Bullard has ‘penciled in' a 6.5% unemployment rate for December

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The unemployment rate has come down quicker than expected and now Federal Reserve Bank of St. Louis president James Bullard is eyeing a rate of 6.5% in December. It currently is at 8.4% as of Sept. 4.

“I’ve already penciled in 6.5% unemployment for the December jobs report,” Bullard said Friday morning at the Industrial Innovation Path to Economic Recovery from COVID-19 virtual event hosted by Washington University.

The unemployment rate will drop down to 6.5% by December, according to James Bullard, president of the Federal Reserve Bank of St. Louis.

He also said the Fed’s new strategy for inflation will be an improvement as the Fed has been missing its mark for years.

The Fed is seeking inflation that averages 2% over time, a step that implies allowing for price pressures to overshoot after periods of weakness. Its shift on maximum employment will allow labor-market gains to run more broadly.

“We have been missing our inflation target of 2% on the low side for years, since 2012,” he said. “I think the new strategy will pay off nicely.”

Separately, Federal Reserve Bank of Minneapolis President Neel Kashkari explained his dissent on the Fed's policy statement. "[W]hile I believe the statement is a positive step forward in putting those lessons into practice, I would have preferred the Committee make a stronger commitment to not raising rates until we were certain to have achieved our dual mandate objectives."

"I strongly support the new Statement on Longer-Run Goals and Monetary Policy Strategy 1 that the Federal Open Market Committee has adopted," he said in a statement. "It incorporates the lessons we have learned from the prior recovery and gives the Committee sufficient flexibility to make up for periods of low inflation in order to achieve our dual mandate goals."

Leading Indicators
The Leading Economic Index climbed 1.2% in August to 106.5, the Conference Board reported Friday.

Economists polled by IFR Markets estimated an increase of 1.3% for the month.

The increase in August follows a 2.0% jump in July and 3.1% higher in June.

“While the US LEI increased again in August, the slowing pace of improvement suggests that this summer’s economic rebound may be losing steam heading into the final stretch of 2020,” said Ataman Ozyildirim, senior director of economic research at The Conference Board. “Despite the improvement, the LEI remains in recession territory, still 4.7% below its February level. Weakening in new orders for capital goods, residential construction, consumers’ outlook, and financial conditions point to increasing downside risks to the economic recovery. Looking ahead to 2021, the LEI suggests that the US economy will start the New Year under substantially weakened economic conditions.”

The coincident index gained 0.6% for the month 100.8, while the lagging index dipped 0.6%.

“This morning’s Leading Index and Consumer Confidence data legitimizes the economic recovery up until now but does little to offer optimism over the mounting risks,” said Ed Moya, senior market analyst at OANDA.

U. of Michigan sentiment
The University of Michigan’s preliminary consumer sentiment index for September rose to 78.9 from the final reading of 74.1 in August.

Economists anticipated a 75.0 read.

The current conditions index increased to 87.5 from 82.9 the prior month, while expectations crawled higher to 73.3 from 68.5.

The sentiment index is up 6.5% month-over-month but is down 15.3% year-over-year.

The current conditions index is 5.5% higher for the month and down 19.4% annually.

Expectations have risen 7% for the month, while it is 12.1% lower for the year.

“The University of Michigan Confidence report had better-than-expected readings on sentiment and current conditions but did note that the data indicated that the election has begun to have an impact on expectations about future economic prospects,” Moya said. “The leading index declined slightly, indicating the summer economic rebound has lost momentum.”

Current Account
The U.S. current account deficit widened to $170.5 billion in the second quarter from a revised $111.5 billion gap in the previous quarter, data released Friday by the Commerce Department showed.

Economist projected a deficit of $148.3 billion.

“The second quarter deficit was 3.5% of current dollar gross domestic product, up from 2.1% in the first quarter,” the release said. “The $59.0 billion widening of the current account deficit in the second quarter mostly reflected an expanded deficit on goods and reduced surpluses on primary income and on services.”

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Economic indicators James Bullard Federal Reserve Bank of St. Louis