Central bankers traditionally have treated the two goals, commonly referred to as the Fed’s dual mandate, as in tension with each other, as falling unemployment was thought to drive up inflation.
Yet that relationship between employment and inflation has broken down in recent years. And going forward, Powell announced, the Fed will prioritize getting joblessness as low as possible. To do so, central bank policymakers won’t raise interest rates as soon as inflation tops the Fed’s target rate of 2 percent. Instead, the Fed “is adopting a form of average inflation targeting, which essentially means that the Fed will allow for some overshoot of the 2 percent target to balance out periods when inflation skirted below,” Rachel Siegel writes.
As Powell put it in his speech, “This change may appear subtle, but it reflects our view that a robust job market can be sustained without causing an outbreak of inflation.”
Don’t expect a dramatic shift in Fed policy.
Powell’s speech indicated the Fed won’t be raising interest rates from near-zero any time soon. “The key point for investors is that the Fed has turned its previous view of the labor market on its head, implying looser policy over the next cycle,” Pantheon Macroeconomics chief economist Ian Shepherdson wrote in a note. Oxford Economics projects the Fed will keep interests rates near zero until mid-2024. Stocks rallied on the announcement, with the Dow Jones industrial average briefly entering positive territory for the year.
Yet the Fed chair has already made clear monetary policymakers “aren’t even thinking about thinking about thinking about” raising rates, as he put it in a news conference last month. So, “what does the revised statement imply for near-term changes in monetary policy? Really not much,” Larry Meyer, a former Fed governor and founder of Washington-based research firm LH Meyer, writes in a note.
One challenge facing the Fed: Its toolbox is limited.
The latest weekly report on jobless claims, released Thursday, highlighted the severity of the ongoing unemployment crisis: Another one million people applied for aid, meaning some 27 million Americans are receiving jobless benefits. Against that grim backdrop, consumer confidence just hit a more than six-year low amid new signs Americans are cutting back spending on essentials. Employment testing its lower bounds and surging prices remain remote possibilities.
But the Fed doesn’t wield the power to single-handedly guide the economy back to its pre-pandemic state, when joblessness hit 3.5 percent, a 50-year low.
The central bank has pulled out the stops in recent months, “flooding the markets with liquidity and rolling out emergency lending programs for struggling local governments and midsize businesses,” Siegel notes.
That effort “largely serves to support financial markets by making it cheap for large companies to borrow and pushing investors into riskier, higher-yielding assets,” Bloomberg Opinion’s Brian Chappatta notes. “The Fed can’t so easily reach the small businesses and service workers most impacted by this economic slowdown.”
So Powell and other Fed officials have stressed the need for Congress to step in and provide more support for a faltering recovery. As Powell said Thursday, “We’re going to keep doing what we can do. We really need it to be broader than just the Fed.”
PROGRAMMING NOTE: We’re taking next week off, but we’ll be back in your inbox Tuesday, Sept. 8. Here’s hoping you enjoy the last days of summer.
BREAKING OVERNIGHT: Japanese Prime Minister Shinzo Abe resigns. “Abe said Friday he has decided to resign because of illness, after weeks of speculation about his health following two visits to a hospital and just days after setting a record as the country’s longest-serving leader,” Simon Denyer and David Crawshaw report.
“In a news conference in Tokyo, Abe told reporters that he has been ‘struggling’ with his health, which began to deteriorate in mid-July, and that he was ready to end his leadership of the world’s third-largest economy — as soon as his party chooses a successor.”
- In his own words: “As I’m no longer able to meet the expectation of the mandate of the people of Japan, I have decided that I should not stay in the position as prime minister anymore. So I have decided to step down,” Abe said.
- Japanese stocks sink, yen strengthens. The news left investors uncertain “over the future of his signature stimulus policy,” Bloomberg reports.
Unemployment claims remain at 1 million.
The labor market continues to feel the pain of the coronavirus: “The initial weekly jobless claims have mostly declined since the highs in late March but remain well above historic highs,” Eli Rosenberg reports.
“Another 607,806 people applied for Pandemic Unemployment Assistance, the program for self-employed and gig workers. In total, roughly 27 million people are receiving some form of unemployment insurance, the Department of Labor said.”
- The Labor Department changed its jobless claims methodology: “The department said in a statement that starting next Thursday, it would use additive factors to seasonally adjust the initial claims and continued claims data instead of multiplicative factors … The department said in the presence of a large shift in the claims series, the multiplicative seasonal adjustment factors could result in systematic over-or under-adjustment of the data,” Reuters’s Lucia Mutikani reports.
Mortgage rates drop again: “Mortgage rates reversed course, falling for the first time in two weeks as the federal government delayed implementation of the adverse market refinance fee,” Kathy Orton reports.
Federal pandemic response
Unemployed Americans say they won’t forget Congress left town as benefits lapsed.
The frustration is boiling over: “Millions of desperate Americans, many of whom have never relied on emergency government assistance before, are flabbergasted and furious, believing they have been cut loose by a Washington political structure that doesn’t care about their predicament during the pandemic. The stock market has snapped back, but the labor market remains in really bad shape,” Eli Rosenberg and Heather Long report.
“The Post spoke to 20 people who have lost their livelihoods in recent months, and all said they felt immense pressure to stay afloat without the extra $600, which expired at the end of July … Often, the anger was directed at Republicans, who control the White House and the Senate, although a few credited President Trump for at least trying to take action on his own.”
- Key quote: “Most of them are rich. They don’t struggle. They get paid,” Shawn Gabriel, a single father of two in Parma, Ohio, told my colleagues. “I think they should have come to an agreement.”
- Grocery shoppers are cutting back on spending. And states with higher unemployment are seeing a steeper drop-off, the Wall Street Journal reports.
White House announces deal to provide 150 million rapid coronavirus tests: “The announcement of the $760 million agreement with Abbot Labs came just hours before [Trump] was scheduled to deliver his nomination acceptance speech at the close of the Republican National Convention,” Lenny Bernstein and Seung Min Kim report.
“Though antigen tests like this one are largely used to screen large numbers of people to find those who may be infected, the FDA said the Abbott test ‘has been authorized for use in patients suspected of covid-19 by their healthcare provider within seven days of symptom onset.’ The antigen test has a greater chance of a false negative result than the more reliable PCR test. The FDA said users may need a second test to confirm a negative result.”
From the U.S.:
- Large vaccine trails are underway but lack diversity: “Moderna and Pfizer, the companies leading the U.S. race for a coronavirus vaccine, disclosed this week they have enrolled more than half the people needed for the 30,000-person trials that represent the final phase of testing. But only about a fifth of participants are from Black and Hispanic communities, which have been hit hardest by the virus — lagging what several experts said should be the bare minimum of diversity,” Carolyn Y. Johnson reports.
- Six feet might not be enough distance: “A team of infectious-disease experts argues in a new analysis, published this week in the BMJ, that six-feet protocols are too rigid and are based on outmoded science and observations of different viruses. Other researchers say six feet is a start — but only a start, warning that more space is almost always better, especially in poorly ventilated areas indoors,” Ben Guarino reports.
- Senators call for an investigation of hydroxychloroquine use in nursing homes: “Fearing the experimental use of hydroxychloroquine went ‘unchecked’ in nursing homes struck by the coronavirus, three U.S. senators are calling on federal authorities to determine whether providers improperly treated patients, failed to disclose serious side effects or faced any repercussions from regulators responsible for oversight of the industry,” Debbie Cenziper reports of efforts by Democratic Sens. Elizabeth Warren (Mass), Robert P. Casey Jr. (Pa.) and Ron Wyden (Ore.).
From the corporate front:
- United Airlines announces biggest pilot job cut in its history: The airline said it “would need to cut 2,850 pilot jobs this year, or about 21 percent of the total, without further U.S. government aid,” Reuters’s Tracy Rucinski reports.
- Americans spend less on groceries: “Fewer trips to grocery stores, along with smaller receipts per visit, are typical patterns during a recession. As consumers gravitate toward value, food companies and retailers say they’re preparing to offer discounts that can eat into margins and intensify competition,” the Wall Street Journal’s Annie Gasparro and Jaewon Kang report.
- Gap sold $130 million worth of masks during Q2: “Mask sales have turned out to be a bright spot in a challenging retail climate. Like many mall brands, Gap — which also owns Banana Republic, Old Navy and Athleta — has struggled during the pandemic. The company said that net sales were down 18 percent from May to July, compared with the same period in 2019,” Antonia Farzan reports.
Trump unleashes a firehose of false claims in his acceptance speech. They extended to his economic record, as Trump repeated the falsehood that before the pandemic, he presided over the strongest economy in U.S. history. “By just about any important measure, the economy under Trump did not do as well as it did under Presidents Dwight D. Eisenhower, Lyndon B. Johnson or Bill Clinton,” the Fact Checker team notes. “The gross domestic product grew at an annual rate of 2.3 percent in 2019, slipping from 2.9 percent in 2018 and 2.4 percent in 2017. But in 1997, 1998 and 1999, the GDP grew 4.5 percent, 4.5 percent and 4.7 percent, respectively.
“Yet even that period paled in comparison against the 1950s and 1960s. Growth between 1962 and 1966 ranged from 4.4 percent to 6.6 percent. In postwar 1950 and 1951, it was 8.7 percent and 8 percent, respectively.”
Trump’s company charged the U.S. government more than $900,000.
The Post sued for documents to find out what’s happening with your tax dollars: “Trump has now visited his own properties 271 times as president, according to a Washington Post tally — including a visit Thursday, when he met with GOP donors at his D.C. hotel,” David A. Fahrenthold, Josh Dawsey and Joshua Partlow report.
“Through these trips, Trump has brought the Trump Organization a stream of private revenue from federal agencies and GOP campaign groups. Federal spending records show that taxpayers have paid Trump’s businesses more than $900,000 since he took office. At least $570,000 came as a result of the president’s travel, according to a Post analysis.”
Stephen Ross says he hasn’t determined who he will vote for.
The New York billionaire says his fundraiser for Trump was to get political favors: “I’ve known President Trump for a long time. I’ve known him and I’ve liked him. I don’t agree with a lot of his policies. I believe there’s a lot of good, and I believe there’s a lot of bad,” Ross told the New York Times. “At that point there was a fund-raiser at my house I was looking for certain things to benefit New York.”
Rich Democrats pump $38 million into get-out-the-vote efforts. “A new group of donor funds backed by Wall Street executive Mike Novogratz and his allies has raised $38 million from prominent Democratic donors to support organizations that aim to get out the vote this fall,” CNBC’s Brian Schwartz reports. “The group, One for Democracy, has multiple funds. Donors are encouraged to pledge 1% of their net worth or total assets toward the organization, which then sends those contributions to nonprofits across the country.”
Walmart leaps into the TikTok acquisition fray.
The nation’s largest retailer is joining Microsoft’s bid: “That news, along with the resignation of the head of TikTok’s U.S. business, has led to speculation that the company’s parent, ByteDance, may soon announce that it’s entered into formal negotiations to sell operations in the United States, Canada, Australia and New Zealand,” Jay Greene and Abha Bhattarai report.
“Analysts say the deal could give Walmart an inroad to a coveted demographic that it has long struggled to attract: younger shoppers. Walmart, which makes about half of its annual revenue from grocery sales, has aggressively bought up online apparel companies and other specialty brands, including Moosejaw and Bonobos, in recent years, in hopes of building up its online presence. The company posted $514 billion in revenue last year, nearly double Amazon’s $281 billion.” (Amazon founder and chief executive Jeff Bezos owns The Washington Post.)
- TikTok’s founder wonders how we got here: “He is different from an earlier generation of Chinese tech-company founders who sought favor from China’s ruling Communist Party establishment. [ByteDance CEO Zhang Yiming] skews more California than Great Hall of the People,” the WSJ’s Liza Lin and Eva Xiao report of the leader of TikTok’s parent company. “Besides being the first consumer app from China to make it big in the West, TikTok, unlike many of China’s past successes, can’t be accused of copying Western technology rather than innovating.”
Ex-Bank of America employees say they faced “extreme pressure” to sell credit cards. Even as the bank’s sales practices faced tighter regulatory scrutiny in the wake of the Wells Fargo fake accounts scandal, “company executives in one state were putting increased pressure on branch-based employees to sell more credit cards, according to interviews with former BofA employees, a wrongful termination lawsuit filed by one of those ex-employees and documents reviewed by American Banker,” Kevin Wack of the American Banker reports.
“The interviews, documents and lawsuit raise questions about how much the sales culture at the nation’s second-largest bank has really changed, notwithstanding broad pronouncements by regulators about industry-wide improvements. They open a window into BofA’s sales practices in the wake of the Wells Fargo scandal — and suggest that the company has found ways to continue its focus on aggressive sales even within the confines of new regulatory expectations.”