Who’s Afraid of Inflation?

‘Uneven and far from complete’

Divining why markets go up or down on any given day is usually a futile exercise. But here’s what many are saying about a late-day reversal yesterday, which snapped a streak of down days for stock and bond prices: Markets are rallying because Jay Powell thinks the economy is still weak.

Or, as Mr. Powell, the Fed chair, said at a Congressional hearing, “The economic recovery remains uneven and far from complete, and the path ahead is highly uncertain.”

“There is a long way to go,” he added.

It’s all about inflation. As signs of economic life have picked up and the government has pledged trillions in additional stimulus, some say that a boom could be brewing, an unequivocally good thing — for those outside of Wall Street. The potential effect on long-dormant inflation has spooked bond investors in particular, with yields rising in anticipation that the Fed might raise interest rates sooner than expected. High-flying tech stocks were also hit, as investors shifted to banks, energy companies and other industries more closely linked to the “real” economy.

As you were. Mr. Powell’s downbeat assessment of the strength of the recovery suggested that the Fed would keep interest rates low and maintain the pace of its government bond purchases — $120 billion a month — for the foreseeable future. Bullish! Racier assets that had slumped for several days in a row, including Bitcoin, pared their losses.

What happens next? Market watchers are mostly building “upside” risks to their inflation forecasts, but seem to agree that Mr. Powell has dispelled the past week’s fears that higher-than-expected inflation would lead the Fed to tap the brakes. In other words, even if inflation and labor markets suddenly run hot, the Fed won’t rush to cool them down.

On interest rates, analysts at Deutsche Bank wrote, “absent a sustained spike higher in inflation over the next year, it is difficult to justify pricing liftoff before late 2022.” They don’t expect a Fed rate lift until the third quarter of 2023.

“The Fed collectively is keen to avoid tightening too early,” Ian Shepherdson of Pantheon Macroeconomics wrote, “mindful of the slowdown triggered after the nine rate hikes in the three years through December 2018, prompted by fears of inflation risks which turned out not to materialize.”

“Fed officials appear more cognizant of the outsized impact of U.S. monetary policy on foreign economies today, and might move more gradually in part for their sake,” wrote David Mericle of Goldman Sachs.


The White House expects a rise in the availability of coronavirus vaccines. Officials said that shipments to states would grow to 14.5 million shots a week, as manufacturing capacity resumed after recent winter storms.

GameStop’s C.F.O. resigns unexpectedly. The exit of Jim Bell, who will step down on March 26, comes weeks after the meme-stock frenzy that whipsawed the share price of the video game retailer. No reason was given.

The U.S. is weighing sanctions in response to a big Russian hacking attack. The Biden administration is said to be considering ways to punish Moscow for the sweeping SolarWinds cyberattack against government and company networks, The Financial Times reports. Lawmakers and corporate executives said at a Senate hearing that the full scope and scale of the infiltration were unknown and that the attack may be continuing.

Steven Mnuchin’s next act. The former Treasury secretary is starting an investment fund that will be backed by Middle Eastern sovereign wealth funds, The Washington Post reports. It would focus on areas like fintech and entertainment.

Tiger Woods’s future is unclear after his car accident. A statement on the golfer’s Twitter account said that he was awake and recovering from surgery, but the severity of his injuries raised questions about his ability to make yet another comeback.

The minimum wage, the markets and more

Day 2 of the DealBook DC Policy Project brought discussions on a wide array of topics, including the prospect of bipartisan deal-making in Washington, potential overhauls of the financial markets and corporate America’s role in fighting the pandemic.

Highlights from yesterday’s sessions:

“We’ll lose 1.3 million jobs.” Elements of Democrats’ stimulus proposals, including raising the federal minimum wage to $15 an hour, attracted criticism from Senator Mitt Romney, Republican of Utah. But he mentioned potential common ground with the Biden administration, including on climate change. Mr. Romney defended his traditional conservatism amid the G.O.P.’s embrace of right-wing populism, but noted that if former President Donald Trump ran for re-election in 2024, “I’m pretty sure he will win the nomination.”

“I think it’s pathological that you could have greater than 100 percent short interest.” Lessons from meme-stock mania were among the topics discussed by Vlad Tenev, the C.E.O. of the online brokerage Robinhood. He defended the practice of directing trades to market makers for a fee, which allows Robinhood to offer free trading. Jay Clayton, the former chairman of the S.E.C., said that the markets were functioning the way they should in many ways, including by promoting competition among brokers and market makers. (Mr. Tenev later held a contentious discussion with Dave Portnoy, the Barstool Sports founder who has repeatedly criticized Robinhood’s response to the meme-stock frenzy.)

“There will continue to be vaccinations required for Covid.” The chief of CVS Health, Karen Lynch, spoke about the future of the fight against the pandemic, saying that people would probably need booster shots and might need to keep wearing masks next year. But whether businesses should require employees to be inoculated is a “company-by-company response,” she said.

For more highlights, including videos of the sessions, visit our briefings for Day 1 and Day 2 of the event.

“They told me ’bout order flow,So I Googled, now I know,I think I gotta find somebody new …”

— The unlikely brokerage spokesman Michael Bolton (yes, that Michael Bolton), in a song urging traders to break up with their trading app and move to Public.com. He doesn’t name it, but the crooner’s references to Reddit and payment for order flow make it pretty clear that Robinhood is the jilted lover in the tune.

Reid Hoffman’s SPAC takes flight

Reinvent Technology Partners, the blank-check firm backed by Reid Hoffman, Mark Pincus and Michael Thompson, is acquiring the electric aircraft company Joby Aviation in a merger valued at $6.6 billion. The deal includes $835 million in additional investment from investors including the Baupost Group, BlackRock, Fidelity and Baillie Gifford.

Straight up. The deal is another in a string of SPACs to bet on what’s known as eVTOL, for “electric vertical takeoff and landing.” (Essentially, electric helicopters.) Joby says it is the first company of its kind to win “airworthiness approval” from the U.S. military. It has partnered with Toyota for production, and its recent acquisition of Uber Elevate gives it a head start in the “aerial ride-sharing industry,” it says.

Promises, promises. While Joby may bring in some revenue through its work with the Air Force, the real money could come after getting F.A.A. “type certification,” expected in 2023, which would pave the way for commercial service in the U.S. That means, like many SPACs, Joby will prove its nascent business model while under the scrutiny of public investors. “The project that we’ve taken on, whether for good or bad, is extraordinarily ambitious — and it’s going to take us decades,” said Joby’s founder, JoeBen Bevirt. “Over the long term, value will take care of itself.”

As part of the deal, the SPAC sponsors and Joby have agreed to a lockup agreement of up to five years for some shares, with a vesting period matching share performance. (Some shares won’t vest until Joby reaches a $30 billion market cap). “The economics are aligned much closer to venture capital,” said Mr. Hoffman, who co-founded LinkedIn.

In other SPAC news: The blank-check company backed by Kevin Hartz, the Eventbrite founder, is acquiring the 3-D printing software company Markforged in a deal valued at $2.1 billion.


Two fintech firms accused of covering up financial losses and misleading investors about the stability of a so-called stablecoin — a digital token pegged and backed one-for-one to the dollar — cut a deal with the New York State attorney general yesterday. The two companies — Bitfinex, a cryptocurrency exchange, and Tether, the purveyor of the stablecoin — are now barred from transacting with New Yorkers and must pay an $18.5 million fine.

“Entities dealing in the darkest corners of the financial system” is what Letitia James, the attorney general, called the companies, accusing them of obscuring their money troubles. The 17-page settlement details international banking issues from 2017 to 2019, which repeatedly led to situations where there were more tokens, called tethers, in circulation than accessible funds for liquidation. In other words, tethers were occasionally untethered from the dollar.

The companies admit to no wrongdoing under the terms of the deal. In a statement, they said that they were pleased to settle, and framed the conclusions in the settlement as, “in essence, that we could have done better” on disclosures.

The N.Y. A.G. also just sued to shut down the crypto exchange Coinseed, alleging fraud. That move and the Bitfinex-Tether matter “send a clear message that we will stand up to corporate greed whether it comes out of a traditional bank, a virtual currency trading platform, or any other type of financial institution,” Ms. James said. (For more on her approach to crypto regulation, among many other things, watch her session from Monday at the DealBook conference.)



AT&T is reportedly nearing a deal to sell a minority stake in DirecTV to the private equity firm TPG at a $15 billion valuation. (CNBC)

In going-public news: The vegan milk company Oatly reportedly hopes to be valued at $10 billion in its I.P.O., and the C.E.O. of Klarna said that the payments company might go public via a direct listing. (FT, Reuters)

Wells Fargo agreed to sell its asset management arm to the investment firms GTCR and Reverence Capital Partners for $2.1 billion. (CNBC)

Politics and policy

President Biden is expected to sign an executive order that would bolster efforts to build supply chains that are less reliant on China, especially in areas like semiconductors and batteries. (NYT)

Pilgrim’s Pride, one of the largest U.S. poultry producers, pleaded guilty to fixing chicken prices and agreed to pay a $108 million fine. (Reuters)


A federal judge denied a request by telecom companies to prevent California’s net neutrality law from going into effect. (NYT)

The fintech company Square has bought an additional $170 million worth of Bitcoin, adding to its holdings. (CNBC)

Best of the rest

Marriott named Tony Capuano as its new C.E.O., succeeding Arne Sorenson, who died last week. (WSJ)

The biggest signifiers of wealth are now intangible services like higher education and health care. (Business Insider)

The next big fight in fast food is over chicken sandwiches. (NYT)

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