Brief : Once ideas about how to manage the economy become entrenched, it can take generations to dislodge them. Something big usually has to happen to jolt policy onto a different track. Something like Covid-19. In 2020, when the pandemic hit and economies around the world went into lockdown, policymakers effectively short-circuited the business cycle without thinking twice. In the U.S. in particular, a blitz of public spending pulled the economy out of the deepest slump on record—faster than almost anyone expected—and put it on the verge of a boom. The result could be a tectonic transformation of economic theory and practice. The Great Recession that followed the crash of 2008 had already triggered a rethink. But the overall approach—the framework in place since President Ronald Reagan and Federal Reserve Chair Paul Volcker steered U.S. economic policy in the 1980s—emerged relatively intact. Roughly speaking, that approach placed a priority on curbing inflation and managing the pace of economic growth by adjusting the cost of private borrowing rather than by spending public money. The pandemic cast those conventions aside around the world. In the new economics, fiscal policy took over from monetary policy. Governments channeled cash directly to households and businesses and ran up record budget deficits.
Brief: Investment professionals think equities have recovered too quickly – possibly due to a disconnect between capital markets and economics. Monetary stimulus measures could be the cause of the disconnect, a senior CFA Institute figure said. The findings were from a CFA Institute survey of members. However, members believed that a correction could be up to three years away. The survey found that 45% of over 6,000 global respondents expressed the view that equities in their respective markets had recovered too quickly and that they expected a correction within the next one to three years. CFA Institute will present its finding in an upcoming report called ‘Covid-19, One Year Later – Capital Markets Entering Uncharted Waters’. Paul Andrews, managing director of research, advocacy and standards at CFA Institute, said: “It is interesting to see the survey results telling us that respondents believe that equities have recovered too quickly, as it could show that CFA Institute members believe there is a disconnect between economic growth fundamentals and capital markets caused in part by monetary stimulus, which could be corrected in a not-too-distant future of less than three years.
Brief: With the U.S. labor market likely to bounce back strongly this summer from a surprisingly tepid April showing, the risks of an overheating economy remain on the rise. "I do think there is a very good chance it [economy] will overheat," said Jefferies Chief Financial Economist Aneta Markowska on Yahoo Finance Live. "I expect us to reach a roughly 3% unemployment rate by the end of next year." As Yahoo Finance's Brian Cheung explains in the latest edition of Yahoo U, there is no official economic definition for economic overheating. But one oft-cited indicator of overheating is inflation, or rising prices. To be sure, there are numerous telltale signs of that happening in the economy currently. The core personal consumption expenditure (PCE) price index increased faster than expected, up 3.1% in April, according to the U.S. Commerce Department. Federal Reserve officials view the index as among the best indicators of pricing pressure in the economy. The Fed believes 2% inflation is a healthy level. On the other hand, the April Consumer Price Index (CPI) rose at the fastest pace since September 2008, clocking in with a 4.2% increase versus a year ago. And as Yahoo Finance's Sam Ro notes in the Morning Brief newsletter, consumer expectations on inflation are on an upswing.
Brief: The Securities and Futures Commission (SFC) issued a circular today urging licensed corporations to review their business continuity plan and consider Covid-19 vaccination as a critical part of operational risk management. In this connection, they should identify functions that are critical to their business operations and client interests and to encourage staff performing such critical functions to get vaccinated. “A higher vaccination rate in the community will accelerate a return to normality and strengthen the resiliency of the financial services industry. Licensed corporations should strongly encourage their staff, especially critical support staff and those who are client-facing to get vaccinated as soon as possible,” the SFC’s Chief Executive Officer, Mr. Ashley Alder said. The SFC also advised licensed corporations to consider suitable arrangements for critical staff who have not yet been vaccinated or are unfit for vaccination due to medical conditions to undergo periodic Covid-19 testing.
Brief: Manhattan’s supply of office space has reached a fresh record even as leasing picks up. The availability rate rose for a 12th consecutive month in May to 17%, according to Colliers. Since the pandemic started last March, the amount of space up for grabs jumped 70% to a total of 92 million square feet (8.5 million square meters). There are signs that demand is turning a corner. Leasing climbed 8% from last May, while average asking rents ticked up 0.4% to $73.26 a square foot. After more than a year of empty skyscrapers, Manhattan’s office market is slowly coming back to life as social-distancing restrictions ease. Roughly 18% of office workers in the New York metro area were back at their desks as of May 26, according to data from Kastle Systems. Companies including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Facebook Inc. are preparing for a broader return this summer. Offices listed for subleasing represented 23% of total availability, the lowest share since July, according to Colliers. Even so, the amount of sublease space is 75% more than in March 2020.