On The Money: Yellen, Powell brush off inflation fears | Fed keeps rates steady, upgrades growth projections

Happy Wednesday and welcome back to On The Money, where there’s always more than a specter of happiness. I’m Sylvan Lane, and here’s your nightly guide to everything affecting your bills, bank account and bottom line.

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THE BIG DEAL— Fed chief brushes off fears of extended inflation: Federal Reserve Chairman Jerome Powell said Wednesday that the U.S. is on track for a strong rebound from the coronavirus pandemic even as the economy hits inflationary speed bumps on the path to full recovery.

Powell spoke to reporters after the Federal Open Market Committee (FOMC) — the Fed’s monetary policymaking arm — announced that it would hold its baseline interest rate range steady at 0 to 0.25 percent and continue to purchase $120 billion in Treasury and mortgage bonds each month.

• During the press conference, Powell brushed off fears that the recent inflation surge would force the Fed to slam on the brakes with an interest rate hike sooner than expected. 
• The Fed chief said that while price increases could continue to heat up, the unrepaired damage to the U.S. economy from a year of COVID-19 lockdowns made a dangerous inflation spiral unlikely.

“If we see inflation expectations or inflation moving up in a way that is really materially above what we would see as consistent with our goals and persistently so, we wouldn’t hesitate to use our tools to address that,” Powell said. “We do not expect that, though. That is not our base case and in that we’re joined by many other forecasters,” he added. I’ve got more here.

The background: The debate over inflation comes as President Biden and most congressional Democrats are looking to spend big on an infrastructure package, prompting opposition from Republicans, who argue that more stimulus will only drive prices higher.

• The U.S. is still down more than 7 million jobs from February 2020. Millions of Americans have still been unable to return to the workforce due to pandemic-related constraints, and many are fearful of returning to work with roughly 50 percent of U.S. adults not vaccinated against COVID-19.
• Even so, higher than expected increases in several annual measures of inflation have deepened concerns among Republican lawmakers and fiscal hawks about the combination of monetary and fiscal stimulus.

“Isn’t it incumbent upon the president, the U.S. secretary of Treasury, and even us in the Congress to take inflationary risk seriously by pursuing responsible fiscal policies, not just expecting the Fed to clean up a mess after the fact?” asked Sen. Chuck Grassley (R-Iowa) of Treasury Secretary Janet Yellen during a Wednesday hearing before the Senate Finance Committee.

Read more: 

• Fed officials see GDP, inflation rising higher in 2021
• Yellen confident rising inflation won’t be ‘permanent’

LEADING THE DAY

Bipartisan infrastructure group grows to 20 senators: A group of 10 more senators announced support Wednesday for a $974 billion, five-year bipartisan infrastructure framework unveiled last week, giving the proposal a crucial political boost in the nick of time. 

• Republican Sens. Richard Burr (N.C.), Lindsey Graham (S.C.), Mike Rounds (S.D.), Thom Tillis (N.C.) and Todd Young (Ind.) announced Wednesday afternoon they will join the five Republicans who signed onto the framework last week.
• They were joined by four Democrats — Sens. Chris Coons (Del.), Maggie Hassan (N.H.), John Hickenlooper (Colo.) and Mark Kelly (Ariz.). — and Sen. Angus King (Maine), an Independent who caucuses with the Democrats.

“We support this bipartisan framework that provides an historic investment in our nation’s core infrastructure needs without raising taxes,” the group of 20 senators said in a joint statement.

News of the additional Republican support now means a bipartisan infrastructure bill has a good chance of picking up 10 GOP votes and overcoming a filibuster. The Hill’s Alexander Bolton breaks it down here.

Biden moves to undo Trump trade legacy with EU deal: President Biden’s newly unveiled deal to end a long-standing trade dispute with Europe marks his first major success in overturning former President Trump’s trade legacy.

• Trump left office having stirred up trade wars with U.S. allies and adversaries alike, imposing tariffs on hundreds of billions of dollars worth of imports.
• Democrats and Republicans both criticized Trump’s approach, calling for a more coordinated trade policy that worked in tandem with allies to pressure China.
• Biden sought to highlight that shift when announcing the deal Tuesday.

“The U.S. and EU will work together in specific ways that reflect our high standards, including collaborating on inward and outbound investment and technology transfer,” he said. “It’s a model we can build on for other challenges posed by China’s economic model.” The Hill’s Niv Elis tells us how we got here.

ON TAP TOMORROW:

• Housing and Urban Development Secretary Marcia Fudge testifies before a Senate Appropriations subcommittee on the department’s fiscal 2020 budget request at 9:30 a.m.
• The Senate Banking Committee holds a hearing on the National Flood Insurance Program (NFIP) at 10 a.m.
• Treasury Secretary Janet Yellen testifies before the House Ways and Means Committee  on the department’s fiscal 2022 budget at 10 a.m.

GOOD TO KNOW

• Some congressional Democrats who forcefully advocated for emergency unemployment benefits earlier this year are now signaling they’re willing to let a weekly supplement expire in early September.
• No demographic left the workforce at higher rates during the pandemic than Latinas, according to new research by the University of California-Los Angeles’s Latino Policy and Politics Initiative.
• Treasury Secretary Janet Yellen said Wednesday that the disclosure of confidential taxpayer data to ProPublica is a “very serious situation” and that she’d keep Congress updated on investigations into the matter.

ODDS AND ENDS

• Kristalina Georgieva, director of the International Monetary Fund (IMF), said during an event on Wednesday that vaccine policy should be the top economic priority for 2021.
• The CEO of Morgan Stanley this week said he expected company employees to return to the office in New York as vaccination rates continue to rise.