28 Aug August 28, 2020
Week in Review
The Fed
Fed Chairman Powell, in a speech delivered to a virtual Jackson Hole summit audience, announced that the Fed has changed its policy regarding inflation. Rather than a 2% target, as has been the Fed’s goal since 2012, inflation will now be allowed to moderately exceed 2% for some amount of time in order to have inflation average 2% before the Fed would take action.
Our Take: Given that inflation has struggled over the last economic cycle to even reach 2% and that current economic weakness will likely keep inflation in check for the foreseeable future, the probable effect of this policy is low rates for an extended period of time. As the economy recovers, it appears the Fed will favor the full employment side of its mandate over stable prices. The Fed will no longer preemptively attempt to hold inflation in check, making future Fed policy decidedly more discretionary.
Personal Income and Spending
July personal income rose 0.4% while spending rose 1.9%.
Our Take: Both income and spending were up more than expected as the economy continues to recover. However, the additional federal unemployment compensation of $600 per week expired at the end of July. August personal income and spending may suffer as a result.
Japan
Prime Minister Abe unexpectedly resigned to deal with health issues. Abe will stay in office until his Liberal Democratic Party, which has an overwhelming majority in the legislature, elects a successor.
Our Take: It is very unlikely that Abe’s successor deviates from the current course of massive monetary stimulus and large deficits.
Municipals
New Jersey Governor Phil Murphy released his fiscal 2021 budget which includes $1 billion in new taxes, mostly on high earners, and $4 billion in borrowing. Murphy’s new budget proposal cuts spending but does not cut state aid to schools.
Our Take: New Jersey continues to struggle financially due to the pandemic. Murphy has repeatedly called for a millionaire’s tax to increase revenue. New Jersey needed to find a way to close its $6 billion budget shortfall. Murphy and lawmakers have four weeks to complete the budget process. The nine-month budget must be passed by October 1.
All expressions of opinions are subject to change without notice in reaction to shifting market conditions. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities and should not be relied on as financial advice.