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Invesco’s Kristina Hooper: On the path to normal

What does Fed tapering have in common with antiviral COVID pills? To Kristina Hooper, Global Market Strategist at Invesco, they’re both signs that we’re on the path to a more normal world.

Key takeaways:

  • The Fed taper finally begins

– The Federal Reserve announced that it will finally start to taper its asset purchases this month.

  • Good news on the US jobs front:

– US job growth in October handily beat expectations (although labor force participation remains a challenge).

  • A new front in the battle against COVID:

– More US children can now receive the vaccine, and new pills bring hope that COVID can be effectively treated.

Last week, several things happened that help confirm my view that we’re definitely heading toward a more normal, pre-pandemic world.

The Fed taper finally begins

First of all, following its meeting last week, the Federal Reserve announced that it will finally start to taper its asset purchases this month. The Fed is starting with a relatively small taper – $15 billion on $120 billion of monthly purchases – but the Fed is flexible and could ramp up this tapering. As Fed Chair Jay Powell explained, monetary policy will adapt according to how the economy evolves. I think it’s very likely that tapering accelerates, as I expect fourth quarter economic growth to be far stronger than that of the third quarter, before moderating in 2022 to a more normal growth rate. While Fed policy is still extremely accommodative and far from normal, it has begun the path to normalization.

Good news on the US jobs front 

We also got the US employment situation report for October. Non-farm payrolls grew by 531,000, handily beating expectations. A significant portion of the job growth came from the leisure and hospitality sector, which makes sense given that industry hemorrhaged during the pandemic. This is one more indication the US is moving toward normal — and it was further confirmed by the Institute for Supply Manufacturing’s Services PMI for October, which was a whopping 66.7 – far better than expected.

In addition, non-farm payrolls for September and August were revised upward to healthier levels, with the average three-month gains well over 400,000 per month. This is impressive given the COVID headwinds hurting the US economy in August and September. The unemployment rate dropped to 4.6% from 4.8% (for reference, the pre-pandemic low for unemployment was 3.5%).

All summer I was eagerly anticipating the jobs reports for October because I felt that would be the most “normal” we have gotten since the pandemic began, with children back in school in person across the country and enhanced unemployment benefits ending for those states that hadn’t already terminated them. While I was happy to see the job growth, I was disappointed with labor force participation, which remains well below pre-pandemic levels, but I am hopeful that we will see it improve in coming months.

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