Powell announces new Fed approach to inflation that could keep rates lower for longer
The Federal Reserve announced a major policy shift Thursday, saying that it is willing to allow inflation to run hotter than normal in order to support the labor market and broader economy.
In a move that Chairman Jerome Powell called a “robust updating” of Fed policy, the central bank formally agreed to a policy of “average inflation targeting.” That means it will allow inflation to run “moderately” above the Fed’s 2% goal “for some time” following periods when it has run below that objective.
The changes were codified in a policy blueprint called the Statement on Longer-Run Goals and Monetary Policy Strategy, first adopted in 2012, that has informed the Fed’s approach to interest rates and general economic growth.
As a practical matter, the move means the Fed will be less inclined to hike interest rates when the unemployment rate falls, so long as inflation does not creep up as well. Central bank officials traditionally have believed that low unemployment leads to dangerously higher levels of inflation, and they’ve moved preemptively to head it off.
Marketwatch/Mathew C. Klein
Opinion: Higher-Income Americans Lean Biden on Economy and Trump on Personal Finance. What Will Decide Their Vote?
Many higher-earning and better educated Americans believe that a President Joe Biden would be better for the U.S. economy but worse for their wallets. The question is: How will they vote in November?
According to a new survey conducted as part of the University of Michigan’s Survey of Consumers, half of all Americans in the top 10% of the income distribution (households taking home at least $185,000) believe that Biden would be better for the economy than President Donald Trump, compared with 30% who think the incumbent would be better and 20% who think it makes no difference.
Most Americans lower down the income scale say that Trump would be slightly better for the economy, or that there isn’t a meaningful difference between the two candidates. Overall, 37% think Trump would be better, 33% think Biden would be better, and 29% are indifferent.
Gold price to test this key level before rallying towards $2,700, says Credit Suisse
The gold rally is taking a breather with buyers and sellers playing the range game as gold bounces between $1,920 and $2,000 an ounce for the past two weeks. Going forward, the new all-time highs are unlikely until gold tests this level on the downside, Credit Suisse said in its latest report.
“Gold continues its expected consolidation following the move to our base case objective of $2075/80. Although we continue to see the core long-term trend higher, reinforced by falling US Real Yields and a falling USD, we suspect there is scope for a more protracted consolidation phase to unfold first,” Credit Suisse strategists wrote on Wednesday.
However, once the consolidation phase is over, gold will be ready for more gains, including a climb towards $2,700 an ounce, Credit Suisse stated.
“Post this phase, we look for an eventual move above $2,075 with resistance seen next at $2,175, then $2,300. Whilst we would look for a fresh consolidation at this latter level, a direct break can see potential trend resistance at $2,417, with scope seen for $2,700/20 over the longer-term,” the strategists noted.
These superrich investors just raised cash to record levels to hedge against ‘the greatest period of unknown’
The ultrawealthy, understandably, would like to stay that way.
And so, in an effort to do just that, Tiger 21, a group 800+ investors averaging more than $100 million in assets each, says they’re sitting on a record cash pile representing 19% of their holdings. That’s a spike from the 12% level, where that figure has been for the past few quarters.
“Members are deeply concerned about the gap between Wall Street and Main Street and are therefore acting defensively to keep cash balances high,” Tiger 21 Chairman Michael Sonnenfeldt said. “While members are conservatively positioned, as experienced entrepreneurs, they are also preparing to pounce on opportunities wherever they are. Having cash is the asymmetry of having protection on the downside but waiting for opportunities on the upside.”
Part of the fear that’s brewing among the deep-pocketed set is that the clouds of uncertainty — coronavirus, the November election, civil unrest in some U.S. states, geopolitical tensions, etc. — will continue to hang over this market for a while. In fact, almost half of Tiger 21’s membership said they expect that the country won’t return to any sense of normalcy until summer of next year.
“We are in the greatest period of unknown as they perceive it,” Sonnenfeldt said. “They want to be able to weather the storm for longer — but what they’re really doing is taking risky assets off the table. They are still open for business but the bar for investing is much higher.”