18 Sep September 18, 2020
Week in Review
The Fed
As expected, the Federal Reserve Open Market Committee (FOMC) left its federal funds rate unchanged at the current range of 0.0%-0.25%. In its statement, the Fed recognized the that economic activity and employment picked up following the sharp declines experienced earlier this year but noted both measures remain well below their levels at the beginning of the year. The committee noted the path of the economy is dependent on the course of the virus and that the health crisis continues to pose considerable risks over the medium term. Regarding inflation, the statement noted the Fed’s new policy of targeting 2% inflation “over the longer run.” This will allow inflation to run moderately above 2% for some amount of time in order to have inflation average 2% before the Fed would take action.
Our Take: The Fed remains committed to its support of the US economy. Given the current economic weakness and inflation well below target levels, the Fed is unlikely to raise rates for an extended period of time.
Retail Sales
Retail sales rose 0.6% in August. July sales were revised lower, from 1.2% to 0.9%, while June sales were revised higher, from 8.4% to 8.6%.
Our Take: Retail sales growth in August was lower than expected and represents a continuing slowdown. However, retail sales in July and August were above pre-pandemic levels. It is possible that sales were boosted primarily though government pandemic aid programs, but it is also possible that the aid allowed consumers to get through the worst of the pandemic and recover quickly. Sales reports in the coming months should reveal the truth.
China
The Commerce Department announced that, as of Sunday, cash transfers related to WeChat and Tencent will be prohibited within the U.S., and the distribution, maintenance and updating of WeChat and TikTok will not be allowed in U.S. app stores. Payments and operations outside of the U.S. are not impacted, even for those involving U.S. firms. Also, ByteDance will have until November 12th to resolve security concerns relating to TikTok.
Our Take: This implementation of President Trump’s August order is more limited than was initially feared. The implementation announced by the Commerce Department does not represent a major step toward the decoupling of the Chinese tech sector from the rest of the world’s technology ecosystem.
Municipals
Many college towns are worried that students living off campus have not been counted correctly during the 2020 Census. College students should be counted where they lived on April 1, 2020. However, many students had already returned home as college campuses closed and many states were in a lockdown at the beginning of the pandemic. Students living in dorms were counted through the school but students living off-campus in non-university housing were not included in the school reported count.
Our Take: Under-counting students in the college towns will lead a decrease in Federal funding and could affect the number of state congressional seats. Census workers and many college town officials continue to work on an accurate count as the 2020 Census is due to be completed this fall.
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.