US Federal Reserve chair Jerome Powell. Picture: REUTERS/JOSHUA ROBERTS
The labour market is clawing back jobs each month, albeit at a slowing pace, while other data continues to surprise in a positive way. US retail sales in September, for example, rose an unexpectedly strong 1.9% from the prior month, and at nearly $550bn are 3.7% above pre-pandemic levels, the sort of outcome that may make the US central bank hesitant to tinker with its current $120bn in monthly purchases of government bonds and mortgage-backed securities .
Interest rates on US Treasury bonds remain at record low levels, holding down related types of credit including 30-year home mortgages. Fed asset purchases aim to bolster the economy in different ways. By increasing demand for riskier bonds, for example, they hold down a variety of related interest rates, and make borrowing cheaper. They often lift stock and other asset prices, generating a “wealth effect” that triggers spin-off economic activity.
The economy is by no means repaired from the shock it suffered in March and April, when lockdowns to control the spread of the coronavirus were imposed. Initial claims for unemployment insurance jumped back to near 900,000 in the week ending October 10, and even as he lauded a stronger-than-expected recovery this week, Clarida acknowledged a deep gash remains, particularly for unemployed or sidelined workers.