Sign up for our daily briefing
Make your busy days simpler with Axios AM/PM. Catch up on what's new and why it matters in just 5 minutes.
Stay on top of the latest market trends
Subscribe to Axios Markets for the latest market trends and economic insights. Sign up for free.
Sports news worthy of your time
Binge on the stats and stories that drive the sports world with Axios Sports. Sign up for free.
Tech news worthy of your time
Get our smart take on technology from the Valley and D.C. with Axios Login. Sign up for free.
Get the inside stories
Get an insider's guide to the new White House with Axios Sneak Peek. Sign up for free.
Catch up on coronavirus stories and special reports, curated by Mike Allen everyday
Catch up on coronavirus stories and special reports, curated by Mike Allen everyday
Want a daily digest of the top Denver news?
Get a daily digest of the most important stories affecting your hometown with Axios Denver
Want a daily digest of the top Des Moines news?
Get a daily digest of the most important stories affecting your hometown with Axios Des Moines
Want a daily digest of the top Twin Cities news?
Get a daily digest of the most important stories affecting your hometown with Axios Twin Cities
Want a daily digest of the top Tampa Bay news?
Get a daily digest of the most important stories affecting your hometown with Axios Tampa Bay
Want a daily digest of the top Charlotte news?
Get a daily digest of the most important stories affecting your hometown with Axios Charlotte
Illustration: Aïda Amer/Axios
Treasury Secretary nominee and former Fed chair Janet Yellen's confirmation hearing before the Senate Finance Committee on Tuesday showed markets just what they can expect from the administration of President-elect Joe Biden: more of what they got under President Trump — at least for now.
What it means: Investors and big companies reaped the benefits of ultralow U.S. interest rates and low taxes for most of Trump's term as well as significant increases in government spending, even before the coronavirus pandemic.
- Last week Fed chair Jerome Powell reassured markets in remarks to Princeton's Bendheim Center for Finance that the Fed isn't even thinking about thinking about thinking about raising rates.
- And Yellen's testimony provided reassurances that the rest of the bullish environment for risk assets will remain in place.
Key statements: “The focus right now is on providing relief and on helping families keep a roof over their heads and food on the table, and not on raising taxes,” Yellen said.
- “Neither the president-elect nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big."
- “Over the next few months, we are going to need more aid to distribute the vaccine; to reopen schools; to help states keep firefighters and teachers on the job.”
- “To avoid doing what we need to do now to address the pandemic and the economic damage that it’s causing would likely leave us in a worse place economically and with respect to our debt situation than doing what’s necessary.”
How it works: Rock bottom interest rates mean companies can issue debt for virtually nothing (or even less in the age of negative-yielding corporate bonds) and can therefore borrow their way out of slow- or no-growth periods.
- Low rates also increase the amount of money in the economy — an environment that's been supercharged thanks to the Fed's quantitative easing and corporate bond-buying programs.
- Adding trillions in deficit spending from the federal government further increases the money supply and makes it harder for big companies to fail, regardless of their ability to sell their products or generate a profit.
The bottom line: Fears of runaway inflation, inefficient markets and excess debt derailing the economy had kept policymakers from attempting such a cocktail in years past.
- But with inflation unable to hold above 2% for more than a decade and an economy incapable of supporting itself without massive intervention, stock traders have cast off such concerns.