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The employment picture continued to brighten as nonfarm payrolls increased by 1.3 million jobs in August. This was accompanied by a welcomed decrease in the unemployment rate of 8.4%, the first reading below 10% since April. However, it is not all good news on the jobs front as initial claims for unemployment stand at over 800,000 and continuing claims are over 13 million.
At the Kansas City Federal Reserve’s (the “Fed”) annual monetary policy symposium, Fed Chairman Jerome Powell laid out a new strategy “Statement of Longer-run Goals and Monetary Policy Strategy”. This is basically the Fed’s mission statement. The major change announced that while their goal over time was to keep inflation near 2%, the Fed would now allow inflation to run higher than 2% following periods when it had run persistently below 2%. This signaled the markets that it should not expect a move toward monetary policy tightening by the Fed even if inflation runs above 2%.
Jerome Powell also gave a somber outlook for the overall economy. While the Fed is pleased with the falling unemployment rate, Mr. Powell noted that several sectors of the economy remained very hard hit and job recovery in areas like travel, leisure and hospitality remained unlikely in the short run. He continued to press for further action on the fiscal front, saying that further federal level spending was needed to help sustain the recovery.
At the moment, it is clear that politicians on both sides of the aisle are ignoring Mr. Powell’s advice as rival spending plans from the House and Senate are trillions of dollars apart. And the quickly upcoming election makes any potential deal seem less and less likely.
As is the case every four years, the weeks after Labor Day will be dominated by election speculation. However, this year, the disruptions caused by COVID-19 add a whole layer of uncertainty. Vaccine hopes may be tempered by potential increases in cases as schools and colleges reopen and businesses try to bring workers back to offices. A year that was impossible to predict continues as we approach the final quarter of 2020.
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