President Biden unveiled the new vaccine mandate. The rules will demand that private employers with more than 100 workers require their staff to be vaccinated or test weekly (affecting about 80m Americans). Government and health care workers (another 17m people) will also be required to get vaccinated (with no option for regular testing). The legal basis for the order hangs on the Occupational Safety and Health Administration, as regulations affect workers' well-being.
The ECB announced a moderate reduction in the pace of net asset purchases under the pandemic emergency purchase program (PEPP). From the announced “moderately lower pace”, analysts expect the ECB to buy around €60-70bn per month (down from €80bn per month), in addition to the €20bn asset purchase program (APP) per month. Lagarde stressed that this “recalibration” of purchases should not be misread as tapering. Projections were revised up on the back of stronger Q2 data: 2021 GDP growth from 4.6% to 5.0%, 4.6% for 2022 and 2.1% for 2023; headline inflation is expected at 2.2% in 2021, 1.7% in 2022 and 1.5% in 2023. Core inflation projections were revised up as well. Lagarde stressed that higher inflation was still mainly temporary and transitory however, price pressures could be more persistent than previously thought.
Beige Book & Fed’s Speakers
The Fed’s beige book release noted that "economic growth downshifted slightly to a moderate pace in early July through August", which is a slight downgraded assessment of the US economy from the prior report. It also pointed to a "substantial escalation" in input costs, with "many businesses reported having trouble sourcing key inputs" and that some businesses "are finding it easier to pass along more cost increases through higher prices". In terms of Fed speakers, Charles Evans (Chicago Fed) said "challenges abound" for the US economy, including supply chain and job market bottlenecks. New Covid variants have created "high uncertainty," he added. Robert Kaplan (Dallas Fed) warned that the labor supply-demand imbalance "is going to be with us for some extended period of time," so price pressures will increase going into next year. Raphael Bostic (Atlanta Fed) said the Fed will be able to taper this year, but probably won't make that decision this month.
Treasury Secretary Yellen appealed to Congress to raise the government's borrowing limit as “cash and extraordinary measures will be exhausted during the month of October”. House Speaker Pelosi said that raising the $28.5trn debt ceiling will not be included in the $3.5trn reconciliation measure that House Democrats hope to vote by Sept. 27th. Meanwhile Democrat Senator Joe Manchin was reported to have concerns about the $3.5trn spending plan, supporting a $1.5trn plan. It was reported that House Democrats will propose to raise the top corporate tax rate to 26.5% (below the 28% targeted). The top rate on capital gains would rise from 20% to 25% (vs. the initial 39.6%). It will also be proposed a 3% surtax on individuals with adjusted gross income of more than $5m.
The July JOLTs survey signaled strong demand and bottlenecks in the US labor market. Job openings rose to a fresh record high at 10.93m up from 10.18m in June and above consensus of 10.05m. Private quits rate rose to 3.1%. The vacancy yield (hires/openings) ticked down to the lowest level since May, suggesting difficulties translating those openings into hires.
UK tax hike
The UK government announced a hike in National Insurance (a payroll tax) by 1.25% from April 2022. It was announced a rise as well in the rates of dividend tax by 1.25% (e.g. top payers go from 38.1% to 39.35%). The upward revision of the two taxes came to fund higher spending on health and social care. The increases come in the back of a corporation tax hike from 21% to 25% from fiscal year 2023 which was passed on March 2021 as part of the budget.
RBA & BOC
The Reserve Bank of Australia stuck with its decision to taper bond purchases to AUD 4bn a week and added that it will continue the purchases at this rate until at least mid-February 2022. The RBA left its policy rate and yield target unchanged. The Bank of Canada came out in line with expectations. Bond purchases were maintained at CAD 2bn per week, and there was no change to the policy stance, and projection that inflation target will be sustainably achieved in H2 22.