Deficit Sets a Record in January

Real Unemployment Rate Is Close to 10%, Fed Chief Says

Federal Reserve Chairman Jerome Powell painted a bleak picture of the labor market Wednesday, saying that joblessness is probably worse than the official data indicate and that it could be difficult to get back to full employment in the foreseeable future.

In comments delivered to the Economic Club of New York, Powell said the economy is still "a long way" from where it needs to be to enable millions of people to return to work. "Fully realizing the benefits of a strong labor market will take continued support from both near-term policy and longer-run investments so that all those seeking jobs have the skills and opportunities that will enable them to contribute to, and share in, the benefits of prosperity," he said, according to prepared remarks.

The Fed chief emphasized that monetary policy alone won’t be able to heal the job market. "Given the number of people who have lost their jobs and the likelihood that some will struggle to find work in the post-pandemic economy, achieving and sustaining maximum employment will require more than supportive monetary policy," Powell said. "It will require a society-wide commitment, with contributions from across government and the private sector."

10% unemployment? Reviewing the change in the labor market over the last year, Powell noted that there are problems with the way unemployment is measured. "After rising to 14.8 percent in April of last year, the published unemployment rate has fallen relatively swiftly, reaching 6.3 percent in January," he said. "But published unemployment rates during COVID have dramatically understated the deterioration in the labor market. Most importantly, the pandemic has led to the largest 12-month decline in labor force participation since at least 1948."

Additionally, errors seem to be distorting the picture. "[T]the Bureau of Labor Statistics reports that many unemployed individuals have been misclassified as employed. Correcting this misclassification and counting those who have left the labor force since last February as unemployed would boost the unemployment rate to close to 10 percent in January," Powell said.

Interest rates will stay low for a while. The Fed will continue to keep interest rates low and engage in substantial asset purchases, Powell said, in keeping with its revised framework that puts more weight on labor market conditions. The central bank is unlikely to "even think about withdrawing policy support" anytime soon. "In particular, we expect that it will be appropriate to maintain the current accommodative target range of the federal funds rate until labor market conditions have reached levels consistent with maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time," Powell said.

Deficit Jumps to $163 Billion in January, $736 Billion for First Four Months of Year

The federal budget deficit rose sharply to $163 billion in January, the Treasury Department announced Wednesday, as the government pumped more money into an economy still suffering from the effects of the coronavirus pandemic.

Both revenues and outlays hit record highs for the month, with receipts increasing 3% on a year-over-year basis to $385 billion and outlays growing 35% to $547 billion. "Tax receipts have mostly recovered from the pandemic, reflecting a resilient U.S. economy and the ability of private-sector companies to adjust," wrote MarketWatch’s Jeffry Bartash. "Yet tax receipts rose year-on-year by almost 10% in January 2020, showing the economy still has a way to go to return to precrisis growth levels."

The deficit for the first four months of the fiscal year, which began in October, rose to $736 billion, an 89% increase over the same period a year earlier.

Big deficits will likely persist: The big jump in the deficit in January was driven by Covid-related spending, boosted by the passage of a $900 billion relief bill in late December, which authorized a wide range of relief programs, including $600 per person relief checks and enhanced unemployment benefits.

Poll of the Day: Just 20% Say Biden Relief Package Is Too Big

As lawmakers debate whether President Biden’s $1.9 trillion Covid relief package is the right size, a new poll finds that 39% of Americans say it is — and another 40% say it is not enough. Only one in five of those surveyed say the package is too big, but a plurality of Republicans, 38%, hold that opinion. See the full breakdown by party affiliation below.

Three in four Americans say it’s at least somewhat important that the legislation have bipartisan support, including 41% who call it very important.

Overall, 83% say they approve of Congress passing another economic aid package, while 17% disapprove. About one in four Americans says that the pandemic has had a major impact on their family finances, but that number rises to 35% among those with incomes under $50,000.

Just over 60% of Americans say that the rollout of the Covid vaccine in their state has been too slow, but 45% now say that the fight against the outbreak is going well, up 10 percentage points from last month. Democrats have become more upbeat since Biden took office, while Republicans have become more negative.

The poll of 2,508 U.S. residents was conducted for CBS News by YouGov between February 5 and 8. It has a margin of error of 2.3 percentage points.

Wyden Unveils $500 Million Plan to Upgrade Unemployment System

Sen. Ron Wyden (D-OR) on Wednesday unveiled new legislation calling for a $500 million effort to address the technological problems at state unemployment systems that have complicated the process of getting unemployment insurance for millions of Americans.
The Washington Post’s Tony Romm reports:

Number of the Day: 11.4 Million

An estimated 11.4 million Americans stand to lose their unemployment benefits between March 14 and April 11 unless Congress quickly passes an extension as part of its next coronavirus aid package, according to a new report from The Century Foundation, a left-leaning think tank. More than 4 million workers would see their benefits end on March 14 and about 7.3 million more would have their payments expire over the following four weeks. Without another extension, the report says, only some 734,000 workers in 12 states would be able to receive extended state unemployment benefits in April.

President Joe Biden’s $1.9 trillion relief package would continue the emergency unemployment payments and increase benefits under the Federal Pandemic Unemployment Compensation program from $300 a week to $400 a week. The report says that continuing the pandemic benefits could deliver $9.6 billion a week to families, and it urges lawmakers to act ahead of the March 14 deadline to give states enough time to prepare for the new guidelines and ensure that benefits are not interrupted.

Send your feedback to yrosenberg@thefiscaltimes.com. Follow us on Twitter: @yuvalrosenberg, @mdrainey and @TheFiscalTimes. And please tell your friends they can sign up here for their own copy of this newsletter.

• Prosecutors Argue That Trump ‘Became the Inciter in Chief’ and Retell Riot With Explicit Video – New York Times
• GOP Senators Draw Criticism for Appearing to Pay Half-Hearted Attention to Impeachment Trial – The Hill
• House Democrats Propose Multibillion-Dollar COVID-19 Relief Health Package – The Hill
• White House Builds Business Coalition to Support Biden’s COVID Relief Plan – CNBC
• Small Business Rescue Slowed by Fight Against Fraud, Drawing Protests – Politico
• Treasury Yields Fall After Tame Inflation Reading – CNBC
• Tax Code Should Not Be Optional for Billionaires: Senate Finance Chairman – Yahoo Finance
• Tanden Pays for Belittling Bernie – Politico
• Liberals Fight Risk of Letdown After Early Covid Wins – Politico
• 'Uncomfortable Truth’: The New Push for a Slavery Reparations Commission in Congress – Washington Post
• Variants Mean the Coronavirus Is Here to Stay — but Perhaps as a Lesser Threat – Washington Post
• Double Masking Can Block 92% of Infectious Particles, CDC Says – CNN
• Fully Vaccinated People Can Skip Covid Quarantines, CDC Says – CNN
• Government Investigating Massive Counterfeit N95 Mask Scam – Associated Press

• Governors Are Easing Restrictions at Exactly the Wrong Time – New York Times Editorial Board
  
• With States Doing Better Than Expected, Time to Rethink Biden’s $350 Billion Rescue – Charles Lane, Washington Post
• Will Biden’s Tax Plan Discourage Work? We Already Know the Answer. – Gene Sperling, Politico
• Covid-19 Gives America a Chance to Fix Its Welfare State – Noah Smith, Bloomberg
• Building a Responsible COVID Relief Package – Committee for a Responsible Federal Budget
• A Big Biden Backtrack on School Reopenings – Ryan Lizza et al, Politico
• Biden’s Economy Will Depend on School Reopenings – Karl W. Smith, Bloomberg
• Four More Reasons to Worry About U.S. Inflation – Bill Dudley, Bloomberg
• Inflation Data Reduce Obstacles to Stimulus But Amplify Risks – Mohamed A. El-Erian, Bloomberg