, clouding the fate of housing proposals floated as part of the $3.5 trillion budget bill.
“Powerful Democratic committee chairs are clashing over how to best target aid to Americans struggling to enter the housing market — especially people of color — amid surging prices. Indecision could result in the effort getting scrapped altogether as the White House and congressional leaders try to pare down the cost of the spending package — probably Democrats’ only opportunity to enact sweeping new housing programs.”
WHITE HOUSE WEIGHS CRYPTO EXECUTIVE ORDER — Bloomberg’s Jennifer Epstein and Benjamin Bain: “The Biden administration is weighing an executive order on cryptocurrencies as part of an effort to set up a government-wide approach to the white-hot asset class, according to people familiar with the matter.
“The proposed directive would charge federal agencies to study and offer recommendations on relevant areas of crypto — touching on financial regulation, economic innovation and national security, said the people, who asked not to be named discussing plans that are still under consideration.”
MM sidebar: Asked about the Bloomberg report, a White House official told MM that the National Security Council and National Economic Council “are coordinating across the interagency to look at ways we can ensure that cryptocurrency and other digital assets are not used to prop up bad actors, including ransomware criminals, and to ensure that as cryptocurrency continues to play a role in our financial system, we understand and address any financial stability risks. This is a whole-of-government focus for us.”
U.S. TRADE CHIEF HOLDS FIRST TALKS WITH CHINA — Our Steven Overly: “U.S. Trade Representative Katherine Tai expressed concerns about Beijing’s increasingly authoritarian market behavior and its failure to fulfill existing trade commitments during a call with her Chinese counterpart late Friday evening.
“Biden administration officials expect the conversation will be the first of several engagements with Chinese Vice Premier Liu He in the coming months as they attempt a ‘realignment’ of the contentious relationship with the nation’s biggest trading partner and the world’s second-largest economy.”
CONGRESS OFF THE RAILS? — AP’s Alan Fram: “Year-end pileups of crucial legislation and the brinkmanship that goes with them are normal behavior for Congress. This autumn, lawmakers are barreling toward battles that are striking for the risks they pose to both parties.
“Though few doubt that Congress will again extend the government’s borrowing authority when it expires in December, no one seems certain of how they’ll do it. Democrats don’t have the votes yet to enact President Joe Biden’s top priorities into law. And Republicans are nervous that Democrats may weaken the filibuster rule that lets the Senate’s minority party derail legislation.”
Q&A WITH FORMER FED ECONOMIST SAHM — She sat down with your MM guest host for an interview in POLITICO Magazine: “Twitter is famous for its fierce arguments, but it’s rare to see economists throwing this kind of heat: ‘Anyone as clueless about reality as Larry should not be listened to.’
“Larry in this case is Larry Summers, the former Treasury secretary and one of the most prominent voices on economic policy — and also a frequent foil for the tweet’s author, Claudia Sahm. Sahm is no random gadfly: She spent 12 years as an economist at the Federal Reserve and invented the Sahm rule, a formula to detect the onset of recessions, and is now a senior fellow at the Jain Family Institute. Since leaving the central bank in 2019, she’s become a leading voice for aggressive federal action to spur job creation and curb poverty — a goal she says is intended to center everyday people in Washington, D.C.’s policy debates.”
U.S. WORKERS WILL RETURN WHEN THEY FEEL SAFE — WaPo’s Heather Long: “The anemic September employment report, with only 194,000 jobs added, illustrates the extent to which the recovery stalled as coronavirus cases surged last month, but it also signals something deeper: America’s unemployed are still struggling with child-care and health issues, and they are reluctant to return to jobs they see as unsafe or undercompensated.
“For months, economists predicted a surge in hiring in September as unemployment benefits expired for millions of workers and schools reopened across the country. Instead, last month marked the weakest hiring this year, and an alarming number of women had to stop working again to deal with unstable school and child-care situations.”
ENERGY PRICES JUMP HIGHER — WSJ’s Amrith Ramkumar: “The extended climb in oil prices is leaving some other industrial commodities behind, a divergence that reflects bets that energy supply shortages will offset any slowdown in the global economy.
“U.S. crude rose 1.5% to $80.52 a barrel on Monday, closing above $80 for the first time since late in 2014 and bringing its climb since the end of last October to 125%. Oil is now on track to outpace copper this year by the largest amount since 2002 and is topping an index of raw materials by the biggest margin in more than a decade, according to Dow Jones Market Data. Like oil, natural gas is also far outpacing other commodities.”
NOBEL PRIZE GOES TO ECONOMISTS WHO FIND REAL-LIFE EXPERIMENTS — NYT’s Jeanna Smialek: “David Card has made a career of studying unintended experiments to examine economic questions — like whether raising the minimum wage causes people to lose jobs. Joshua D. Angrist and Guido W. Imbens have developed research tools that help economists use real-life situations to test big theories, like how additional education affects earnings.
“On Monday, their work earned them the 2021 Nobel Memorial Prize in Economic Sciences.”
KEY LENDING MEASURES DROP TO NEW LOW AS CASH BALLOONS — Bloomberg’s Elizabeth Dexheimer: “A key measure of lending continued to decline at the biggest U.S. banks, according to the latest Federal Reserve data.
“Loans as a percentage of total assets fell to 47.05% in the week ended Sept. 29 from 47.11% the prior period, the Fed data show. Banks’ cash piles rose. … Loans and leases as a percentage of deposits increased to 59.7% from 59.6%.”
MORTGAGE MARKET FEELS STRAIN OF FED PULLBACK — FT’s Kate Duguid and Joe Rennison: “The $7.2tn US mortgage market is on course for its worst showing in almost a decade, with analysts predicting that an imminent pullback in support by the central bank could exacerbate its poor performance this year.
“The Bloomberg Barclays US Mortgage Backed Securities index has so far this year delivered a total return of minus 0.7 per cent — a reading not seen since 2013, when the Federal Reserve last spooked financial markets with plans to trim its previous bond-buying programme.”
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