Climate change, rich-poor gap, conflict likely to grow: U.S. intelligence report

By Jonathan Landay and Mark Hosenball

WASHINGTON (Reuters) – Disease, the rich-poor gap, climate change and conflicts within and among nations will pose greater challenges in coming decades, with the COVID-19 pandemic already worsening some of those problems, a U.S. intelligence report said on Thursday.

The rivalry between China and a U.S.-led coalition of Western nations likely will intensify, fueled by military power shifts, demographics, technology and “hardening divisions over governance models,” said Global Trends 2040: A More Contested World, produced by the U.S. National Intelligence Council (NIC).

Regional powers and non-state actors may exert greater influence, with the likely result “a more conflict-prone and volatile geopolitical environment” and weakened international cooperation, it said.

The report by top U.S. intelligence analysts, which is produced every four years, assessed the political, economic, societal and other trends that likely will shape the national security environment in the next 20 years.

“Our intent is to help policymakers and citizens … prepare for an array of possible futures,” the authors wrote, noting they make no specific predictions and included input from diverse groups, from American students to African civil society activists.

Challenges like climate change, disease, financial crises and technological disruption “are likely to manifest more frequently and intensely in almost every region and country,” producing “widespread strains on states and societies as well as shocks that could be catastrophic,” the report said.

It said the coronavirus pandemic that has killed more than 3 million people marked the greatest “global disruption” since World War Two, with the consequences likely to last for years.

COVID-19, it said, exposed – and sometimes widened – disparities in healthcare, raised national debts, accelerated nationalism and political polarization, deepened inequality, fueled distrust in government and highlighted failed international cooperation.

In the process, it is slowing – and possibly reversing – progress in fighting poverty, disease and gender inequality.

Many problems caused by the pandemic are forecast by the report to grow by 2040.

“There is a certain set of trends that we’ve identified that seem to be accelerating or made more powerful because of the pandemic,” said an NIC official, speaking on condition of anonymity.

The report posed five scenarios for what the world might look like in 2040.

The most optimistic – a “renaissance of democracies” – found that democratic governments would prove “better able to foster scientific research and technological innovation, catalyzing an economic boom,” enabling them to cope with domestic stresses and to stand up to international rivals.

The most pessimistic scenario – “tragedy and mobilization” – posited how COVID-19 and global warming could devastate global food supplies, leading to riots in Philadelphia that kill “thousands of people.”

(Reporting by Jonathan Landay and Mark Hosenball in Washington; Editing by Tim Ahmann and Peter Cooney)

GM, Ford cutting more North American production due to chip shortage

By David Shepardson and Ankit Ajmera

WASHINGTON (Reuters) -General Motors Co and Ford Motor Co both said on Thursday they will cut more vehicle production due to a semiconductor chip shortage that has roiled the global automotive industry.

The White House plans a summit on the chip shortage issue next Monday that is expected to include GM Chief Executive Mary Barra and Ford Chief Executive Jim Farley and top technology firm executives.

A U.S. auto industry group this week urged the government to help and warned that a global semiconductor shortage could result in 1.28 million fewer vehicles built this year and disrupt production for another six months.

President Joe Biden wants at least $50 billion to help boost U.S. semiconductor production, but that will not address short-term needs. “This is something that there is a great deal of focus at the highest level across government,” White House spokeswoman Jen Psaki said.

The largest U.S. automaker said it will cut production for two weeks at its Spring Hill assembly plant that makes popular SUVs starting on Monday, and cut a week of Chevrolet Blazer production at its Ramos plant in Mexico and its Lansing Delta Township factory in Michigan.

GM’s Lansing Grand River Assembly will extend its downtime through the week of April 26, while its CAMI Assembly (Canada) and Fairfax Assembly plants will extend production shutdowns through the week of May 10.

Ford, the second-largest U.S automaker, said it will cancel production next week at its Chicago Assembly Plant, its Flat Rock Assembly Plant and part of its Kansas City Assembly Plant. It will also operate its Ohio Assembly Plant on a reduced schedule.

Ford said it will operate more plants this summer during traditional shutdown weeks to make up for lost production.

GM said the latest cuts have been factored into its forecast that the shortage could reduce this year’s profit by up to $2 billion.

GM said it has not taken downtime or reduced shifts at any of its more profitable full-size truck or full-size SUV plants due to the shortage.

(Reporting by David Shepardson in Washington and Ankit Ajmera in Bengaluru; Editing by Maju Samuel and Sriraj Kalluvila)

Biden says higher corporate taxes won’t harm U.S. economy

By Andrea Shalal

WASHINGTON (Reuters) -President Joe Biden on Monday defended his proposal to increase corporate taxes to help pay for a big boost in U.S. infrastructure spending, saying he is not at all worried the tax hike would harm the economy.

Speaking to reporters after arriving back in Washington after a weekend at the presidential Camp David retreat in Maryland, Biden also said there was “no evidence” his proposed corporate tax increase would drive companies away from the United States.

The Democratic president once again took aim at the 50 or 51 corporations on the Fortune 500 list that paid no taxes at all for three years, saying it was time for them to pay their share.

Asked if raising the corporate tax rate to 28% from 21% would drive away corporations, Biden said, “Not at all … there’s no evidence of that.”

Biden said other countries were investing billions and billions of dollars in infrastructure, and the United States needed to do so to boost its competitiveness.

“I’m going to push as hard as I can to change the circumstances so we can compete with the rest of the world,” he said. “Everybody else in the rest of the world is investing in infrastructure and we’re going to do it here.”

Biden pushed back at Republican criticism that the president’s $2.3 trillion American Jobs Plan is filled with items that are unrelated to infrastructure.

He listed clean water, school and high-speed rail as key items that also counted as infrastructure, in addition to more traditional projects such as bridges, highways and roads.

Energy Secretary Jennifer Granholm on Sunday said Biden would prefer to secure Republican backing for his plan, but if that failed to happen, he would likely support using a procedural strategy called reconciliation to allow Democrats to pass it in the Senate.

Senate Republican leader Mitch McConnell said last week that Biden’s infrastructure plan was “bold and audacious” but would raise taxes and increase debt. He vowed to fight it “every step of the way.”

(Reporting by Andrea Shalal; Writing by Andrea Shalal and Tim Ahmann; Editing by Aurora Ellis)

Biden kicks off effort to reshape U.S. economy with infrastructure package

By Jarrett Renshaw

(Reuters) – President Joe Biden on Wednesday will call for a dramatic and more permanent shift in the direction of the U.S. economy with a roughly $2 trillion package to invest in traditional projects like roads and bridges alongside tackling climate change and boosting human services like elder care.

He also aims to put corporate America on the hook for the tab, which is expected to grow to a combined $4 trillion once he rolls out the second part of his economic plan in April.

Coupled with his recently enacted $1.9 trillion coronavirus relief package, Biden’s infrastructure initiative would give the federal government a bigger role in the U.S. economy than it has had in generations, accounting for 20% or more of annual output.

The effort, to be announced on Wednesday at an event in Pittsburgh, sets the stage for the next partisan clash in Congress where members largely agree that capital investments are needed but are divided on the total size and inclusion of programs traditionally seen as social services. Just how to pay for them will be a fractious issue in its own right.

Biden for now is ignoring a campaign promise and sparing wealthy Americans from any tax increase. The plan would increase the corporate tax rate to 28% from 21% and change the tax code to close loopholes that allow companies to move profits overseas, according to a senior administration official.

It does not include expected increases in the top marginal tax rate or to the capital gains tax. The plan would spread the cost for projects over an eight-year period and aims to pay for it all over 15 years, the senior administration official said.

The plan also includes $621 billion to rebuild the nation’s infrastructure, such as roads, bridges, highways and ports, including a historic $174 billion investment in the electric vehicle market that sets a goal of a nationwide charging network by 2030.

Congress will also be asked to put $400 billion toward expanding access to affordable home or community-based care for aging Americans and people with disabilities.

There is $213 billion provided to build and retrofit affordable and sustainable homes along with hundreds of billions to support U.S. manufacturing, bolster the nation’s electric grid, enact nationwide high-speed broadband and revamp the nation’s water systems to ensure clean drinking water.

SECOND LEGISLATIVE PACKAGE COMING

Biden is moving forward with the massive job and infrastructure effort as he navigates an ambitious time line to provide enough COVID vaccines for all adults by the end of May and the deployment of pandemic relief.

The White House is also dealing with a rise in the number of migrants at the southern border, the fallout from back-to-back mass shootings and a looming showdown over the Senate filibuster

The plan forms one part of the “Build Back Better” agenda that the administration aims to introduce. The White House has said the administration will introduce a second legislative package within weeks.

The second package is expected to include an expansion in health insurance coverage, an extension of the expanded child tax benefit, and paid family and medical leave, among other efforts aimed at families, the officials said.

White House officials have not explained whether they will seek to have both efforts pass at the same time or try to get Congress to approve one first.

The jockeying around Biden’s push has already begun, as allies push for inclusion of their priorities in the upcoming legislative effort and Republicans signal early concerns about the size and scope of the package.

Moderate Democrats have said the package should be more targeted to traditional infrastructure projects to attract Republican votes, seeking a return to bipartisan policymaking.

Liberal lawmakers want to use the party’s slim majorities in Congress to tackle some of the nation’s biggest problems, such as climate change and economic inequality, with resources that reflect the size of those challenges.

Representative Pramila Jayapal, a leading progressive Democrat, said on Tuesday that outside groups like Americans for Tax Fairness pegged the infrastructure and jobs plan that Biden rolled out on the campaign trail at between $6.5 trillion and $11 trillion over 10 years.

“We’d like to see a plan that goes big,” Jayapal said. “We really think that there’s ample room to get the overall number up to somewhere in that range in order to really tackle the scale of investments that we need to make.”

Republican Garret Graves, his party’s senior member on the House Select Committee on the climate crisis, said he was keeping an open mind but was concerned that Democrats were leveraging the popularity of infrastructure to usher in a broad expansion of social welfare.

“If they’re just going to encapsulate a cow pie in a candy shell, then I’m not there,” Graves said in an interview on Tuesday.

(Reporting by Jarrett Renshaw; Additional reporting by Richard Cowan and Makini Brice; Editing by Dan Burns and Peter Cooney)

Cold weather chills U.S. retail sales, manufacturing production

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. retail sales fell more than expected in February amid bitterly cold weather across the country, but a rebound is likely as the government disburses another round of pandemic relief money to mostly lower- and middle-income households.

The harsh weather also took a bite out of production at factories last month as the deep freeze in Texas and other parts of the South put some petroleum refineries, petrochemical facilities and plastic resin plants out of commission.

The setback is probably temporary, with the strongest economic growth since 1984 anticipated this year, thanks to massive fiscal stimulus and an acceleration in the pace of vaccines, which should allow for broader economic re-engagement, even as new COVID-19 cases are starting to creep up.

Federal Reserve officials, who started a two-day meeting on Tuesday, are likely to focus on the underlying economic strength, expectations of higher inflation and a steadily recovering labor market.

“We knew the economy took a major hit in February due to the brutally cold weather and a lot of snow,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. “No reason to panic over the February numbers, the economy is moving forward rapidly and it should pick up the pace as the latest stimulus payout hits home.”

Retail sales dropped by 3.0% last month, the Commerce Department said. But data for January was revised sharply up to show sales rebounding 7.6% instead of 5.3% as previously reported. Economists polled by Reuters had forecast retail sales falling only 0.5% in February.

Unseasonably cold weather gripped the country in February, with deadly snow storms lashing Texas. The decline in sales last month also reflected the fading boost from one-time $600 checks to households, which were part of nearly $900 billion in additional fiscal stimulus approved in late December, as well as delayed tax refunds.

The broad-based decrease was led by motor vehicles, with receipts at auto dealerships dropping 4.2%. Sales at clothing stores fell 2.8%. Consumers also slashed spending at restaurants and bars, leading to a 2.5% drop in receipts. Sales at restaurants and bars decreased 17% compared to February 2020.

Receipts at electronics and appliance stores dropped 1.9% and sales at furniture stores tumbled 3.8%. There were also big declines in sales at sporting goods, hobby, musical instrument and book stores. Receipts at food and beverage stores were unchanged. Sales at building material stores decreased 3.0%. Online retail sales plunged 5.4%.

Stocks on Wall Street were mixed. The dollar rose against a basket of currencies. Longer-dated U.S. Treasury prices fell.

TEMPORARY SETBACK

Excluding automobiles, gasoline, building materials and food services, retail sales decreased 3.5% last month after surging by an upwardly revised 8.7% in January. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have shot up 6.0% in January.

President Joe Biden last week signed his $1.9 trillion rescue package into law, which will send additional $1,400 checks to households as well as extend a government-funded $300 weekly unemployment supplement through Sept. 6. Households have also accumulated $1.8 trillion in excess savings.

“This year, we expect the combination of an improved health situation and generous fiscal stimulus to fuel a consumer boom for the history books,” said Lydia Boussour, lead U.S. economist at Oxford Economics in New York.

Economists at Goldman Sachs on Saturday raised their first-quarter GDP growth estimate to a 6% annualized rate from a 5.5% pace, citing the latest stimulus from the Biden administration. The economy grew at a 4.1% rate in the fourth quarter.

Goldman Sachs forecast 7.0% growth this year. That would be the fastest growth since 1984 and would follow a 3.5% contraction last year, the worst performance in 74 years.

The rosy economic outlook was not dimmed by a separate report from the Fed on Tuesday showing output at factories tumbled 3.1% in February, also weighed down by a global semiconductor shortage because of the pandemic.

“While we expect these supply disruptions to be temporary, auto production could remain soft in the very near term,” said Veronica Clark, an economist at Citigroup in New York. “With substantial new fiscal stimulus to support demand for consumer goods in the coming months, supply disruptions could lead to rising prices.”

Indeed, supply constraints because of coronavirus-related restrictions are driving up commodity prices. A third report from the Labor Department showed import prices rose 1.3% last month after surging 1.4% in January. They jumped 3.0% on a year-on-year basis after rising 1.0% in January.

Though inflation is expected to accelerate as early as the first half of this year, many economists do not expect it to spiral out of control with millions of Americans unemployed. Supply chain bottlenecks are also expected to start easing as more people around the globe get vaccinated.

The dollar has also strengthened so far this year against the currencies of the United States’ main trade partners.

“There is still a great deal of unused industrial capacity in the U.S. economy. This will help keep inflation under control throughout this year,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.

(Reporting by Lucia Mutikani; Editing by Dan Burns and Andrea Ricci)

Texas regulator warns lawmakers against rollback in storm power prices

(Reuters) – The head of Texas’s power regulator told lawmakers on Thursday that any effort to retroactively reduce the power prices levied during a recent storm would lead to lawsuits that the state could lose.

The state’s power grid operator raised power prices sharply during a February freeze that pushed two power companies into bankruptcy. Others have warned of potential bankruptcies. Top officials this week called on the Public Utility Commission (PUC) of Texas to immediately reduce about $16 billion in power prices.

Any repricing would trigger lawsuits that the commission would lose, PUC Chairman Arthur D’Andrea bluntly told lawmakers at a hearing in Austin. Commodity contracts used to hedge power have closed and any repricing “will have consequences” for the state’s power, agriculture and other markets, he said.

“If I do it, I get sued and lose right away,” he told a state committee. The legislature could attempt to change the pricing by passing a bill, but it also would face lawsuits and could lose, he added.

The state independent market adviser has recommended a pricing of the final 32 hours of the five-day emergency and called for some service fees to be cut, citing grid rules. Emergency charges amounted to $16 billion for power and about $1.5 billion for service fees tied to the power price.

The state’s governor, lieutenant governor and 28 of 32 state senators this week also called on the PUC and grid operator to “correct” the final 32 hours of power pricing, citing the recommendation and impact on utilities.

“These corrections are squarely within your authority, whether by your own action or an order to ERCOT,” the senators told D’Andrea in a letter on Tuesday, referring to the state grid operator by its acronym.

“I disagree” with the senators’ call, D’Andrea said. He has continually ruled out a power price rollback, arguing “it is impossible to unscramble” insisting the decision to raise prices during the cold snap was known to all grid users.

D’Andrea pushed back against the market monitor’s estimate of the power overcharges, telling lawmakers the amount was much smaller, about $3.2 billion.

Intercontinental Exchange Inc. (ICE), which handles Texas power trades, last week closed contracts that covered billions of dollars in state power trades and has no authority to reopen settled contracts. ICE has deferred settling four contracts tied to the service fees that are much smaller in value, people familiar with the matter told Reuters.

(Reporting by Gary McWilliams; Editing by Marguerita Choy and Daniel Wallis)

U.S. weekly jobless claims drop to four-month low

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing new claims for jobless benefits dropped to a four-month low last week as an improving public health environment allows more segments of the economy to reopen, putting the labor market recovery back on track.

Still, a full recovery from the deep scars inflicted by the COVID-19 pandemic will probably take years, with the weekly unemployment claims report from the Labor Department on Thursday also showing a whopping 20.1 million Americans collecting unemployment checks in late February.

“The economy and the labor market are entering the next phase of the rebound, supported by a ramping up of vaccinations and declining infections that will allow for a resumption of activity,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.

Initial claims for state unemployment benefits decreased 42,000 to a seasonally adjusted 712,000 for the week ended March 6, the lowest level since early November. Data for the prior week was revised to show 9,000 more applications received than previously reported.

Economists polled by Reuters had forecast 725,000 applications in the latest week.

Unadjusted claims dropped 47,170 to 709,458 last week, amid declines in Texas, New York and Mississippi, where claims had been boosted in the prior period by harsh weather. Claims rose in Ohio, which has been plagued by fraudulent applications.

Including a government-funded program for the self-employed, gig workers and others who do not qualify for the regular state programs, 1.2 million people filed claims last week.

U.S. stocks opened higher. The dollar fell against a basket of currencies. U.S. Treasury prices were mixed.

INFECTIONS FALLING

New coronavirus infections have dropped for eight straight weeks, declining 12% last week, according to a Reuters analysis of state, county and CDC data. Vaccinations jumped to a record 2.2 million shots per day and virus-related deaths fell 18%.

That, together with nearly $900 billion in additional pandemic relief money advanced by the government in late December, fired up consumer spending and hiring in February after declining in December.

Domestic demand is expected to surge in the months ahead, after Congress approved President Joe Biden’s $1.9 trillion recovery package, which will send fresh aid to small businesses as well as one-time $1,400 checks to mostly lower- and middle-income households. It will also extend a government-funded $300 weekly unemployment supplement through Sept. 6.

Jobless claims have been slow to decline with the improvement in economic activity and public health because of issues ranging from fraudulent filings and backlogs to recent winter storms in the South.

Though claims have dropped from a record 6.867 million in March 2020 when the pandemic hit the United States just more than a year ago, they are above their 665,000 peak during the 2007-09 Great Recession and could remain elevated because of the expanded unemployment benefits. In a well-functioning labor market, claims are normally in a 200,000 to 250,000 range.

“There is some risk in our view though that expanded unemployment, with benefits of an additional $300 per week, could keep the level of claims for unemployment benefits more elevated this year, as some workers could earn more on unemployment than in their previous jobs,” said Andrew Hollenhorst, an economist at Citigroup in New York.

Regular state unemployment benefits averaged about $346 per week in January. Together with the weekly $300 subsidy, they add up to $646 per week or over $15 per hour for a 40-hour week.

The federal minimum wage is $7.25 per hour, though some states have higher rates.

The claims report also showed the number of people receiving benefits after an initial week of aid declined 193,000 to 4.144 million during the week ended Feb 27. The decrease largely reflected people exhausting their eligibility for benefits, limited to 26 weeks in most states.

About 5.455 million people were on the government-funded extended benefits program during the week ended Feb. 20, up 986,351 from the prior week. There number of people on unemployment benefits under all programs during that period increased by 2.087 million.

(Reporting by Lucia Mutikani; Editing by Paul Simao and Andrea Ricci)

Analysis: Urban states come out ahead, rural states get less in Biden’s COVID-19 relief bill

By Andy Sullivan and Jason Lange

WASHINGTON (Reuters) – The $1.9 trillion COVID-19 relief package now making its way through the U.S. Congress would provide $350 billion to help pandemic-hit state and local governments balance their budgets, more than twice the amount lawmakers approved last year.

But not every state comes out ahead: urban, Democratic-led states like Connecticut, New York and Massachusetts that took drastic steps to stop the coronavirus’ spread would get about three times as much money per person as they did in the package passed at the beginning of the health crisis in March.

Rural, Republican-led states including Wyoming, North Dakota and South Dakota that did less would see less cash.

That’s because Congress is giving greater weight to poverty and unemployment this time as it considers how to distribute money to keep police, firefighters and other public employees on the job during a pandemic that has killed more than 500,000 Americans and thrown millions out of work.

It also reflects the fact that Democrats who control both chambers of Congress drafted the package for their fellow Democrat President Joe Biden without Republican input.

Under the new bill, named the American Rescue Plan, 61% of the aid would end up in states that voted for Biden in November, up from 56% in the bipartisan CARES Act passed last March.

Reuters examined House Oversight Committee projections on how much direct fiscal aid each state would receive in the bill, which is set for a vote in the House of Representatives this week before moving to the Senate.

It is expected to pass, even if no Republicans vote for it.

The CARES Act distributed $140 billion to state and local governments based on population, delivering a minimum of $1.25 billion to each state. That gave the largest per-capita benefits to the states with the smallest populations, including Wyoming and Vermont. Another $3 billion was set aside for Washington, D.C., and U.S. territories.

This time around, Democrats have lowered the per-state minimum to $500 million. The remaining $300 billion would be allocated based on unemployment and poverty levels as well as population. Tribal governments and territories would get $24.5 billion. Washington, D.C., would be treated like a state.

Advocates say the new formula ensures the money goes where it is needed, as COVID-19’s toll has been uneven across the country. Unemployment in December topped 9% in tourism-dependent Nevada and Hawaii, triple the 3% in Nebraska and South Dakota.

“This is a more targeted approach,” said Michael Leachman, a budget expert at the left-leaning Center on Budget and Policy Priorities, who supports additional state and local aid.

Republicans say the bill short-changes states that have imposed fewer coronavirus-related restrictions.

“The real reason for this bill is to send billions to bail out blue-state governors and reward their harmful lockdown policies,” Representative Jason Smith of Missouri said at a House Budget Committee hearing on Monday.

The new bill would direct roughly $800 per person to Republican-led Utah and Alabama, which had some of the least restrictive COVID-19 responses, according to Oxford University researchers.

It would send roughly $1,200 per person to Democratic-led Massachusetts and New York, among the most restrictive.

Democrats argue that the money should be targeted towards areas that have suffered the most.

“Since when is unemployment not a legitimate indicator of economic distress?” Representative David Price, a Democrat from North Carolina, said at the same hearing.

A DIVISIVE SUBJECT

State and local aid has proven to be one of the most divisive aspects of the multi-trillion dollar effort Washington has mounted in the past year to fight the virus and keep the world’s largest economy afloat.

Republicans and Democrats both broadly supported small-business loans and direct payments to families.

But Republicans have balked at providing more aid to state and local governments. State and local aid was excluded from a bipartisan $900 billion bill that passed in December.

The National Association of State Budget Officers calculated state revenues would drop 10.8% in the current fiscal year when compared with pre-pandemic estimates, affecting Republican-led and Democratic-led states alike.

Some analysts say the Democrats’ proposal, which adds up to about $500 billion when spending for public schools, transit and other aid is included, provides states with more than they need, however.

“People dramatically overestimated how bad the state and local finances would be,” Stan Veuger, an economist at the center-right American Enterprise Institute.

Bipartisan groups like the National Governors Association have argued that further aid is needed to help states deliver health care and education and avoid further layoffs that could prolong the recovery, though they have not endorsed specific proposals.

Though the new bill would steer more money towards large states, smaller states still fare well. Vermont, Wyoming, Alaska and North Dakota, each with fewer than 1 million residents, are still among the top 10 recipients on a per capita basis.

(Reporting by Jason Lange and Andy Sullivan; Editing by Scott Malone and Sonya Hepinstall)

Powell’s Econ 101: Jobs not inflation. And forget about the money supply

By Howard Schneider

WASHINGTON (Reuters) – In a congressional hearing dominated by talk of the pandemic and what may be needed to heal the economy from its effects, Fed Chair Jerome Powell on Tuesday had a subtle message for U.S. senators evaluating their options.

Toss out the college textbooks, because the world has changed.

The unemployment rate? Forget it. The Fed only cares about the number of people working and how to get it higher, not an age-old statistic that, for all its familiarity, overlooks a key group, namely those who stopped looking for work during the pandemic and need to be brought back.

Inflation? Not a problem anytime soon. Queried by Democratic U.S. Senator Mark Warner about the need to make “a sizeable investment” in U.S. infrastructure, Powell set aside classic concerns of hefty government borrowing driving up prices and responded “this is not a problem for this time as near as I can figure.”

The money supply? No longer relevant, Powell, 68, told Republican U.S. Senator John Kennedy, 69, about the once-important measures of cash and easily spent assets that was a central focus for the Fed in the past.

“When you and I studied economics a million years ago M2 and monetary aggregates seemed to have a relationship to economic growth,” Powell said, referring to one main measure of the money in public hands. “Right now … M2 … does not really have important implications. It is something we have to unlearn I guess.”

There has been a lot of unlearning these days at the Fed and the economic academy, on everything from basic economic relationships to the hazards – or not – of mountainous government debt. Even before the pandemic the central bank was reassessing one of its core ideas – that when the unemployment rate was low, inflation would be high, and vice versa.

The idea led past central bankers to worry whenever the jobless rate fell below a certain point, and to start itching for rate increases that would slow the economy and fend off the coming inflation. It also put people out of work.

That concept was pretty much thrown overboard as of August: Whatever drives inflation, the Fed concluded – and there is plenty of disagreement about what that is – a low unemployment rate is no longer considered part of it.

The unemployment rate itself may even have become passé. It measures the number of people working divided by the number of people working or looking for work. What it does not count, though, are the people out of the labor market – retirees, for example, but also, and of more concern, women who abandoned careers to care for family during the pandemic.

When the Fed considers its goal of maximum employment these days, Powell said, “we don’t just mean the unemployment rate, we mean the employment rate,” measured against the population as a whole and aspiring to “high levels of participation.”

(Reporting by Howard Schneider in Washington; Editing by Dan Burns and Matthew Lewis)

Pandemic led to U.S. housing boom, reduced credit card debt, New York Fed says

By Jonnelle Marte

(Reuters) – The coronavirus pandemic changed the way U.S. consumers use credit, as lower interest rates spurred a boom in home buying and refinancing and virus-related shutdowns led to a drop in credit card use and an increase in paying off debt, according to a report released on Wednesday by the New York Federal Reserve.

Total household debt last year increased by $414 billion to $14.56 trillion at the end of December, the New York Fed found in its quarterly household debt and credit report.

“The COVID pandemic and ensuing recession have marked an end to the dynamics in household borrowing that have characterized the expansion since the Great Recession, which included robust growth in auto and student loans, while mortgage and credit card balances grew more slowly,” New York Fed researchers wrote in a supplemental blog post published on Wednesday. “As the pandemic took hold, these dynamics were altered.”

Mortgage balances, which make up the largest share of household debt, grew by $182 billion in 2020 – the largest increase since 2007.

Home buying and refinancing took off last year after the Federal Reserve slashed its key overnight interest rate to near zero to fight the economic fallout from the pandemic, leading to lower mortgage rates. A massive shift to working and learning from home also bolstered the housing market, as some families searched for properties with more living space.

Credit card balances increased by $12 billion in the fourth quarter but balances were still $108 billion lower from a year earlier – the largest yearly decline since the report was launched in 1999.

The year-over-year drop is a sign that many credit card holders reduced spending and used pandemic relief checks to pay down their card balances, researchers said. That is in line with earlier research from the New York Fed that found 35% of direct payments received last year were used to pay down debt.

Meanwhile, auto loan balances increased by $14 billion during the fourth quarter and student loan balances rose by $9 billion, the New York Fed’s latest report showed. In total, all household debt not related to housing – including credit card debt, auto loans, student loans, and other debts – increased by $37 billion during the fourth quarter but was still below pre-pandemic levels seen at the end of 2019.

(Reporting by Jonnelle Marte; Editing by Paul Simao)