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08.27.2020 by David M. Smith

The Federal Reserve Announces a Major Policy Change

The Federal Reserve has had an official annual inflation target of 2% in place since 2012, but the roots of that policy go back to the mid-1990s. This means that by using the Fed's main tools of short-term interest rates and bank lending, it tries to cap inflation at 2%. The goal is economic price stability. By keeping inflation low, the Fed hopes to avoid having to take aggressive measures to combat high inflation which can cause a severe recession. St. Louis Fed Brookings Institute

Over the last decade, the Fed has struggled to even get inflation to 2%, with it running at about 1.5%. Too little inflation has been the concern, not too much. The Chair of the Fed, Jerome Powell, announced a major policy change this week with a new official target being "average inflation" of 2%. This may sound nuanced and not that impactful, but it is big news. This means if inflation has been running below the target for a while, the Fed will now allow it to rise above the target for some time as well. WSJ  CNBC Bloomberg

How does this impact investors and citizens? Allowing inflation to run higher means keeping short-term rates lower for longer along with more favorable bank lending leading to a stronger economy with lower unemployment. For investors, this could mean lower short-term bond and cash yields and potentially better earnings for company stocks. Investors will be watching as more details come out of the Federal Reserve in the coming weeks and months. Bloomberg

The CEO Confidence Index Shows Rising Optimism: In a recent survey, Chief Executives are becoming more optimistic about current conditions and 2021 prospects. They are hopeful that vaccines and treatments will get the virus under control and businesses and sales will rebound under a "new normal. " There are still worries such as further shutdowns or higher taxes but their outlook for next year has improved each of the last three months. With CEOs influencing hiring and investing plans for companies, their optimism bodes well for the economy.

State Income Tax Fight Looming With Remote Work: Many workers in southern New Hampshire work in Massachusetts and pay Mass state income tax (NH has no income tax). But due to the virus, many of those workers are not setting foot in Mass which wants them to continue paying state income tax. NH is fighting back. But this is bigger than NH vs. Mass/NY. Due to the pandemic, many residents of populous and high-tax states have relocated to less populated and lower-tax states. According to CEOs, 65% of workers are working remotely vs. 14% before the pandemic – and they expect 40% of workers to keep working remotely a year from now. This could end up in the courts. CNBC

Quick-Result Coronavirus Testing in Works: Many new testing technologies are in development to detect who has the coronavirus, sometimes with results in minutes. Some are saliva-based and some are even sensors for wearable smart devices. Detecting who has the virus quickly is important in containing outbreaks and keeping businesses and schools open. It will be especially important when flu and cold season arrives for trying to determine who has COVID-19 vs. who has a common cold. Axios

Quick Hits:
  • Quantum computing gets a boost with federal support: Axios
  • Don't think quantum computers affect you? Wrong, they can change the world: Wired
  • Too many tomatoes from your summer garden? Here are some options: Wash Post
  • Is smoked watermelon or veggie charcuterie your thing? Here you go: NYT
  • Ten creatures you may find in a Maine tide pool: Bangor Daily News
  • Exercise may help boost your immunization response from a vaccine: NYT
  • The Pentagon is investigating UFOs again; Exeter, NH loves UFOs:
  • The pandemic economic fallout may endanger some college sports: NYT

The Dow Jones is Removing Exxon from the Dow: In a sign of the changing of the economic guard, Exxon, Raytheon, and Pfizer will be leaving the Dow Jones Industrial Average Index on Monday and will be replaced by, Amgen, and Honeywell. Exxon has been part of the Dow since 1928 and just seven years ago, was the most valuable company in the world by market cap. WSJ   CNN

Tracking Coronavirus Cases at Colleges: I just dropped my son off at his freshman dorm last week. Like many parents, I am concerned about safety & restrictions or shutdowns due to virus outbreaks. Here is a tracker of reported COVID-19 cases at colleges across the country. Go Bearcats! NYT

A quote I wish to follow more: "Don't try to solve serious matters in the middle of the night." Philip K. Dick


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