Powell and Yellen’s game plan is reminiscent of the World War II playbook. This is what happened then.


The first day of the joint appearance of the president of the Federal Reserve, Jerome Powell, and the secretary of the Treasury, Janet Yellen, in the Capitol did not surprise anybody, but it did present the current plan of the American economic policy. Monetary policy will be relaxed until there is “maximum employment” and fiscal policy will be aggressive, although Yellen made it clear that the White House wants to pay for more investment in infrastructure with higher taxes.

Jurrien Timmer, director of global macro at Fidelity Investments, says fiscal and monetary policy “will remain at full throttle for some time.” When this column last heard from Timmer, he was saying that the 1960s provides a blueprint of things to come for the stock market. Updated that table to show that it is still running.

But another historical analog is the period from 1941 to 1946. To mobilize against World War II, the federal debt tripled, the Fed’s balance sheet increased tenfold, and the Fed capped short- and long-term interest rates below of the inflation rate. Of course, the current playbook is not that aggressive: The Congressional Budget Office forecast for the national debt in 2030 is only 6% higher than before the COVID-19 pandemic, but directionally similar.

“The net result of the Fed’s rate suppression in the 1940s was that real rates fell well below zero and stayed that way for several years as inflation took hold. In my opinion, the Fed will accept higher inflation today, as will the Treasury. How else is the country going to get out of the growing debt burden? Timmer says.

The result was a broad-based, booming stock market, at least until inflation waned later in the decade. There was also a steeper yield curve, as measured by the gap between the 2- and 10-year yields.

Day two on Capitol Hill for Powell and Yellen

Powell and Yellen will speak Wednesday in front of the Senate Banking Committee. On a busy day on the economic front, there is data on durable goods orders and quick reads of purchasing manager indices, and four other Fed officials also spoke.

A huge freighter is stuck in the Suez Canal, blocking traffic on a key shipping route.

GameStop GME,
-6.55%,
the video game retailer reported worse-than-expected earnings and said it would stop providing comparable store sales data as it tries to focus on more offerings online. GameStop also appointed a former director of online retailer Amazon AMZN,
+ 0.86%,
Jenna Owens, to be director of operations.

Intel INTC microchip manufacturer,
-3.28%
said it will make a $ 20 billion investment in Arizona to develop its manufacturing capacity, news that weighed on its rival Advanced Micro Devices AMD,
-2.39%.

Electric vehicle maker Tesla TSLA,
-1.17%
will start accepting payments in bitcoin BTCUSD,
+ 3.96%,
CEO Elon Musk said on Twitter TWTR:
-1.44%.
Tesla had said it would make this move in a previous regulatory filing when it announced $ 1.5 billion in purchases of the cryptocurrency.

Adobe ADBE software manufacturer,
+ 1.72%
reported stronger-than-forecast fiscal first-quarter earnings.

Hall of Fame Resort & Entertainment HOFV,
-23.82%
and Dolphin Entertainment DLPN,
+ 236.33%
both emerged in a company to enter the non-fungible token market.

Stock futures on the rise

He looks more hopeful after a rough day Tuesday, in which the small-cap Russell 2000 RUT,
-3.58%
it sank 3.6%, its worst performance in a month. ES00 stock futures,
+ 0.29%

NQ00,
+ 0.67%
rose and the 10-year Treasury yield TMUBMUSD10Y,
1,626%
it fell further, to 1.62%.

CL.1 oil futures,
+ 2.42%
went up, but it was still $ 60 a barrel short.

Random readings

Heavy rains have created waterfalls in front of Australia’s famous Uluru landmark.

Three dolphins took a tour of New York City, swimming in the East River.

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