The Fed shifts on inflation – What does it mean?
The Fed unveiled a revision to its monetary policy, allowing for higher inflation to help support the labor market. We believe this action could keep interest rates low for years.
Savings rates exploded to record highs in April. As Coronavirus-19 lockdowns gripped the country, we simply had a lack of spending opportunities.
Nobody has ever discounted the American consumer’s ability to spend. Once the economy started to open from the COVID-19 lockdowns, the consumer didn’t disappoint. The savings rate quickly fell into August, despite disposable income being somewhat inflated due to extra unemployment benefits and other fiscal stimulus measures. Although the August savings rate is less than half its April level, it is roughly two times the level seen prior to the pandemic. We believe the consumers ability to spend down savings into the fall gives the economy a bit of a cushion, even without additional stimulus. We also believe a large stimulus package will be needed in early 2021 to keep the economic recovery on-track.
Source: Bureau of Economic Analysis, Bloomberg, Ivy Investments. Disposable income is defined as net income available to invest, save, or spend after deducting income taxes. Data shown is October 2000 through August 2020. This chart is being provided as a general source of information for educational purposed only, and is not intended as a recommendation to purchase, sell, or hold any specific security or to engnage in any investment strategy
The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.