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Even for the most avid Fed watchers, it was easy to get distracted this week. The market pushed and pulled on the prospects for an additional coronavirus relief bill. It digested the first Presidential debate and the news of President Donald Trump and First Lady Melania Trump testing positive for COVID-19.

Nevertheless, the Labor Department released the September jobs report this morning and the economy added about 660,000 jobs this month. In August it added about 1.5 million jobs. In June it added about 4.8 million. And while some job growth is better than no job growth, the takeaway is that pace of the economic recovery has slowed. The unemployment rate fell from 8.4% in August to 7.9% in September.

At this point, a “U” shaped economic recovery can be definitively ruled out. However, it is still too early to deem the recovery a true “V”. And the prospects for an “inverse square root” recovery, or a “V” and then morphs into a “u” could be gaining steam.

We are still about 10.7 million jobs short of the pre-COVID February employment levels. And this week, Economist Ernie Tedeschi highlighted that even at September’s pace, which is not guaranteed to persist as the recovery has been slowing, it would take us about 17 months to recover to February’s pre-pandemic employment level.

Nevertheless, “mixed” remains a dependable word to describe the recovery. Last week, the Census Bureau reported that new home sales hit a seasonally adjusted annual rate of 1 million; the highest level since 2006. And the Atlanta Fed is projecting GDP growth of 34.6% in the third quarter, and this estimate has been getting better and better each month; rising from as low as 10% forecasted growth in July.

So, what is the Fed to do in the face of this mixed outlook?

On the supervisory front, the Fed extended measures to ensure that large banks remain well capitalized into year end. During the fourth quarter, banks with more than $100 billion of total assets are banned from making share repurchases. Dividends will be capped and tied to a formula based on recent income.

On the policy front, the answer remains pretty much the same: not much more than it is currently doing. With rates at the effective lower bound and strong forward guidance extended through what looks like 2023, the Fed is in “wait and see” mode for the foreseeable future. And if we do see any material action, it will be on the balance sheet. And barring any major developments, I’d expect any increases in asset purchases, regardless of their intention, to equate a drop in the ($7 trillion) bucket.

The yield on the benchmark 10-year U.S. Treasury is 0.70% up from 0.65% last week.

Next FOMC meeting is Nov. 4-5. No action expected.

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