Good day. Echoing other Federal Reserve officials, Chicago Fed President Charles Evans said the U.S. economy needs continued support from the government, adding that he is worried elected officials are fighting too much to deliver it. Also Thursday, Federal Reserve Bank of Atlanta President Raphael Bostic said in an interview with The Wall Street Journal's Nick Timiraos that it would be a “real mistake” for federal policy makers to declare victory prematurely in supporting the economy from the shock of the coronavirus pandemic. The shock is still gripping economies across the world, and some of the world’s biggest developing countries are witnessing some of the steepest economic contractions on record.

Please note there won't be a Central Banking newsletter on Monday, Sept. 7, in observance of the Labor Day holiday in the U.S.

 Now on to today’s news and analysis.

The U.S. economy has been hard hit by the coronavirus pandemic and “more fiscal relief will be needed in order to limit further damage to the economy,” Federal Reserve Bank of Chicago President Charles Evans said in a video appearance, adding that he was concerned that after some of the government’s support efforts have expired, “partisan politics threatens to endanger additional fiscal relief.”

Is the Federal Reserve’s plan to target 2% inflation on average vague by design? To Raphael Bostic, the leader of the Federal Reserve Bank of Atlanta, the answer is a qualified “yes.” Read more.

From India to Mexico and Brazil, the world’s biggest developing countries are witnessing some of the steepest economic contractions on record, throwing tens of millions out of work and turning back the clock on gains against poverty.

Banca Monte dei Paschi di Siena SpA said late Wednesday that the European Central Bank’s final decision has approved its plan to shed bad loans worth billions of euros. The plan was approved under the condition that the Italian state-owned bank strengthens its capital buffers to meet its requirements. The Italian Ministry of Economy and Finance will have to subscribe for up to 70% of the capital instruments issued by the bank, while private investors should subscribe to at least 30% of such instruments. (Dow Jones Newswires)

Time N/A: Bank of England’s Saunders gives speech on economy’s recent performance
8:30 a.m.: U.S. Labor Department releases August jobs report
11 a.m.: European Central Bank’s Lane speaks at online ECB research conference

3 p.m.: Federal Reserve releases July U.S. consumer-credit data

A new research report from the Federal Reserve explains at least some of why the central bank has moved to more explicitly tolerate overshoots of its 2% inflation target. A broad reading of multiple sources of inflation expectations data shows that expectations of future price increases were mostly stable between 1999 and 2012, according to the report by Fed economists Hie Joo Ahn and Chad Fulton. And as the Fed formally adopted its 2% target in 2012, expectations began to fall between that year and 2016, they write. They add that “In recent months, this measure has fallen somewhat, likely influenced by recent sharp declines in oil prices, although it does not yet appear to suggest a de-anchoring of inflation expectations to the downside.” The Fed justified its new regime of average inflation targeting as a way to help keep inflation expectations from falling amid very soft inflation readings caused by the economic pain of the coronavirus pandemic.
                                                                                               —Michael S. Derby

• Activity in the U.S. services sector expanded at a quicker pace in August as output rose at the sharpest rate for nearly one and a half years, according to IHS Markit, whose U.S. Services Purchasing Managers' Index rose to 55.0 from 50.0 in July. (Dow Jones Newswires)
• U.S. non-farm worker productivity shot up by a revised 10.1% in the second quarter on a seasonally adjusted annual basis, the largest quarterly rise since the first quarter of 1971, according to the Labor Department. (DJN)
• German manufacturing orders rose for the third consecutive month in July but their recovery lost steam. Manufacturing orders increased 2.8% in July in adjusted terms after a revised 28.8% expansion in June. Economists polled by The Wall Street Journal had expected July orders to grow at a rate of 5% on the month. (DJN)
• Canada's trade deficit widened in July to 2.45 billion Canadian dollars ($1.87 billion) from a revised gap of C$1.59 billion in June as imports and exports continued to recover from the sharp, pandemic-induced decline recorded in the spring. (DJN)
• Brazil's industrial production rose for a third consecutive month in July amid the easing of quarantine measures, lifting output by a seasonally adjusted 8% from June. (DJN)
• Inflation in Turkey rose in August, statistics agency TurkStat said Thursday, noting the country's consumer price index increased 11.77% on year compared with a 11.76% increase in July. (DJN)

This newsletter is compiled by James Christie in San Francisco and Ed Ballard in London. 

Send us your tips, suggestions and feedback. Write to:

Jon Hilsenrath, Michael Derby, Nell Henderson, Nick Timiraos, Jason Douglas, Paul Hannon, Harriet Torry, Kate Davidson, David Harrison, Kim Mackrael, Tom Fairless, Megumi Fujikawa, Michael Maloney, Paul Kiernan, James Glynn

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