The Fed will meet at its normally-scheduled Open Market Committee meeting Tuesday and Wednesday of this week. Chairman Powell's press conference at the conclusion of that meeting is highly anticipated as investors search for clues on interest rates and tapering. There's a lot of other happenings and data to digest this week, so it will be a busy week. Things are a little hard to follow these days, so it's best for clients to stay on track and invest consistently according to their time horizon, goals, and risk tolerance and try to drown out all of the noise.
That being said, we'll try to make sense of all of the information. Last week's economic numbers were kind of ho-hum. While Jobless Claims did increase, the rise was only the fourth in 15 weeks. As some economic data disappointed expectations last week, the final numbers were still in-line with economic expansion. Of note was the Kansas City Fed's report on the economy and the fact that 91% of businesses surveyed by the Fed indicated labor shortages. A Morning Consult poll of out-of-work Americans at the end of June showed that 13% (or, 1.3 mil of the 14.3 on unemployment insurance) said that they had refused job offers because they "receive enough money from unemployment insurance without having to work." A recent survey by Indeed, the job listing company, revealed in June that the number of postings on their site that included perks by employers climbed to 4.1% (double the percentage in June 2020).
According to Bloomberg, 87% of conference calls for companies reporting earnings in July have mentioned inflation as a concern. In fact, most companies are announcing either surcharges or price increases passed onto consumers as a result of inflationary costs, such as materials and transportation. In spite of the clear evidence of rising inflation, it is likely the Fed's accommodative language will not change much this week. The Fed appears to be managing some inflationary pressures by ramping up reverse repurchase agreements in the overnight market. The Fed can remove funds from the overnight lending market, preventing banks from using said funds to draw down reserves (i.e., reducing the number of loans issued by banks), which can mitigate inflationary factors. This would allow the Fed to fight inflation without reducing the size of the Fed’s balance sheet (i.e., asset purchases).
On the COVID front, it appears that the Delta variant is causing cases to increase, but deaths and hospitalizations are not increasing substantially yet. With 80% of seniors age 65+ having been vaccinated, deaths are not likely to rise substantially as that age group has accounted for 80% of COVID deaths. The threat of the rise in cases should not affect global growth, so long as policy makers do not make the same mistakes of 2020. Sweden, a country where no lockdowns occurred and little restrictions (only limited restaurant hours and large gathering limits) were ever implemented, is seeing no COVID deaths for the past 13 days and cases are still at pandemic lows. Policy makers would be wise to study Sweden before implementing any new restrictions or lockdowns. Meanwhile, the CDC has recently announced the withdrawal of PCR Diagnostic tests as a means to test for COVID as the results have been shown to be unreliable in certain cases (calling into question COVID case statistics from 2020).
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