Infrastructure is finally getting its week. But inflation and employment have not disappeared.

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Louisville Urban League staff speak with job seekers at a Jobs USA career fair in Louisville, Ky.

Luke Sharrett / Bloomberg

The changes brought about by the Covid-19 pandemic are gradually becoming clearer, and with them, the political responses. The way we work, or don’t work, is different from before the pandemic. At the same time, things that went unanswered for a long time are belatedly recognized.

On the latter point, Washington finally took action last week to address the country’s obvious deficiencies in its infrastructure. It’s time. At the end of 2016, I wrote in a Barron cover story the only thing a divided America could agree on was to fix crumbling bridges, roads and transit systems.

After many “infrastructure weeks,” Washington is still in its infancy with a plan to invest in projects to make the economy more productive. But, of course, the only way to cobble together a plan was to go through an obscure two-step process: the first being things a bipartisan group in Congress can agree on, the second being a package that will only pass. with the support of slim Democratic majorities in the House and Senate.

Thus, there is the bipartite package totaling $ 559 billion to finance unambiguously needed projects for transport, power grids, broadband, etc. of the Strategic Petroleum Reserve. It’s almost like looking for money on the cushions on Uncle Sam’s couch.

The second part, with an array of progressive initiatives that President Joe Biden calls “human infrastructure”, can only go through the process of budget reconciliation which requires only 50 votes in the Senate. House Speaker Nancy Pelosi (D., Calif.) And Senate Majority Leader Chuck Schumer (D., NY) have said they will move the two bills together. Could this mean that no measurement passes? Next month will hold the answer to these key fiscal questions, in which Congress will also have to raise the national debt ceiling, which has been suspended until July 31.

Perhaps tellingly, the bond market has had little reaction to the prospect of further government spending. But stocks of companies that could see a dollar windfall from DC posted double-digit gains on the week, and the indices posted gains of around 3% on average, with the

S&P 500

ending with a record.

At the same time, the Treasury market remains focused on macroeconomic data and the expected response from the Federal Reserve. A Fedspeak flurry showed a number of district presidents sided with relatively rapid monetary policy tightening. But the real center of power around President Jerome Powell, including New York Fed Chairman John Williams – a permanent voter for the Federal Open Market Committee – last week endorsed the slow approach to moving away from the position. The central bank’s current ultra-easy to continue buying $ 120 billion in securities each month while keeping its key interest rate close to zero.

The Fed admitted it had started talking about cutting back on massive bond purchases as inflation far exceeds its 2% target. But it seems jobs, rather than prices, are the central bank’s real target.

“Many investors are focusing on the potential of high inflation to force the Fed to raise interest rates sooner than it currently anticipates, but it is the progress towards returning to” maximum employment “that will determine when the Fed’s first rate hike – and potentially how quickly interest rates rise once policy begins to tighten,” Jonathan Laberge writes in the July issue of Bank Credit Analyst .

This Friday’s publication of the employment situation in June will be closely watched for clues on the development of the labor market. But the social upheaval caused by the pandemic continues to trump normal economic forces. Two data points sum it all up: while the payroll is down by nearly eight million, unfilled job vacancies exceed nine million.

The standard explanation for this disparity is the combination of reluctance to return to work as Covid continues, demands for childcare while schools are closed, and generous unemployment benefits. Demography is also at work. Labor force participation rates have only partially recovered among those of working age, but those of those over 55 have fallen sharply and have remained there, according to a research note by Ian Lyngen, head of BMO Capital Markets US rate strategy.

The June jobs report will be scrutinized for clues of a return to normalcy. But beware of statistical oddities. JP Morgan economist Daniel Silver writes in a research report that seasonal adjustment factors may boost education jobs, which could push the payroll gain to 800,000, against the call Consensus of an increase of 700,000. The irony is that there are many anecdotes of teachers stepping up their retirement after this demanding year. Statistics can collide with reality again.

Read more From top to bottom of Wall Street:Hungry for income? Consider these 4 funds.

Write to Randall W. Forsyth at [email protected]

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