Weekly unemployment claims just came in at 840,000. Expectations were for 820,000, so its worse than expected and a slight uptick from last weeks 837,000.
The last update on continued claims was Sept. 26. Trending in the right direction but the pace of the recover has slowed. Unfortunately, a full recovery in employment is likely years away. Fiscal stimulus is important to support the recovery efforts while we all try to wait this mess out. This spending can’t continue forever, so it will pose a downside risk if it spills into next year without a slowdown or vaccine. I don’t see this as a base case at the moment, but its worth noting.
Also the Fed meeting minutes came out yesterday, which reiterated the point that most committee members don’t foresee raising rates for at least the next 3 years. The Fed is essentially forcing you to take on more risk or get nothing in return. Corporate earnings become more attractive as rates decline. Like it or not, the Fed’s policy has very bullish long term implications as long as inflation doesn’t get out of control.
I’m not convinced this can’t happened (even though inflation hasn’t been an issue for decades) because the M2 money supply has exploded since COVID. The only reason it hasn’t produced inflation yet is because the demand for safe dollar assets is still too high (just look at the 10-year treasury yield below 1%!).
Once a return to confidence occurs (such as when the virus dissipates) the Fed will probably need to tighten policy or risk inflation. I am not convinced they will be able to get away with keeping rates at 0% for the next 3 years. I would not be basing my investment decisions on these projections.
Perhaps the most important data point for the future will be the core CPI and PCE statistics. We will keep a close monitor on those going forward.
But really, what is wrong with low inflation? Higher inflation levels probably only increases the inequality gap. Much was made about how Jeff Bezos net worth increased during the pandemic. I understand the frustration, but it is misguided. Bezos created a company the whole world has benefitted from in some way, and especially during COVID. Innovation and entrepreneurship like that should be rewarded.
If history is any guide, we should be wary of those offering simple solutions to complex problems.