Dow gained 51, advancers over decliners about 5-4 & NAZ rose 55. The MLP index was fractionally higher to the 125s & the REIT index was off 1+ to the 358s. Junk bond funds crawled higher & Treasuries rose in price. Oil slid back into the 42s & gold jumped a very big 35 to 1968.
| CL=F | Crude Oil | 42.94 | -0.10 | -0.2% |
| GC=F | Gold | 1,965.20 | +32.60 | +1.7% |
Philadelphia Federal Reserve Pres Patrick Harker said that it will take a significant amount of time before the US sees unemployment figures return to their pre-coronavirus lows. Harker, a voting member of the FOMC, also said he would be comfortable allowing inflation to rise as high as 3% so long as it does so at a slow & manageable rate. “Right now, you’re seeing some signs of recovery, but basically it’s moving sideways,” Harker said of the labor market. “We still have 27 million that are on some form of unemployment and we won’t get fully back to the kind of employment —we had this great employment picture before the crisis — for quite a while.” “If you think about it, it took us two years to go from 5% unemployment to 4% unemployment,” he added. “It took another year and a half to go from 4% to 3.5%, where we were before the crisis.” Harker also said investors could see consumer spending & retail revenues decelerate in Aug from Jul as the end of the federal gov's $600-a-week bolstered unemployment benefits curtails how much US households spend. Cleveland Fed Pres Loretta Mester said earlier today that she believes more economic support will be needed from the central bank as the US recovery from the coronavirus will be a “slow one.” The commentary from both Mester & Harker comes less than a day after Powell announced a major policy shift & said the central bank will allow inflation to run hotter than normal to support the recovery of the labor market & broader US economy. The Fed formally agreed to a policy of “average inflation targeting,” meaning it will allow inflation to run “moderately” above the Fed.s 2% goal “for some time” following a period of below-average price appreciation. Inflation has undershot the central bank’s 2% for most of the time since the financial crisis. In the 12 months thru Jul, the core PCE price index increased 1.3% after rising 1.1% in Jun. The core PCE index is the preferred inflation measure for the Federal Reserve's 2% target. Harker explained that he thinks the pace of inflation.s rise is more important than the number to which it rises. I'd be comfortable with inflation “somewhere north of 2%. But to me, it's not so much the number, whether it’s 2.5% or 3%,” he added. “It’s whether it’s reaching 2%, creeping up to 2.5% or shooting past 2.5%.” “So, it’s really about the velocity of the inflation, not just the overall level,” Harker said.
Fed’s Harker says he would be OK with inflation creeping past 2.5%
The Federal Reserve will have to keep supporting the economy because the recovery from the coronavirus pandemic "is going to be a slow one," a top official at the central bank said. "There's more pain out there that we're going to have to support the economy through," Loretta Mester, pres of the Cleveland Fed,said. "What that looks like, we're going to have to take our time to evaluate that, but I think accommodative monetary policy is going to be very important throughout this recovery." Earlier this year, the Fed slashed rates to near zero as the coronavirus outbreak forced the US economy to shut down. The central bank also launched an open-ended asset-purchasing program, along with other measures, to support the economy during this period. Yesterday, Fed Chair Jerome Powell laid out a groundbreaking inflation policy framework that would keep rates lower for longer. Mester pointed out that high-frequency data examined by the Fed shows economic activity has slowed a bit since the country started to reopen. "That's what you'd expect. It's going to be fits and starts here," Mester said. "It's definitely true that, when the economy started to reopen, you saw better data on hiring and you saw activity increase. But I think the virus is sort of driving things." Coronavirus cases in the US have ballooned to more than 5.8M, according to data from Johns Hopkins Univ. However, the number of new daily infections has tempered recently, remaining below 50K since mid-Aug. "At least in our district, we have seen a tempering in hiring, and firms are reevaluating the number of new hires they want to bring back on board because they don't know what the outcome is going to be," Mester added.
Mester says recovery will be 'a slow one,' continuous economic support is needed
Americans regained a small amount of confidence in the path of an economic recovery in late Aug, but they are still quite pessimistic about how long it will take to get back to normal, a new survey showed. The final consumer sentiment survey in Aug rose to 74.1 from a preliminary reading of 72.8, the University of Michigan said. It was also up from Jul's 72.5 score. The survey is still near a pandemic low, however. The index bottomed out at 71.8 in Apr, just 2 months after it had reached a nearly 2-year high of 101. A fresh outbreak of the coronavirus during the summer dampened the spirits of Americans in Jul just as they were starting to feel a bit more optimistic. Consumers showed little change in their attitude in Aug about how the economy is doing right now. An index that measures current conditions rose a just a touch to 82.9 from a preliminary 82.5 reading earlier in Aug. The latest results incorporate responses from consumers in the latter part of the month. They felt somewhat better about the rest of the year. An index that measures expectations for the next 6 months climbed to 68.5 from a preliminary 66.5 reading & 65.9 in Jul. Still, most Americans think it will be years before the economy returns to normal. “Although half anticipates an improved economy, when asked to judge the performance of the economy, 62% judged that the overall conditions in the economy could be best described as unfavorable,” said Richard Curtin, the chief economist of the sentiment survey.
Consumer sentiment improves slightly in late August, but still near pandemic low
The conventions are over & now more attention will be paid to fighting the coronavirus & reopening the economy. The popular stock averages continue to be at or near record levels propelled by investors who are optimistic about the future.
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