Is Recent Wall Street Optimism Justified?
COVID-19 has dealt another blow to the credibility of experts – this time embarrassing the collective wisdom of labor economists. The consensus economic forecast was that the
Undeterred by the failure of experts to accurately guess whether employment was increasing or in continued decline,
Revenge consumption. Insert joke here.
The May employment figures could include some statistical aberration, but it is hard to imagine that could fully explain a 10 million person deviation from expectation. While the rebound in the hospitality sector represented half of the job gains, most sectors registered improvement, suggesting some level of broad-based re-employment. Indeed, there is other evidence that the economy is stronger (or less weak) than expected. Seasonally-adjusted May
The ending of a flash recession and impending revenge consumption aren't the only possible explanations for
Who is this new
Since March, the Fed's balance sheet has increased more than
As the Fed buys bonds, it drives interest rates lower and squeezes investors out of bonds into other risk assets, including stocks. Although not on this scale, this is a standard Fed monetary tool. What the
These Fed moves have led many investors to believe there is no need to worry, as the central bank has the market's back. Holding this assumption for too long could prove dangerous.
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