By Steve Goldstein
The first quarter saw the worst performance of the 10-year note going back to 1980.
But that hasn’t been the case of late, with the 10-year yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +2.49% slipping around 15 basis points from its late March high. That is not all — the U.S. dollar /zigman2/quotes/210598269/delayed DXY +0.17% has softened, and the trading in eurodollar /zigman2/quotes/209941400/delayed EDZ24 -0.07% futures suggests reduced expectations for the number of interest-rate hikes between now and the end of 2024. “That all kind of makes sense with a slower growth trajectory beyond this year,” says Joe Lavorgna, the chief economist of the Americas for Natixis Corporate and Investment Banking.
This year will see “gangbusters growth,” says Lavorgna, the chief economist for the White House National Economic Council in the latter days of the Trump administration. “If the economy was healthy before the [COVID-19] pandemic began, it would make sense the economy would come back quite quickly, and that’s certainly been the case in the U.S.” But Lavorgna distinguishes between gross domestic product growth and the U.S. jobs picture, which is still over 8 million jobs short of pre-pandemic levels.
And this job outlook is dependent on the small-business side, where the data haven’t been great. “If we significantly lift marginal tax rates, and the tax rates on capital, that’s going to really hurt the S corps,” he says, referring to businesses with no more than 100 shareholders. The White House didn’t reply to a question about S corporation tax policy.
Lavorgna isn’t fearful of goods and services inflation, and, as a result, says the Fed won’t begin to taper its bond purchases before 2023 — and won’t lift interest rates before the next presidential election. The New York Federal Reserve’s survey of primary dealers, in March, found Wall Street expecting that the taper would begin in the first quarter of 2022, with the first hike in the third quarter of 2023. “If you’re going into 2022, and growth is a lot slower, the delta is negative, and inflation isn’t really picking up, it’s going to be very hard for the Fed to taper,” the Wall Street veteran says.
In the last cycle, it took seven years from the last interest-rate cut to first interest-rate hike. “This time around, the Fed is more ingrained in markets, the forward guidance is much stronger, the balance sheets are much bigger, it’s occurring against massive debt,” he says. “How in the world can the Fed possibly step back from bond buying, it seems very difficult to me.”
Lavorgna says the Trump White House had expected the Biden administration to continue with its China tariffs. But he says there are three distinct differences in economic policies. The Trump administration’s desire was to encourage reshoring by making energy cheap and dependable, he says. The second difference is the corporate tax rate, which the Trump administration lowered and the Biden administration wants to increase; and the third is the regulatory framework. “And that’s where, to me at least, on the small business side, you can have some significant stress,” he says.
He says the one thing he began to appreciate working in Washington, D.C. was the psychology of the economy. “Sentiment is probably more important than I would have guessed for economic activity,” he says. “Going in I thought, ‘that doesn’t really matter because companies are opportunistic, they will figure out a way to navigate.’ Well, that’s true, but psychology is important.”
To get around lockdown restrictions, the Design Museum in London has reopened its gift shop as a supermarket, with products like rice and coffee wrapped in packaging designed by artists.
Also in London, a pharmacy opened with all the products — from razors to toothbrushes — made out of felt .
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