<style type=”text/css”>.cms-textAlign-left.cms-textAlign-center.cms-textAlign-right.cms-magazineStyles-smallCaps</style><p class=” story-text__paragraph”>The success of Joe Biden’s presidency will be defined by his ability to end the Covid-19 pandemic and rescue the American economy. And that’s thrust the man at the center of the initial response — Brian Deese — into the spotlight, drawing plaudits from allies but making him a target for critics who question whether he’s up for the task.</p>
<p class=” story-text__paragraph”>The 42-year-old head of the National Economic Council, Deese has emerged as a major player in the early days of the administration, holding the ear of the president as he shuttles between the White House and Congress.</p>
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<p class=” story-text__paragraph”>“This is unquestionably one of the very, very most talented policy minds of his generation,” said Gene Sperling, a former top economic adviser under former President Barack Obama who first hired Deese around 2002, when he was just a few years out of college.</p>
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<p class=” story-text__paragraph”>Few doubt Deese’s intelligence, and his close relationship with Biden is a potent source of his authority on both ends of Pennsylvania Avenue. But while supporters have praised his efforts to win support for a $1.9 trillion relief package, Deese also has drawn criticism from Democrats and Republicans alike, some of whom have bristled at how much power he’s been given and how he’s wielding it.</p>
<p class=” story-text__paragraph”>Senate Republicans have groused privately that Deese, who declined to be interviewed for this story, does not appear interested in compromising on a final coronavirus relief package. One Republican senator said that Deese, who has been meeting with members of both parties in group settings and one-on-one, appeared to brush off concerns on a range of economic issues, including stimulus checks.</p>
<p class=” story-text__paragraph”>“He is doing his job, but he hasn’t been easy to work with so far,” said the senator, who asked for anonymity to discuss the complaints candidly. “Either he’s not been instructed to be bipartisan or he doesn’t have much interest.” </p><aside class=”story-enhancement bump-in has-borders”>
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<p class=” story-text__paragraph”>At a recent GOP lunch, Sen. <a href=”https://cd.politicopro.com/member/51168″ target=”_blank”><u>Susan Collins</u></a> of Maine said she did not think that Deese was committed to working with Senate Republicans, but that Biden was, according to a source familiar with the matter. Collins, like other GOP senators, has a long-standing relationship with the president from his time in the Senate. </p>
<p class=” story-text__paragraph”>Deese, despite gaining national prominence as the 31-year-old “wunderkind” leading Obama’s auto bailout, is a stranger to many Republicans on the Hill. Some GOP lawmakers have said they’d like to see other Biden administration officials get involved in the coronavirus relief talks, as well. Several noted that Treasury Secretary Steven Mnuchin worked productively with Democrats to craft Congress’ previous coronavirus relief packages and said they’d be open to Treasury Secretary Janet Yellen playing a similar role. </p>
<p class=” story-text__paragraph”>“I think she would be helpful,” said Senate Minority Whip <a href=”https://cd.politicopro.com/member/51242″ target=”_blank”><u>John Thune</u></a> (R-S.D.). “She’s well-respected up here obviously for her past experience. I think she would be a spokesperson that would have some gravitas.”</p>
<p class=” story-text__paragraph”>Yellen, a former Federal Reserve chair who earned her economics Ph.D. in 1971, has been making more media appearances and holding high-level meetings since being confirmed in late January, a White House spokesperson noted. Deese, whose position is not Senate-confirmed, did not have to wait for congressional confirmation to dive into negotiations.</p>
<p class=” story-text__paragraph”>The White House disputes the notion that there is any daylight between Deese and Biden when it comes to working with Republicans. In a statement to POLITICO, Press Secretary Jen Psaki said, “The president made a commitment to govern through unity and to find common ground as our nation comes together to heal and build back better from the crises facing us, and his entire team is committed to that vision and working tirelessly to enact it.”</p>
<p class=” story-text__paragraph”>Deese’s admirers say he’s exceedingly bright and capable, a quick study who can easily digest complicated policy minutiae without losing sight of the politics surrounding them. A low-drama policy wonk, his only outward signs of stress, they say, include twirling his pen around his fingers during meetings or pacing around White House hallways and offices while on phone calls — often, at least during the Obama years, shoeless.</p>
<p class=” story-text__paragraph”>But his rapid career rise and his background — he has a law degree from Yale but no formal economics training — has also sparked frustration. Some members of the Congressional Black Caucus and other Black Democrats cited his resume in November to argue that the White House was using different criteria when vetting a white man versus a woman of color, according to two people familiar with the conversations.</p>
<p class=” story-text__paragraph”>The news of Deese’s appointment came out around the same time that Rep. <a href=”https://cd.politicopro.com/member/66894″ target=”_blank”><u>Marcia Fudge</u></a> (D-Ohio) was told she would not be Biden’s pick for Agriculture secretary, a nomination for which she and her supporters had openly lobbied.</p></div><div class=”story-text”>
<p class=” story-text__paragraph”>Some members felt Fudge, who is Black, was unfairly passed over for the position because she is from an urban area and thus viewed as lacking necessary experience for the role, despite being a senior member on the House Agriculture Committee and leading its nutrition panel (USDA plays a major role in nutrition policy). Ultimately, Biden nominated Fudge to be his secretary of Housing and Urban Development.</p>
<p class=” story-text__paragraph”>The people familiar with the CBC’s complaints noted that Deese was tapped to lead the NEC despite not being an economist by training. “And that’s perfectly fine,” one of the people said, “but Marcia Fudge is not held to his standard.” </p>
<p class=” story-text__paragraph”>And though others in Deese’s position have also lacked a formal economics background, there’s been some frustration inside the White House with his early steps to coordinate the economic policy process. As head of the NEC, Deese is the top economic adviser in the West Wing. But he’s also tasked with navigating between his team and those at the Council of Economic Advisers, the Office of Management and Budget and the Treasury Department to pull together varying views for the president to consider.</p>
<p class=” story-text__paragraph”>That delicate dance hasn’t come without challenges. </p>
<p class=” story-text__paragraph”>During the transition, a seemingly innocuous change on a weekly economic briefing raised eyebrows among the economic team, according to multiple people familiar with the incident. As team members were preparing to deliver one of their first briefings, Deese adjusted the document’s header. He put his name atop the document, shifting Cecilia Rouse, Biden’s nominee to run the Council of Economic Advisers, into a “cc” line below his name. Rouse, who would be the first Black person to hold the post, boasts a doctorate in economics from Harvard and previously was dean of the public policy school at Princeton.</p>
<p class=” story-text__paragraph”>Biden officials said it was simply a procedural move, part of the NEC director’s coordinating role. But given that Rouse’s team had compiled the memo, people close to her felt her work was being overshadowed. The moment set the tone for early jockeying among the various economic advisers for access to the president. </p></div><div class=”story-text”>
<p class=” story-text__paragraph”>A compromise was brokered, but one that is a break from tradition on CEA memos, where the NEC has traditionally had limited involvement, people familiar with how briefing books are usually compiled said. Weekly economic reports to the president now include two cover sheets — the first one has a header with Deese’s name on top, and the subsequent page will have Rouse’s name at the top after she is confirmed.</p>
<p class=” story-text__paragraph”>Others close to Rouse said she and Deese have been productive partners in their work together — reflecting the usual division of labor between their roles. The CEA traditionally is staffed by distinguished economists who provide research and overall guidance on economic matters, while the NEC is typically more directly involved in the political and policymaking process.</p>
<p class=” story-text__paragraph”>Within the administration there has been criticism, too, about the number of women in senior roles at the NEC. Two of Deese’s three current deputy directors, David Kamin and Bharat Ramamurti, are both men, as is <a href=”https://www.newyorkfed.org/newsevents/news/aboutthefed/2021/20210205″ target=”_blank”><u>Daleep Singh, who will be taking on a dual role as a deputy director of the NEC and deputy national security adviser</u></a>. Sameera Fazili also holds the deputy director title.</p>
<p class=” story-text__paragraph”>Critics say the lack of gender diversity on the council is a particular problem given the nature of the current crisis: The Biden administration is tasked with pulling the country out of an economic tailspin that has disproportionately impacted women, who have dropped out of the workforce in droves, often to take care of their kids and families amid ongoing school and child care closures.</p></div><div class=”story-text”>
<p class=” story-text__paragraph”>The White House disputes that there is a lack of gender diversity at the top of the NEC, highlighting a senior team that consists of not just Kamin, Ramamurti and Fazili, but also chief of staff Leandra English. They also point out that five of the nine staffers below the senior level are women. Other economic agencies, including CEA and Treasury, are also led by women.</p>
<p class=” story-text__paragraph”>Still, the criticism centers on the NEC and the idea that women should be evenly represented at the top.</p>
<p class=” story-text__paragraph”>“It’s really hard to expect people who have less power in a powerful group to be the ones that call out when the policy is having adverse effects on groups of people,” said Claudia Sahm, a former CEA and Federal Reserve economist who has been outspoken about the need for more women in economics, as well as greater diversity more broadly. “That’s just — I don’t care how good Brian is, and the deputy directors — that’s not a recipe for success. It’s a very weak defense to say, ‘Hey, but we have them in the group.’ That’s not good enough.”</p></div><div class=”story-text”>
<p class=” story-text__paragraph”>Given the urgency of the current moment, and the stakes for passing a relief plan quickly, current and former senior White House aides emphasize there is no one better suited to take on the role than Deese.</p>
<p class=” story-text__paragraph”>“Brian knows how to take many, many voices within the White House and the departments and make sure you come with a coherent approach,” said Sylvia M. Burwell, the current president of American University and Deese’s former boss at the Office of Management and Budget. “Any issue, Brian could dig in and get through.”</p>
<p class=” story-text__paragraph”><i>Burgess Everett contributed to this report.</i><br></p></div><div class=”below-story-text” id=”below-story-text”>
</div><p><strong><a href=”https://blockads.fivefilters.org”></a></strong> <a href=”https://blockads.fivefilters.org/acceptable.html”>(Why?)</a></p>
<style type=”text/css”>.cms-textAlign-left.cms-textAlign-center.cms-textAlign-right.cms-magazineStyles-smallCaps</style><p class=” story-text__paragraph”>President Joe Biden’s plan to halt U.S. funding for overseas fossil fuel projects will turn the global spotlight on China for bankrolling coal projects around the globe.</p>
<p class=” story-text__paragraph”>But it could also push poor countries closer to Beijing — and risk ceding the United States’ position as a leading financier for developing economies.</p>
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<p class=” story-text__paragraph”>Biden’s directive last month to move toward<b> </b>withholding money from<b><i> </i></b>international institutions like the World Bank<b><i> </i></b>that help poor nations build fossil fuel power plants stands in stark contrast to Beijing’s flow of cash under its<b> </b>Belt and Road Initiative, which supplies 70 percent of the financing for the world’s new coal-fired plants. The White House is betting its move will paint China as hypocritical as that country — the world’s top greenhouse gas emitter — aims to take a leading role in international climate change efforts.</p>
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<p class=” story-text__paragraph”>John Podesta, who led the Obama administration climate strategy and is close to Biden’s team, said the White House would need some “diplomatic choreography” if its plan is to work.</p>
<p class=” story-text__paragraph”>The U.S. move “leaves China isolated. The pressure will build on China to stop its coal finance and to green the Belt and Road Initiative,” he said.</p>
<p class=” story-text__paragraph”>But the plan will require the Biden team to closely coordinate its foreign policy, trade and clean energy initiatives, because the absence of U.S. money for coal projects won’t on its own sway other nations’ energy plans. And the U.S. cannot unilaterally offer sweet enough financial terms for clean energy to lure countries away from China’s coal finance.</p><aside class=”story-enhancement “>
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Chinese President Xi Jinping, right, shakes hands with then-Vice President Joe Biden in Beijing on Dec. 4, 2013. | Lintao Zhang, Pool, File/AP</p>
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<p class=” story-text__paragraph”>To outmaneuver Beijing, the U.S. will need to build support with other nations and international institutions to increase their joint financing for green projects, according to a Biden administration official who asked for anonymity because the person was not authorized to speak to the media.</p>
<p class=” story-text__paragraph”>“To be successful, we need to meet China on the field of Belt and Road, and you put together packages with partners that are non-fossil,” the official said. “We’ll have to look at the investment opportunities here country by country by country.</p>
<p class=” story-text__paragraph”>Even as it targets coal projects, the Biden administration is unlikely to seek a blanket ban on funding for projects using natural gas, a fossil fuel that is generally cleaner than coal and has seen its U.S. production and use boom in the past decade. The language in Biden’s <a href=”https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/27/executive-order-on-tackling-the-climate-crisis-at-home-and-abroad/” target=”_blank”>executive order</a><b> </b>calls for a review of “carbon-intensive” projects, allowing leeway for<b> </b>U.S. natural gas exporters to continue their growth — a move Biden officials such as Energy Secretary nominee Jennifer Granholm has touted as keeping countries from pursuing coal projects, and offering allies an alternative to Russian gas supplies.<i> </i></p>
<p class=” story-text__paragraph”>Determining how any such exemptions work will involve striking a consensus among officials at the White House, Treasury Department, State Department and DOE, said Nikos Tsafos, deputy director of the Center for Strategic and International Studies energy security and climate change program.<b> </b></p>
<p class=” story-text__paragraph”>“That’s where I think it’s going to get harder to figure out how narrowly or broadly to write the rules,” he said.</p>
<p class=” story-text__paragraph”>Treasury Secretary Janet Yellen will also be heavily involved. The Treasury oversees U.S. financing agencies like the U.S. International Development Finance Corporation, and Yellen has the power to direct how U.S. representatives at the World Bank and other multilateral development banks vote.</p>
<p class=” story-text__paragraph”>Yellen could revive the Obama-era efforts to push back globally through the Organization for Economic Cooperation and Development on aid provided by governments to make their exports more competitive, this time with a particular focus on fossil fuels, since much of China’s coal financing relies on that type of government support.</p>
<p class=” story-text__paragraph”>Secretary of State Antony Blinken has said the U.S. must push countries away from “dirty” energy. But how exactly Blinken and White House climate envoy John<b> </b>Kerry will weave the climate agenda into broader foreign policy priorities is not yet clear. In a phone call between Biden and Chinese President Xi<b> </b>Jinping<b> </b>on Wednesday, Biden raised concerns about military and economic issues, but also cited areas for partnership, including climate change.</p>
<p class=” story-text__paragraph”>Kerry is expected to try to keep the climate issue at the top of the agenda. Still, it’s<b> </b>notable that Biden has not yet nominated an undersecretary for State’s energy division, said David Goldwyn, a consultant who led State Department energy diplomacy during the Obama administration. That suggests to Goldwyn that Biden feels Kerry is capable of handling many of that department’s duties, which includes energy diplomacy and international economic growth.</p>
<p class=” story-text__paragraph”>China might already be subtly presenting a window of opportunity for Kerry, Blinken and Yellen.</p><aside class=”story-enhancement has-borders”>
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<p class=” story-text__paragraph”>Belt and Road Initiative coal finance fell last year during the pandemic, while declining renewable power costs have made new coal-fired power plants less attractive in places like southeast India. A <a href=”https://mp.weixin.qq.com/s/B501AB7WTt0iUVgADHjcvQ” target=”_blank”>recent China central government<b> </b>report</a> also criticized alleged malpractice within China’s National Energy Administration, which observers said could bode poorly for coal.</p>
<p class=” story-text__paragraph”>Kelly Sims Gallagher, who handled the Obama White House’s Chinese climate portfolio, said pandemic recovery packages in the EU and now the U.S. are leaning on clean energy growth — and the countries could press China to get behind similar measures.</p>
<p class=” story-text__paragraph”>“It could mean that China is retrenching and rethinking. So bringing China to the table and rethinking about greening the [Belt and Road Initiative] is wise,” said Sims, who now leads the climate policy lab at Tufts University’s Fletcher School.</p>
<p class=” story-text__paragraph”>The<b> </b>U.S. will need to pressure China to end coal financing separately from other thorny issues like trade, intellectual property theft and human rights, said David Sandalow, who was assistant secretary for international affairs at DOE during the Obama administration and served on Clinton’s National Security Council.</p>
<p class=” story-text__paragraph”>“The U.S. government needs to be clear that we think climate cooperation is both in the interest of our nations and the world,” said Sandalow, who is now at Columbia University’s School of International and Public Affairs.</p>
<p class=” story-text__paragraph”>So far, China’s foreign ministry has scoffed at such a separation. It issued a <a href=”https://twitter.com/MFA_China/status/1354757932961865730″ target=”_blank”>statement on Jan. 28 denouncing Blinken’s characterization</a> of China’s treatment of Uighur Muslims as “genocide” by saying climate change “cooperation cannot stand unaffected by the overall China-U.S. relations. It is impossible to ask for China’s support in global affairs while interfering in its domestic affairs and undermining its interests.”</p>
<p class=” story-text__paragraph”>That could indicate efforts to persuade China to stop pushing coal projects may need to be a long-term effort. But the<b> </b>U.S. could immediately start shifting billions of dollars away from fossil energy if Yellen directs U.S. representatives at the World Bank and other multilateral funders to vote against coal, said Joe Thwaites, an associate with the World Resources Institute’s Sustainable Finance Center.</p>
<p class=” story-text__paragraph”>The number of coal projects funded by<b> </b>those institutions has already dwindled, due in part to efforts under the Obama administration, though multilateral development banks in which the U.S. is a shareholder accounted for $69.5 billion of fossil fuel finance between 2008 and 2019, according to environmental group Oil Change International. Banks where the U.S. isn’t a shareholder — including the Asian Infrastructure Investment Bank, where China is a major player — approved $53.4 billion of such finance over<b> </b>that same period.</p>
<p class=” story-text__paragraph”>“It’s going to be a big job for John Kerry to try to win cooperation from China and from the Asian Investment Infrastructure Bank,” said Goldwyn, the former State Department official.</p><aside class=”story-enhancement has-borders”>
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<p class=” story-text__paragraph”>Oil Change International said U.S. finance for fossil fuels at the federal government’s Export-Import Bank, the Development Finance Corp. and Millennium Challenge Corp. totaled $48.3 billion between 2008 and 2019.</p>
<p class=” story-text__paragraph”>Treasury could reorient the funding through the Development Finance Corporation — which has a $60 billion authorization — and the Millennium Challenge Corporation toward green technology and infrastructure. And it could step in to help early stage technology deployment the private sector usually avoids, Sandalow said. The Export-Import Bank, an independent agency that assists small and medium U.S. exporters, could further pare back its fossil fuel financing in response to Biden’s climate push.</p>
<p class=” story-text__paragraph”>Ex-Im’s portfolio last year accounted for $12 billion of oil and gas projects, though it’s unclear how much it could help<b> </b>push renewables because much of that equipment is imported and would run up against U.S. content requirements. The agency did not respond to a request for comment.</p></div><div class=”story-text”>
<p class=” story-text__paragraph”>U.S. efforts to clean up global energy finance could go even further if Washington and Beijing work together to redirect some of the fossil fuel finance already flowing to China’s trading partners, said Joanna Lewis, director of the Science, Technology and International Affairs program at Georgetown University.</p>
<p class=” story-text__paragraph”>“We should also consider constructing parallel bilateral efforts with China in these countries to leverage and redirect Chinese investments toward greener technologies,” she said,</p>
<p class=” story-text__paragraph”>For now, the prospects for cooperation with China appear better on climate than other issues. Biden and his deputies have taken a <a href=”https://www.politico.com/news/2021/02/10/biden-xi-jinping-phone-call-468544″ target=”_blank”>tough rhetorical line</a> against Beijing’s trade practices and human rights abuses. But Kerry has said he’s determined to separate climate negotiations from those disputes, calling it a “critical standalone issue that we have to deal on” at the executive order unveiling last month.</p>
<p class=” story-text__paragraph”>White House climate veterans say the two sides will need to work together if the worst consequences of global warming are to be averted. That could start with addressing the dirtiest sources of energy worldwide.</p>
<p class=” story-text__paragraph”>“First things first — let’s get a global ban on overseas development on new coal-fired power,” Podesta said. “If they can get that done in the near-term, that would be a significant achievement.”</p>
<p class=” story-text__paragraph”><i>Victoria Guida and Gavin Bade contributed to this report.</i></p><aside class=”story-enhancement bump-in has-borders”>
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<p class=”subhead”>The latest news in energy and environmental politics and policy.</p>
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</div><p><strong><a href=”https://blockads.fivefilters.org”></a></strong> <a href=”https://blockads.fivefilters.org/acceptable.html”>(Why?)</a></p>
<style type=”text/css”>.cms-textAlign-left.cms-textAlign-center.cms-textAlign-right.cms-magazineStyles-smallCaps</style><p class=” story-text__paragraph”>Gas prices are climbing. Home prices are surging. Stock markets keep hitting fresh records as chatroom-driven mania draws in giddy investors.</p>
<p class=” story-text__paragraph”>The economy and financial markets appear to be pricing themselves for perfection, betting on rapid vaccinations and a surge of consumer spending later this year that will pull the nation out of its pandemic funk.</p>
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<p class=” story-text__paragraph”>Serious risks are still lurking just below the surface: Vaccinations could take far longer than expected. <a href=”https://www.politico.com/states/california/story/2021/02/10/south-african-variant-detected-in-california-for-first-time-1362652″ target=”_blank”>New Covid strains</a> could evade vaccines and spur new lockdowns. All of this could trigger falls in stock prices and other assets and stomp on job creation.</p>
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<p class=” story-text__paragraph”>But if the dream scenario does arrive, another risk is lurking: A burst of new spending and economic growth coupled with the massive amount of fiscal stimulus in the system — possibly including nearly $2 trillion more under the White House’s latest plan — could lead to a sharp spike in inflation. That would send stocks tumbling and could force the U.S. Federal Reserve to contemplate raising interest rates to cool the economy.</p>
<p class=” story-text__paragraph”>The Goldilocks scenario Wall Street and the White House are hoping for includes a successful vaccination effort and enough federal support to keep millions of suffering Americans afloat until then, followed by an economy that runs neither too hot nor too cold. But there is no guarantee Goldilocks will arrive.</p>
<p class=” story-text__paragraph”>“The Biden plan coming on top of last year’s stimulus, the budding increase in union power, the rising risk of import inflation coupled with a ballooning trade deficit, and other data suggest to me that inflation will jump,” said Richard Bernstein of financial firm RBAdvisors.</p>
<p class=” story-text__paragraph”>And it could be that all the easy money from the Fed has created dangerous bubbles that could pop, Bernstein warned.</p>
<p class=” story-text__paragraph”>“The Fed is providing tons of liquidity, but because banks have been hesitant to lend, the liquidity is trapped in the financial economy and bubbles are forming. Whether it’s Bitcoin, SPACs, Robinhood day traders, or anything similar, it’s clearly not healthy capital formation.”</p>
<p class=” story-text__paragraph”>Markets are now telling two very different stories.</p>
<p class=” story-text__paragraph”>For stocks, it is the best of times, with the Dow Jones Industrial Average hitting yet another record on Wednesday as corporate profits come in fairly strong, big new stimulus remains likely and hopes remain for a strong economy in the second half of the year as the Covid-19 pandemic potentially fades.</p>
<p class=” story-text__paragraph”>But the bond market is clearly growing worried that all of the stimulus and massive deficit spending could eventually bite the economy in the form of faster inflation. The yield on the 30-year Treasury bond <a href=”https://www.reuters.com/article/us-usa-bonds-markets/explainer-what-rising-bond-yields-mean-for-markets-idUKKBN2A82AC” target=”_blank”>climbed above 2 percent on Monday</a> for the first time since the pandemic began. And the yield on the benchmark 10-year bond hit its highest point since the pandemic began.</p>
<p class=” story-text__paragraph”>Interest rates, pushed down by the Fed, remain historically low. But should they begin to rise more quickly, they could eventually crimp consumers’ ability to borrow and dent what are now red-hot housing markets in many parts of the country.</p>
<p class=” story-text__paragraph”>Inflation as measured by a basket of consumer products monitored by the federal government <a href=”https://www.marketwatch.com/story/consumer-prices-climb-at-fastest-pace-in-five-months-largely-due-to-cost-of-oil-11612964745″ target=”_blank”>rose 0.3 percent in January</a>, matching consensus expectations, easing some fears for rapidly rising prices. Still, it was the quickest pace in five months, driven by a 7 percent increase in gas prices.</p>
<p class=” story-text__paragraph”>And other measures of inflation look more aggressive. Action in the market for 10-year Treasury Inflation-Protected Securities, known as TIPS, suggests investors expect inflation to average around 2 percent for the next decade, right around the Fed’s target.</p>
<p class=” story-text__paragraph”>The potential for a rapid increase in consumer demand brought on by an end to the pandemic — coupled with a big drop in supply after the downturn crushed many businesses — also has some policymakers worried about a rapid increase in prices that could push inflation past the Fed’s current comfort zone of 2 to 2.5 percent annually.</p>
<p class=” story-text__paragraph”>“This recovery will be different. Slumps brought on by pandemics tend to end faster than those brought on by financial crises. So this recovery should be faster than the last,” former New York Fed President Bill Dudley <a href=”https://www.bloomberg.com/opinion/articles/2021-02-10/inflation-is-a-risk-four-more-reasons-to-worry?sref=CT7vCc9I” target=”_blank”>wrote in a recent op-ed</a>. “All this suggests that the Fed, despite its desire to be accommodative and boost employment, might have to pull back on stimulus sooner and with greater force than anticipated to keep inflation in check.”</p>
<p class=” story-text__paragraph”>That kind of sharp increase in rates could produce the kind of “market accident” many investors fear could topple stock prices.</p>
<p class=” story-text__paragraph”>Inflation readings will also likely spike a bit higher later this year when the early months of the pandemic, which caused a drop in prices, are no longer part of annual comparisons.</p>
<p class=” story-text__paragraph”>A debate about whether policymakers should worry about inflation has created something of a rift in the Democratic Party during the stimulus debate. Former Treasury Secretary Larry Summers <a href=”https://www.washingtonpost.com/opinions/2021/02/04/larry-summers-biden-covid-stimulus/” target=”_blank”>warned in a recent op-ed</a> that the $2 trillion stimulus package the White House is currently trying to get through Congress could be too large and lead to damaging inflation while limiting the administration’s ability to fund other priorities like clean energy.</p>
<p class=” story-text__paragraph”>“[W]hereas the Obama stimulus was about half as large as the output shortfall, the proposed Biden stimulus is three times as large as the projected shortfall,” Summers wrote, referring to the gap between the economy’s potential versus where it is in the wake of the virus. “There is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability.”</p>
<p class=” story-text__paragraph”>The op-ed set off a fierce debate with progressive Democrats ripping Summers, and Biden administration supporters like Gene Sperling, a Summers colleague in the Clinton and Obama White Houses, firing back with <a href=”https://www.ft.com/content/8859924c-c42c-468a-b8a3-f29f8fa723de” target=”_blank”>their own op-eds</a> arguing the risk of doing too little on stimulus is far greater than doing too much.</p>
<p class=” story-text__paragraph”>For the moment, Fed Chair Jerome Powell appears to be very much on the side of those who say it is too soon to worry very much about inflation risks and that the economic pain wrought by the pandemic continues to require an aggressive response. He declined to weigh in on any exact size for the next stimulus package.</p>
<p class=” story-text__paragraph”>In <a href=”https://go.politicoemail.com/?qs=e5386303dab24572922315147ecad274b604a1dd3c13fc630c4c26e7d3936364e50a2976a3aac9c67f056664d1db69aa” target=”_blank”>a virtual speech to the Economic Club of New York</a>, Powell on Wednesday said published unemployment rates during the pandemic “have dramatically understated the deterioration in the labor market.” He added that the pandemic “has led to the largest 12-month decline in labor force participation since at least 1948” while hitting poorer Americans far harder than the wealthy who have mostly kept their jobs and enjoyed large stock market gains.</p>
<p class=” story-text__paragraph”>Sperling dismisses the idea of a dangerous inflation spike ahead. “On monetary policy, most are now taking the position ‘don’t move on inflation until you see the whites of its eyes,’” he said. “Why on fiscal policy — when we are still 10 million jobs down with likely real unemployment at around 10 percent — would we pull back when accelerating inflation is nowhere in sight? The risks of the continuing economic or new Covid challenges leading to significant long-term unemployment and harming the most vulnerable workers seems so much greater than the risks of a surge of inflation.”</p><aside class=”story-enhancement bump-in has-borders”>
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<p class=” story-text__paragraph”>Many Wall Street analysts — while nodding to the risks of faster inflation and the economy-slowing steps that could be needed to fight it — concur that risks are weighted to the other side. They largely say the bigger concern is that vaccine stumbles and new Covid strains could continue to restrain the economy and inflict widespread economic pain, making very bold fiscal and monetary responses still essential.</p>
<p class=” story-text__paragraph”>“For the Fed, the risk of tightening policy prematurely is much greater than the cost of tightening too late,” said Eric Winograd, senior economist for fixed income at investment firm AllianceBernstein. “The same is true on the fiscal side. If you do too little, we risk a very weak economy. You do too much, we get an overheated economy. Oh well. We have the tools to deal with that.”</p></div><div class=”below-story-text” id=”below-story-text”>
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