Fed Announces Big Changes in Approach

August 31, 2020

Fed Announces Big Changes in Approach Photo

At last week’s virtual Jackson Hole event, Federal Reserve (Fed) Chairman Powell announced a significant change in how the Fed will operate going forward. The update in how the Fed looks at its dual mandate of managing inflation and employment had been widely expected, but the formal announcement could have a profound impact on monetary policy and market expectations going forward.  Allowing inflation to run above its target for a period of time to bring the average inflation rate in line has the potential to change long-term expectations. The impact in the short term was to push risk markets higher and send bond prices lower. The risk for bond prices over the coming months continues to increase, especially at the long end of the yield curve, due to this change in policy and the supply of Treasury bonds to fund the growing deficit.

This week should be relatively slow as we approach the Labor Day holiday. The highlight of the week will be the Friday release of the U.S. employment report, which is expected to show an increase of 1.4 million jobs for August and the unemployment rate falling back below 10%.

Tags: Federal Reserve | Inflation | Employment Report | Monetary policy | Bond prices

< Go to Monday Morning O'Malley

This blog post is for informational use only. The views expressed are those of the author, Dave O’Malley, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

Any statements about financial and company performance of The Penn Mutual Life Insurance Company or its insurance subsidiaries (each, “Client”) made by the author is provided with a written consent from the Client.  Penn Mutual Asset Management is a wholly owned subsidiary of The Penn Mutual Life Insurance Company.

Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice.  The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete.  Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements.  Actual results may differ significantly.  Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.

Investing involves risk, including possible loss of principal.  Past performance is no guarantee of future results.  All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.

High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.

All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.

Subscribe to Our Publications