The Fed didn’t just make America’s rich richer during the pandemic. The world’s wealthy class got a boost.

Jerome Powell reads document while speaking in front of the Senate.
Fed Chair Jerome Powell testifies about the CARES Act report on December 1, 2020.

  • It wasn’t just rich Americans that profited from Fed-fueled market rallies. The global elite benefitted, too.
  • Rate cuts sparked a buying spree in the housing market and led investors to bid stocks higher.
  • As the Fed goes, so goes the world’s economy, and the fortunes of the global elite.
  • See more stories on Insider’s business page.

The Federal Reserve saved the economy during the pandemic, and, in doing so, made America’s wealthy class wealthier.

But they aren’t alone. The entire global elite benefited from the actions America’s central bank took to prevent economic catastrophe.

The global rebound from virus-fueled recession has featured extraordinary rallies across asset classes. Global stocks surged 33% above pre-pandemic levels and home prices rocketed higher all across the globe.

Both trends were largely powered by the Fed. The central bank pulled interest rates close to zero and started buying Treasurys and mortgage-backed securities in March 2020 to bolster financial markets and encourage spending.

The emergency actions indirectly boosted major markets. Expectations for years of easy monetary conditions led investors to furiously bid stocks higher. The rate cuts also kicked off a homebuying frenzy as people rushed to lock in rock-bottom mortgage rates.

The Fed led the way, and similar outlooks from other central banks saw such activity spread around the world. Global home prices rose at the fastest pace in four decades and show “little sign of stopping,” JPMorgan economists led by Joseph Lupton said Monday. Intense home-price growth emerged in the US, Turkey, Russia, Korea, Australia, New Zealand, Brazil, and Czechia, they added.

The global stock and housing rallies padded the pockets of those best prepared to weather the pandemic. The world’s wealthy class has the most exposure to both markets. And unlike the late 2000s, the global elite is benefitting from two market surges at once.

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Chart via JPMorgan

Not quite déjà vu

The Great Recession saw home prices nosedive as the US housing bubble popped. JPMorgan’s home-price index nearly halved through the crisis before recovering over several years.

Things are different this time.

Instead of plummeting like in 2008, home prices in developed economies bounced to fresh highs throughout the pandemic. And while global stock prices have retraced some of their recent gains, they still sit well above their pre-COVID highs. Central bank policy, then, is serving to prop up the global wealthy class more than in the late 2000s.

That surge brings new risks to central banks already in crisis mode, JPMorgan said. For one, leaping home prices could lift housing-service prices and drive inflation to uncomfortable highs.

Periods of outstanding home-price appreciation are also associated with greater borrowing and heightened risk. That could raise fears of another market bubble just as central banks are looking to pare back their aid, the bank said.

“With the Global Financial Crisis still fresh in central bank thinking, the ongoing surge in house prices with little sign of abating adds to the risk of an earlier removal of monetary policy supports,” the team added.

And while the Fed hasn’t yet changed its policy stance, some officials have raised concerns around how easy money is affecting the housing market.

The Fed’s purchases of mortgage-backed securities could be having “some unintended consequences and side effects,” Robert Kaplan, president of the Federal Reserve Bank of Dallas, said in May.

St. Louis Fed President James Bullard was even clearer in his worry.

“Maybe we don’t need to be in mortgage-backed securities with a booming housing market,” Bullard said on CNBC in June. “We don’t want to get back in the housing bubble game that caused us a lot of distress in the 2000s.”

Finally, there was one striking example of the wealthy possibly benefitting from monetary policy decisions made by the central bank: stock trades by Fed officials themselves.

Kaplan and Boston Fed President Eric Rosengren announced last week they would sell all of their individual stock holdings by September 30 after disclosures of their trading during the pandemic prompted ethics concerns. Kaplan caught flak for several trades worth at least $1 million, while Rosengren held stakes in four real estate investment trusts. Nonetheless, the trades happened amid a stock boom the Fed helped create.

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AOC and other progressives urge Biden to dump Powell for a more climate-focused Fed chair

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Rep. Alexandria Ocasio-Cortez (D-NY) speaks during an event outside Union Station June 16, 2021 in Washington, DC. Ocasio-Cortez, joined by Rep. Seth Moulton (D-NY) and Sen. Kirsten Gillibrand (D-NY), called for increased federal funding for high-speed rail in the infrastructure package being discussed on Capitol Hill.

  • Progressives including Alexandria Ocasio-Cortez urged Pres. Biden on Tuesday to replace Jerome Powell as Fed Chair.
  • Powell made “positive changes,” but hasn’t done enough to combat climate change and racial inequity, they said.
  • Still, Powell holds broad support from lawmakers and will likely win a second term by February.
  • See more stories on Insider’s business page.

A group of progressive House Democrats is pressing President Joe Biden to oust Federal Reserve Chair Jerome Powell for a more climate-friendly, equality-focused central banker.

Reps. Alexandria Ocasio-Cortez, Rashida Tlaib, Ayanna Pressley, Mondaire Jones, and Chuy Garcia urged Biden to “reimagine a Federal Reserve focused on eliminating climate risk and advancing racial and economic justice” in a Tuesday statement. And while Powell helped the Fed make “positive changes” during his nearly four-year tenure, replacing him is key to a more effective central bank, the group added.

“To move forward with a whole of government approach that eliminates climate risk while making our financial system safer, we need a Chair who is committed to these objectives,” the lawmakers said.

The progressives also pushed back against Powell’s stance on bank regulation. The Fed chair “substantially weakened” several of the reforms born out of the financial crisis, even while millions of Americans are still rebounding from the Great Recession, the lawmakers said. Weakening the regulations made to avoid another 2008-like meltdown risks Americans’ livelihoods, they added.

Powell’s term is set to end in February, and the Biden administration is currently mulling whether to keep him in the position. Treasury Secretary Janet Yellen – a former Fed chair herself – has told White House advisers she wants to see Powell stay at the central bank. And Biden advisers are leaning toward recommending a second term for Powell, according to Bloomberg.

To be sure, none of the representatives who penned the statement have a vote on Powell’s potential 2022 confirmation. But a few Democratic senators have raised similar concerns with the Fed chair in recent weeks. Senate Banking Chair Sherrod Brown and Sen. Elizabeth Warren knocked Powell in July over his stance on bank regulation, arguing the chair should more rigorously watch over Wall Street. And Sen. Sheldon Whitehouse criticized Powell last week for his “middle ground” stance on climate change.

It’s not just lawmakers hitting back at Powell’s record. A collection of 22 economic, labor, and racial justice organizations wrote to Biden on Monday urging him to consider a Fed chair who better prioritizes climate change, full employment, and fighting systemic racism.

That’s not to say the Fed has been completely silent on the aforementioned issues. Central bank officials have increasingly looked into how the climate crisis endangers the financial sector and the broader economy. And the Fed’s latest framework – rolled out in August 2020 – seeks to create a more inclusive and equitable labor market, even if it involves letting inflation temporarily run hot.

For now, those calling for Powell’s replacement are likely in the minority. The Fed chair has largely enjoyed bipartisan support over his tenure, particularly for his actions during the COVID-19 recession. Powell oversaw the Fed’s March 2020 interest rate cuts and creation of emergency lending programs. His careful communication throughout the pandemic also helped stave off volatility in the financial markets.

Powell is still the most likely pick for Biden’s Fed appointment. But as the deadline for a decision nears, calls for a more progressive central banker are only getting louder.

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The Fed hints it’ll start reining in pandemic-era stimulus later this year

Federal Reserve
  • Minutes from the Federal Reserve’s July meeting reveal when it could start removing policy support.
  • Most participants saw reason to start shrinking the Fed’s emergency asset purchases later this year.
  • Still, members disagreed on the speed, schedule, and composition of tapering purchases.
  • See more stories on Insider’s business page.

There’s an end in sight for the Federal Reserve’s drastic economic support.

A majority of the central bank’s policymakers determined late last month the Fed could start reducing the amount of money it’s feeding into the economy as early as this year, minutes from the Federal Open Market Committee’s July meeting showed Wednesday.

“Most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year,” the minutes said.

The statement is the first to reveal any kind of timeline for the Fed’s tapering of the asset purchases that began at the start of the pandemic. Paired with near-zero interest rates, these measures were meant to promote borrowing and support financial markets.

Still, the minutes show just the first step toward adjustment.” The Fed isn’t any closer to formally announcing the reduction of their extraordinary support,” Ed Moya, senior market analyst at OANDA, said in a note, adding an announcement is most likely to land after the November FOMC meeting.

The shift in outlook was tied to progress toward the Fed’s two recovery goals. Fed Chair Jerome Powell had long said supportive policy would remain in place until “substantial further progress” was made toward above-2% inflation and maximum employment.

Attendees at the July meeting determined that criterion was “satisfied” for the Fed’s inflation goal, and “as close to being satisfied” for its employment target, according to the minutes. Because of that progress, several FOMC members noted that strong economic conditions warranted tapering its Treasury and mortgage-backed security purchases “in coming months.”

Fed still split on the details

The taper timeline didn’t receive unanimous backing. Several participants said a reduction in asset purchases should come early next year instead, noting the labor market hadn’t healed enough to warrant a pullback. Others felt that tapering shouldn’t happen “for some time” due to rising COVID cases and their effect on hiring.

And details around the Fed’s eventual tapering are scant. FOMC members laid out a “range of views” on how quickly they should shrink purchases. Some preferred completely ending asset purchases before the Fed lifted interest rates, while others argued reasons for tapering were different than reasons for raising rates.

Disagreements also emerged over which purchases should be tapered first. Most participants said shrinking the Fed’s buying of Treasurys and mortgage-backed securities proportionally was most effective. However, some said reducing MBS purchases more quickly made sense due to surging home prices. A handful of regional Fed presidents have raised concerns about the red-hot housing market in recent months and mulled a faster withdrawal of MBS purchases.

The FOMC next meets on September 21 and 22, meaning any policy change is still more than a month away. Powell will speak at the central bank’s annual symposium in Jackson Hole, Wyoming, which is scheduled to take place from August 26 to 28.

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The Fed is bummed out by all the supply and labor shortages, too

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Fed chair Jerome Powell is due to speak on Thursday

  • The US is recovering well, but supply constraints and worker shortages present obstacles, the Fed said.
  • Product shortages can provide “more lasting but likely still temporary upward pressure” on prices.
  • New technology and retirements could keep the labor market from returning to its pre-crisis norm, the Fed added.
  • See more stories on Insider’s business page.

Vaccination may be keeping COVID-19 at bay, but the pandemic’s fallout lives on in supply shortages and labor scarcity, the Federal Reserve said Friday.

March stimulus, vaccination, and the reversal of pandemic restrictions allowed businesses to reopen and unleashed a wave of consumer demand through the first half of the year, but these combined to make inflation the new specter looming over the US. Prices climbed at their fastest rate since 2008 in May, and much of this overshoot is linked to supply bottlenecks and the nationwide labor shortage, the Fed said in a new report.

“Shortages of material inputs and difficulties in hiring have held down activity in a number of industries,” the central bank said. Still, accommodative fiscal and monetary policy helped the US achieve “strong economic growth” through the first half of the year, the Fed added.

The Friday report sheds more light on just how high the Fed is willing to let inflation run before taking action. Recent measures of nationwide price growth are “in a range that is broadly consistent” with policymakers’ long-term goal of inflation averaging 2%, according to the report. Bottlenecks affecting products like used vehicles and appliances can provide “more lasting but likely still temporary upward pressure” on prices, the Fed added.

The Fed also provided new detail on how it expects the labor market to reach its goal of maximum employment. Unemployment remains elevated, and labor force participation has been flat in recent months as Americans remain on the sidelines. It’s possible the COVID-19 recession and the resulting worker shortage will have “long-term effects on the structure of the labor market,” the Fed said.

“The pandemic seems to have accelerated the adoption of new technologies by firms and the pace of retirements by workers. The post-pandemic labor market and the characteristics of maximum employment may well be different from those of early 2020,” the central bank added.

Fed Chair Jerome Powell is scheduled to present the report to Congress on Wednesday and Thursday.

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The government is pursuing ‘maximum employment’ for the first time. Here’s how it differs from ‘full employment’ and the risks it brings.

Now Hiring Sign
A pedestrian walks by a now hiring sign at Ross Dress For Less store on April 02, 2021 in San Rafael, California.

  • The Fed is targeting “maximum” employment over “full” employment in a major shift for the US economy.
  • The new goal aims to bring forth a more equitable rebound, particularly for minorities and low-income households.
  • This focus tests how many Americans can be hired before an inflationary spiral is set off.
  • See more stories on Insider’s business page.

Maximum employment. Full employment. They may seem to be similar phrases, but they are dramatically different, in ways that could shape the US economy long after the pandemic ends.

After decades of adhering to an agreed-upon employment threshold called full employment, the Federal Reserve is trying a new playbook. In August, the central bank replaced this goal with “maximum employment” as part of a new policy framework.

Whereas the previous target sought to minimize deviations when employment was too high or low, the Fed now aims to “eliminate shortfalls of employment from its maximum level,” Governor Lael Brainard said in February.

Put another way, the central bank will push for a labor market that doesn’t just feature low unemployment, but also inclusivity and healthy wage growth. The new mandate sounds encouraging. But to achieve it, the Fed is entering uncharted territory.

How much unemployment can you have with low inflation?

The previous threshold for low employment rested on a concept known as the non-accelerating inflation rate of unemployment (NAIRU), which represents a level of unemployment at which inflation doesn’t spiral out of control. Though the true rate is unknown, the Congressional Budget Office estimated it stood at roughly 4.5% in 2020.

NAIRU served as a loose guide for the Fed as the US recovered from the Great Recession, but it didn’t quite work. The labor market’s recovery from the financial crisis was, and remains, the longest of any recovery since World War II.

Since the start of the coronavirus recession, Fed officials made it clear they weren’t going to use the same strategy. The Fed’s new framework seeks inflation that averages 2% over time. That opens the door to periods of stronger inflation.

Prematurely retracting monetary support can leave underserved communities hurting and set the US back for years, Fed Chair Jerome Powell said following the FOMC’s March meeting. By allowing for a brief period of elevated inflation, the central bank believes it can power a faster and more equitable labor market recovery.

“There was a time when there was a tight connection between unemployment and inflation. That time is long gone,” Powell said. “We had low unemployment in 2018 and 2019 and the beginning of ’20 without having troubling inflation at all.”

The maximum-employment experiment is uncharted territory

Despite Powell’s repeated messaging that stronger inflation will prove largely “transitory,” some economists slammed him for risking a dangerous inflationary spiral. Letting inflation run above 2%, they say, can spark a cycle of soaring prices that would cripple the still-recovering economy.

Keeping rates near zero into 2023 “seems to me at the edge of absurd,” Larry Summers, a former Treasury Secretary who has criticized the fiscal and monetary response to the pandemic, said at a May event hosted by CoinDesk.

“We used to have a Fed that reassured people that it would prevent inflation,” Summers said. “Now we have a Fed that reassures people that it won’t worry about inflation until it’s staggeringly self-evident.”

Higher inflation also tends to give way to higher wages, but rising pay might not benefit the economy as some hope. Fed analysis of how stimulus checks were spent suggests most additional income would mostly go toward paying debts and boosting savings, with only a fraction going toward spending.

Even the target for maximum employment isn’t entirely clear, as an unusually large number of Americans likely stopped working for good during the pandemic. A “significant” number of retirees skews estimates of the labor force’s size, Powell said in a Wednesday press conference. This effect “should wear off in a few years” as retirees are replaced with new workers, he added. Maximum participation will likely cloudy until then, whenever that is.

The unusually large jump in retirements through the pandemic could still give way to a stronger labor market, as was seen in the years before the health crisis, Randal Quarles, vice chairman for supervision, said in late May. Still, with uncertainties abound, the Fed may need to issue “additional public communications” about its progress targets and broader goal of maximum employment, he added.

That means maximum employment, while a worthy goal in many ways, carries more than inflation risks. It could be a cloudy and uncertain destination even for top policymakers.

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Americans can look forward to a ‘very strong’ labor market in 2022, Fed’s Powell says

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Markets want more clarity from Jerome Powell and the Fed

  • The labor market is on track for a healthy rebound in the coming months, Fed Chair Jerome Powell said.
  • One can expect “strong job creation” in the summer and heading into fall, he added.
  • The labor shortage is temporary, and there’s reason to believe worker supply can exceed expectations, Powell said.
  • See more stories on Insider’s business page.

The labor market is far from a complete recovery, but the country should see encouraging progress over the next several months, Federal Reserve Chair Jerome Powell said Wednesday.

Data tracking Americans’ return to work has been somewhat mixed throughout spring. On one hand, the economy is creating jobs at a steady pace. April and May both saw hundreds of thousands of payroll additions, although April was dismal in light of expectations of much bigger gains. Jobless claims are far lower than they were just months ago. And stronger wage growth suggests businesses are paying up to counter the labor shortage.

On the other, recent reports have fallen short of economists’ forecasts. Jobless claims unexpectedly ticked higher last week. And even at May’s more accelerated rate of payroll growth, it would take until July 2022 to fully recover all the jobs lost during the pandemic.

Despite the downside risks, Powell holds an unquestionably positive outlook for the labor market’s rebound. In a Wednesday press conference, the Fed chair said payroll growth should accelerate in the coming months as the pandemic fades further and more Americans rejoin the workforce.

“I think it’s clear, and I am confident, that we are on a path to a very strong labor market,” Powell said. “I would expect that we would see strong job creation building up over the summer and going into the fall.”

Projections from the Federal Open Market Committee support Powell’s sentiment. Policymakers expect the unemployment rate to slide to 4.5% by the end of 2021 from the May reading of 5.8%. The median forecast for 2022 unemployment was revised slightly lower to 3.8% from the March estimate of 3.9%. Officials then expect the rate to match its pre-pandemic low of 3.5% by the end of 2023.

Powell also downplayed concerns that a shortage of workers would permanently drag on the recovery. The previous economic expansion showed that labor supply can exceed expectations as the unemployment rate sits at historic lows, the Fed chair said. There’s no reason to think that dynamic won’t repeat itself, he added.

In the near term, Powell sees a handful of trends keeping Americans from returning to work. Childcare costs, COVID-19 fears, and enhanced unemployment benefits are likely dragging on labor-force participation, the central banker said, echoing comments from other Fed officials and lawmakers.

Another major hurdle could come from a simple skills mismatch, he added. Americans who could return to their previous jobs have largely done so already, Powell said. With those easy gains out of the way, a significant portion of payroll growth will have to come from Americans finding new work.

“This is a question of people finding a new job, and that’s just a process that takes longer. There may be something of a speed limit on it,” Powell said. “There’s just a lot that goes into the function of finding a job.”

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The Fed is watching housing ‘carefully’ and hopes builders catch up to the red-hot market, Chair Powell says

Jerome Powell waits to testify before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, U.S., November 28, 2017.   REUTERS/Joshua Roberts
Federal Reserve Chair Jerome Powell.

  • The Fed is “carefully” watching the housing market as huge demand sends prices soaring, Chair Jerome Powell said.
  • The central bank doesn’t see “the kind of financial stability concerns” that fueled the 2008 crash, he added.
  • Powell said he hopes homebuilders react “and come up with more supply,” which would also boost job growth.
  • See more stories on Insider’s business page.

The housing market boom has caught the Federal Reserve’s attention.

By several measures, the US housing market is running at its hottest level since the mid-2000s bubble that nearly crashed the global financial system. Prices have surged at decade-high rates, and homebuying, while slowed from recent highs, remains elevated. What began as a pandemic-era rally has since raised concerns that soaring prices are eroding home affordability just as the US economy rebounds.

The market frenzy is being “carefully” monitored by the Fed, but there’s little reason to fear another nationwide crash, Fed Chair Jerome Powell said in a Wednesday press conference. The subprime lending and speculative purchasing that fueled the 2008 meltdown aren’t nearly as abundant this time around, making for a “very different housing market” than that seen a little over a decade ago, he added.

“I don’t see the kind of financial stability concerns that really do reside around the housing sector,” Powell said. “We don’t see bad loans and unsustainable prices and that kind of thing.”

Much of the boom is driven by demand significantly outstripping supply. Home inventory sits near record lows, and while housing starts recently leaped to the fastest rate since 2006, it will take some time for construction to equate to new supply.

Powell acknowledged the imbalance and highlighted that a bounceback in supply could also serve the labor market’s recovery.

“My hope would be that over time, housing builders can react to this demand and come up with more supply, and workers will come back to work in that industry,” he said.

Some of the current market strains can be tied directly to fallout from the 2008 crisis. The intense homebuying activity seen throughout the 2000s drove a boom in new construction. The rally lasted for years until dubious lending brought the market toppling down. Construction came to an almost-complete stop, and while it trended higher through the 2010s, it failed to retake levels seen during the prior decade’s surge. That building deficit is just now coming back to bite prospective homebuyers.

“We’ve been underbuilding for years,” Gay Cororaton, director of housing and commercial research for the National Association of Realtors (NAR), told Insider’s Hillary Hoffower.

While the Federal Reserve has little direct influence on the housing market, the central bank’s promise to hold interest rates near zero for the foreseeable future places downward pressure on mortgage rates. Lower borrowing costs help lower the barrier to entry for potential buyers, as would the previewed jump in supply.

Signs point to demand holding up even as supply recovers. Nearly 9% of Americans plan to buy a home in the next six months, according to The Conference Board’s latest consumer confidence report. That’s the largest share since 1987.

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The UK will explore a Bank of England-backed cryptocurrency called ‘Britcoin’

Bank of England
A general view shows The Bank of England in the City of London financial district, amid the outbreak of the coronavirus disease (COVID-19), in London, Britain, November 5, 2020.

  • British finance minister Rishi Sunak revealed the UK is exploring the feasibility of “britcoin,” Reuters reported.
  • It is a cryptocurrency backed by the Bank of England aimed to address the issues bitcoin has.
  • A new task force was launched on Monday to look into a central bank digital currency or CBDC.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

British finance minister Rishi Sunak on Monday revealed that he is exploring the feasibility of a cryptocurrency backed by the Bank of England dubbed “britcoin,” aimed addressing some of the issues posed by other cryptocurrencies.

“We’re launching a new task force between the Treasury and the Bank of England to coordinate exploratory work on a potential central bank digital currency (CBDC),” Sunak said during the UK FinTech Week conference, as reported by Reuters.

Shortly after the announcement, Sunak published to his nearly 500,000 followers a one-word tweet saying: “Britcoin?”

The new task force will explore opportunities and risks of a CBDC, as well as monitor international CBDC developments to “ensure the UK remains at the forefront of global innovation.”

“The Government and the Bank of England have not yet made a decision on whether to introduce a CBDC in the UK and will engage widely with stakeholders on the benefits, risks, and practicalities of doing so,” the BoE said in a statement Monday.

But, if plans go through, the CBDC will exist alongside cash and bank deposits instead of replacing them, the bank said.

Other central banks across the world are examining the possibility of a digital currency, with China leading the pack. The Asian superpower is already at the point of extensive pilot testing, according to a new Citi report this month entitled Future of Money.

China began developing its digital currency electronic payment CBDC in 2014 and tested a pilot in 2020. Citi said it expects China’s “sprint to a cashless society” within five years.

BoE Governor Andrew Bailey in the past has said that he sees little intrinsic value in bitcoin doubts its utility as a form of payment. Bailey shares this sentiment with US Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde.

Still, bitcoin has skyrocketed 600% in the last 12 months. The market value of cryptocurrencies as a whole hit $2 trillion in April, doubling in value in a matter of months.

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Central banks must start issuing digital currencies in the coming years because cash will become irrelevant, UBS chief economist says

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  • Central banks need to issue digital currencies as cash will become outdated, a UBS chief economist said.
  • These digital currencies won’t operate like cryptocurrencies and will have no wild swings in value, Paul Donovan said.
  • The supply of an officially backed coin depends on a central bank’s authority to regulate the currency’s spending power.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Central banks will soon need to issue digital currencies as the use of cash slowly becomes irrelevant, according to UBS chief economist Paul Donovan.

“Central bank digital currencies are likely to start becoming part of individual economies’ payment systems in the coming years,” he said in a note published this week.

People are using physical forms of money, like notes and cash, much less than before. Moreover, about half of Sweden’s banks no longer accept cash and its economy is expected to go cashless by 2023.

“We wave debit cards and mobile devices around with the reckless abandon of a first year student at Hogwarts trying out a wand, magically paying for things without ever having to touch cash,” Donovan said, referring to the boarding school in the “Harry Potter” series of children’s books.

Donovan laid out specific differences between how CBDCs would operate compared with cryptocurrencies. CBDCs would be interchangeable with notes and coins in circulation, accepted for tax payments, and wouldn’t have wild fluctuations in value – unlike typical crypto, such as bitcoin. Officially backed digital currency supply could change depending on the central bank’s ability to regulate the spending power of the currency, he said. Meanwhile, cryptocurrencies are decentralized and cannot be controlled by any one party.

He also said digital cash is a direct claim on the private bank to which its account is tied, and not on the government. This means government-produced money is becoming less significant, while digital money produced by the private sector is increasing in importance.

“If central banks want to stay relevant as cash becomes less relevant, they might have to consider entering the world of digital money,” he said.

China is among the leading economies looking closely at CBDCs. The People’s Bank of China aims to become the world’s first to issue a digital currency as part of a push to reduce its reliance on the dollar-denominated financial system, according to Reuters.

Federal Reserve Chairman Jerome Powell said last month a potential digital dollar is a “high priority” project for the US. But he thinks CBDCs should exist alongside cash and other forms of money, rather than replace them entirely.

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The US is recovering faster than expected but economic rebound is far from complete, Fed’s Powell says

Jerome Powell waits to testify before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, U.S., November 28, 2017.   REUTERS/Joshua Roberts
Federal Reserve Chair Jerome Powell.

  • The US economic recovery has progressed faster than expected, Fed Chair Jerome Powell said.
  • Still, a full recovery is far off and the Fed will keep support in place, he testified to Congress.
  • Today’s unemployment rate of 6.2% “underestimates the shortfall” in the labor market, Powell added.
  • See more stories on Insider’s business page.

Despite lower COVID-19 case counts, encouraging economic data, and an improved rate of vaccination, the US economy has plenty of work to do to fully recover, Federal Reserve Chair Jerome Powell said.

The US is nearing the end of the tunnel. Widespread vaccination suggests the country could have a grasp on the coronavirus’ spread by the summer – or sooner. Key indicators including nonfarm payrolls and manufacturing gauges also show sectors nearing or trending above their pre-pandemic levels. Democrats’ $1.9 trillion relief package stands to further accelerate growth coming out of lockdowns.

Still, government and Fed support are necessary to get the US back on track, Powell said.

“The recovery has progressed more quickly than generally expected and looks to be strengthening,” the central bank chief said in remarks prepared for testimony to the House Financial Services Committee on Tuesday. “But the recovery is far from complete, so, at the Fed, we will continue to provide the economy the support that it needs for as long as it takes.”

Powell reiterated that the path of the recovery hinges on the trajectory of the virus, a message uttered by Fed officials since the pandemic made landfall in the US last year. For now, that trajectory looks promising. The country reported 55,621 new cases on Monday, according to The New York Times, down 8% from two weeks ago. Hospitalizations are down 16% from two weeks ago.

The steady decline in cases has lifted household spending on goods, but the services industry is still mired in a downturn. Sectors hit hardest by the virus “remain weak,” and the current unemployment rate of 6.2% “underestimates the shortfall,” Powell said.

The central bank announced last week it would keep interest rates near zero and maintain its pace of asset purchases. It also published a new set of quarterly economic projections that reflected a considerably more optimistic outlook than the December set.

Fed policymakers now expect the unemployment rate to fall to 4.5% by the end of 2021 instead of the prior estimate of 5%, and see full-year economic growth of 6.5% this year, up from the previous forecast of a 4.2% expansion.

The new estimates reflect the strong economic gains made since December, but the Fed still has its eye on those left behind, Powell said.

“We welcome this progress, but will not lose sight of the millions of Americans who are still hurting, including lower-wage workers in the services sector, African Americans, Hispanics, and other minority groups that have been especially hard hit,” he added.

Powell is scheduled to testify alongside Treasury Secretary Janet Yellen at 12 p.m. ET on Tuesday. The two are then slated to appear before the Senate Banking Committee on Wednesday.

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