Issue 38: October 4, 202
Inside this Issue:
- Yellen Yells Help: Congress, the Treasury Chief Pleads, Must Act on Debt Ceiling
- Bounce of the Bonds: Treasury Yields Rising Again
- Gaming Higher: ActivisionBlizzard and the Rise of Video Games
- Low Blow: Evans of the Fed Still Sees Risk of Not Enough Inflation
- Bottleneck Nation: Top Reasons for the Semicon Shortage
- Keys to the Seas: Nations Vie for Ocean Supremacy
- The Antitrust Fuss: Where Did it Begin?
- Rodent Returns: Are you Smarter than a Hamster?
- And This Week’s Featured Place: Oklahoma City, Gobs of Jobs
Quote of the Week
“This is a transformative moment where Ford will lead America’s transition to electric vehicles and usher in a new era of clean, carbon-neutral manufacturing.”
-Ford chairman Bill Ford, announcing an $11b investment in new electric vehicle and battery production
The final quarter of 2021 has arrived, with growth strong but uncertainties high. Will Congress avert a sovereign debt catastrophe? Will it pass two new spending bills? How will the Fed’s bond-buy tapering affect credit markets? As fiscal stimulus fades, will demand weaken? Just how entrenched are supply-side bottlenecks that are driving up prices?
Prices, sure enough, were again up rather sharply in August, as the Commerce Department’s latest inflation reading shows. Its PCE Index increased 0.4% from a month earlier, and 4.3% from a year earlier. Some of that was rising energy and food prices, but even excluding these items, the reading showed a y/y jump of 3.6%, well above the Fed’s traditional goal of 2%.
The Fed, to be clear, is now more amendable to tolerate a temporarily high bout of inflation, recalling the excessively low inflation of the pre-pandemic period. Some, like Chicago Fed president Charles Evans, think insufficient inflation is still a risk, notwithstanding the current supply-chain driven inflation—that’s a transitory phenomenon, the Fed believes. Supply chain problems should fade as companies adjust. But alas, they’re sticking around much longer than the Fed initially expected.
Evans shared his thoughts at an event hosted by the National Association for Business Economics (NABE), whose attendees also heard from Treasury Secretary Janet Yellen and Fed governor Lael Brainard. Yellen, for her part, made the pitch for Biden’s economic agenda, which—subject to intense negotiations currently underway on Capitol Hill—includes heavy investments in physical infrastructure, new approaches to taxation and efforts to alleviate childcare, eldercare and health care barriers to workforce participation. Yellen separately warned Congress that absent action on the debt ceiling, the Treasury will run out of money on Oct. 18.
Congress did pass a bill, signed into law by President Biden, that averts a government shutdown. But only until early December. In the meantime, interest rates on Treasuries have ticked up of late, mirroring a trend seen in February and March. Nobody knows exactly why—one reason could be the Fed’s plan to stop buying so many Treasuries each month, implying weaker demand. And remember the cardinal rule about bond prices: As prices go down (which happens when there’s less demand), interest rates go up. Also with the onset of autumn, oil prices have increased and stocks—notably tech stocks—have lagged.
The biggest news from Corporate America last week? That’s surely Ford’s decision to put a massive $11.4b behind its electric vehicle strategy. The company will build electric versions of its F-Series pickups—these are top selling vehicles in America—at a newly constructed mega-plant outside of Memphis, Tennessee, employing nearly 6,000 people. It will also build two battery plants in Glendale, Kentucky, south of Louisville, creating another 5,000 jobs. It’s been an odd year for America’s automakers, thrilled by strong demand and high profit margins but immensely frustrated by an inability to produce enough vehicles due to a severe semiconductor shortage. Ford’s investment, though, looks beyond the short-term supply crunch and further advances the industry’s dramatic shift away from climate-unfriendly gas-powered vehicles, eyeing an end to an era launched by Henry Ford himself. No less importantly, the selection of Tennessee and Kentucky reinforces another great trend of modern-day America: A southward shift in auto manufacturing from its origins in Detroit and the wider Midwest.
The Route 1 Corridor running through New Jersey remains central to the lucrative pharmaceutical industry, where Merck—based near Newark—announced promising trial results for an anti-Covid medicine. On the opposite side of the country, Google’s financial sector ambitions took a step backward as the company abandoned plans to offer bank accounts. Walmart’s health sector ambitions, by contrast, moved a step forward with a new announcement on electronic health records. The nation’s largest company also closed a deal to sell $2b worth of “green” bonds to achieve its goal of 100% renewable energy by 2035 and zero emissions by 2040. Separately, New York’s Blackstone—the world’s largest owner of real estate—turned a big profit by selling a Las Vegas hotel it bought seven years ago.