Economist Report 9242020 Inflation The Feds Target rate

Economist Report 9/24/2020

Inflation The Fed’s Target rate is 2% In August, Fed Chair Jerome Powell said the Fed will allow inflation to rise slightly above 2% for a time to compensate for years of inflation well below the 2% target

Inflation Continued Two Main Reasons: ◦ The unemployment rate is still high (8. 4% in August) ◦ Historically, the unemployment rate and inflation rate have had a somewhat inverse relationship ◦ *Note: This relationship is being called into question more recently ◦ Higher inflation will give the Fed more room to decrease interest rates in any future recessions

Interest Rates At their September meeting, the Fed announced that interest rates will remain at their current level (0. 00 -0. 25%) until inflation is expected to rise about the 2% mark. ◦ Some estimates say this could take 2 or more years Impact on other rates: ◦ 10 -year treasury yield: 0. 66% ◦ 30 -year fixed mortgage rate: 2. 92% ◦ Lowest rate since the early 1970 s

Another Stimulus Bill Fed officials claim the economy is in need of another stimulus bill ◦ “My sense is more fiscal support is still likely to be needed…Roughly 11 million people are still out of work due to the pandemic…and they’ll need additional support as they find their way through a tough time. ” Such a bill has been stalled in congress as Republicans and Democrats disagree over what it should look like

Slowing Economic Recovery Retail spending growth declined in August Consumer confidence has gotten weaker City and state governments are facing furloughs and layoffs as tax revenue is depleted New cases have begun to increase again, pushing back the return of many serviceoriented jobs