In this latest issue of my weekly podcast, we discuss the Fed's annual retreat at Jackson Hole. Beamed in virtually to the retreat, Jerome Powell formally announced that the Fed is changing its policy of pre-emptively raising rates to avert future inflation. The Fed will wait until inflation is modestly or well above +2% before they raise them. Those who attended also heard from eminent economists who presented historical evidence linking epidemics and economic depressions (even brief ones) to negative long-term economic performance. By "negative" we mean lower real rates of return and slower population growth. By "long-term," we're talking about twenty or thirty years. The mood of the discussion was downbeat at best.
US economic indicators were mostly positive. The Kansas Fed Manufacturing Index rose from 7 in July to 23 in August. And the Dallas Fed Manufacturing Index also rose from -3 in July to 8 in August. While these are both high readings, diffusion indexes measure the rate of change rather than absolute strength. The readings are measuring the massive swings from record-breaking lows in April and May. The ISM Manufacturing PMI rose from 54.2 in July to 56 in August, marking its biggest expansion since November 2018.
77% of Americans believe that the country is further divided as a result of C19. According to a new Pew poll, this is a significantly higher share than in the thirteen other developed nations surveyed. The US (along with the UK) also stood out in how negatively it rated the government’s response to the outbreak. It's clear that Covid-19 is Trump's greatest liability going into the election.
Is the convention bump a thing of the past? Before 1992, it wasn’t unheard of for candidates to see favorability increases of five to 10 percentage points after party conventions. But in recent years, post-convention enthusiasm has faded. In the past six elections, the incumbent party’s candidate has seen, on average, a favorability bump of just two points. And this year seems to be no different. Probable explanation: In a polarized America, everybody has already made of their minds. Polls have hardly changed since either the DNC or RNC.
US shows support for Taiwan. The White House declassified six assurances Reagan made to Taiwan in 1982. Among them were promises that the US wouldn't make a date to end arm deals nor would they pressure Taiwan to negotiate with China. The move was aimed at showing China that the US is fully committed to the island.
Abe to step down. On Friday, Prime Minister Abe Shinzo announced he would be stepping down for health reasons. The party will vote on his successor by mid-September, but only parliament and regional party heads will be allowed to vote. This will better enable Abe to choose his successor and keep his legacy of conservative nationalism alive.
India and China clash on disputed border. Near the highly contested Himalayan border zone, China supposedly landed a plane within Indian territory. While troops from both countries had a standoff, violence was avoided. The altercation is a step back from the two countries' ongoing talks to settle the border dispute.
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