At last month’s Jackson Hole Economic Symposium, the Federal Reserve unveiled their new policy objectives which included the introduction of ‘average inflation targeting’ (AIT) when considering interest rates. The general concept is to let inflation run above a 2% target for stretches of time to balance out the historic period below 2%. This would in turn lead to keeping the current rate around 2%.
It sounds simple in theory: Once inflation rates rise above 2%, the Fed can slowly increase interest rates to slow down the economy and curb inflation. However, in practice it will be far more difficult to manage as indicators used to discern inflation are backwards-looking. As a result, this will provide little insight into what is happening today. It will also be difficult to forecast when these actions will impact markets as it often takes several months for a Fed rate change to have a visible economic impact. Read More
All indications suggest the economic growth seen in May and July took a big hit in July amid a resurgence of Covid-19 cases. Payroll provider ADP had projected the addition of more than 1 million jobs in July, while in reality only 167,000 new positions were added. One positive note in their report was a significant revision to the June numbers, which now shows job growth over 4M compared to the 2.3M first reported.
The consensus for the non-farm payrolls report tomorrow is currently 2M new jobs with a range of 350K to 2.5M. However, with so much uncertainty in the air, a single estimate might not tell the whole story. Additionally, with such a wide consensus range, this report could have vastly different implications depending on the final number.
In terms of a market impact, expectations are low for the outcome of the Federal Open Market Committee’s meeting tomorrow. Economists expect the Fed to continue with their supportive language of the markets while reminding investors they are prepared to step in if markets turn bearish again.
While Congress continues to deliberate details of the next stimulus package, the Fed may enjoy a relatively calm meeting. They will almost certainly leave the Fed Funds rate at the 0-.25% level for the foreseeable future and issue a cautious statement to avoid making headlines. Considering the past 4 or 5 months have been a learning experience for everyone, it is noteworthy to mention that the Fed did accomplish their goal of a V-shaped recovery in the markets.Read More
Pundits are calling the last two months’ rally on Wall Street the most disputed ever. With Covid-19 cases breaking records each day and layoffs continuing, the market somehow continues to grind higher. How will markets respond should June actually show strong job growth?Read More
June’s Federal Open Market Committee meeting will conclude tomorrow likely with no action taken by the Fed. With interest rates already near zero and Chairman Jerome Powell stating negative rates are not an option, there is little that can be done. Instead, investors will look for discussion over potential stimulus packages and economic projections.
Part of the Federal Reserve’s role is to project GDP, unemployment, etc. to help the public anticipate what may be ahead for markets and the overall economy. Although the Fed is focused on the economy and not the market, markets tend to react to these economic announcements. Read More
On Friday, the US government will release its non-farm payroll report which will likely show record job reduction for the second straight month. The consensus estimate at this point is between 3.5M and 11M jobs lost through the month of May, pushing the unemployment rate to around 18.5%.
These estimates are staggering to see consider the strength of the labor market just three months ago. Even at the height of the great recession the US never saw job losses anywhere near this scale. The consensus estimate of 7.725M newly unemployed is comparable to the entire Chicago metro area losing its jobs in a single month.
The situation is truly unprecedented, but does the stock market care?Read More
At the conclusion of tomorrow’s FOMC meeting, markets will be keen to hear what Federal Reserve Chair Jerome Powell has to say about the status of the economy. While there are no interest rate changes anticipated, he is expected to echo the words of many others regarding the dramatic decline in GDP over the last 60 days. Read More
The ADP report indicated private sector jobs shrunk by only 27,000 in their report on Monday. While the market might interpret this as encouraging compared to the initial 6.6 million jobless claims, the full unemployment picture has not yet been revealed.Read More
Following a strong January number, economists expect an increase of 175,000 jobs in February. If this is indeed the case, it may provide some stabilizing power in what continues to be a very volatile market.
Within the last two weeks, the market has seen multiple triple digit moves in the ES with the VIX spiking to above 40. It will be interesting to see how the market may react to a positive job increase amidst the numerous external challenges facing the economy.Read More
ADP reports have signaled January’s job creation to be the strongest in 5 months. A whopping 291,000 private sector jobs were added last month, far exceeding the already solid estimate of 150,000.
One of the most notable features of this report is that job creation came from all sectors, with leisure & hospitality leading the way at 96,000 new jobs. Analysts point to the mild winter as a possible cause for the unexpected gains.Read More