Last Wednesday Federal Reserve Chairman Jerome Powell emphasized the need to keep interest rates near zero at least through 2023. He said, “We believe that achieving inflation that averages 2% over time helps ensure that longer term inflation expectations remain well anchored at our longer run 2% objective.”

The Federal Open Market Committee echoed Powell: “With inflation running persistently below this longer run goal (2%), the Committee will aim to achieve inflation moderately

above 2% for some time so that inflation averages 2% over time.”

All 17 Fed officials said they expect to keep rates near zero through 2021 and 13 projected rates will remain at these low levels through 2023.

The Fed has initiated a new policy. Succinctly, they abandoned their previous strategy of preemptively raising interest rates to prevent inflation. The Fed will now keep rates near zero even if unemployment drops to 4% and inflation reaches 2%.

Homebuyers and businesses can expect low borrowing costs for an extended time period. Conversely, investors in fixed income securities will earn paltry returns.

The White House and Democratic negotiators might compromise on another stimulus deal despite little time before the Nov. 3 elections. Tyler Goodspeed, acting chairman of the Council of Economic Advisors, told Bloomberg, “We are very keen on a second round of economic impact payments.”

President Donald Trump said on Wednesday that he is open to the extra spending contained in a compromise $1.5 trillion proposal from a bipartisan group of House lawmakers.

Powell urged again for Congress to spend more money to support American households, hard-hit businesses and state and local governments in order to limit additional damage to the economy.

State budget shortfalls because of COVID-19 could top $555 billion over fiscal years 2020-22. They are paying out increasing sums to cover unemployment and health costs and losing revenue from declining sales taxes, corporate and personal income taxes. State and local governments have furloughed or laid off 1.5 million workers – twice as many as in all of the Great Recession.

Unfortunately, helping state and local governments has created one of the biggest political battles. Democrats have said that providing as much as $ 1 trillion will support needed services and help the economy recover more quickly. Republicans argue that providing more money to states could simply bail out fiscally irresponsible governments.

Government officials forecast a slight economic improvement before year’s end. They project unemployment will average around 7% to 8% during the last three months of this year, down from August’s unemployment rate of 8.4%.

Two of the most profound economic thinkers during my formative years appear to have little relevance in today’s economic environment.

John Maynard Keynes believed that increased government expenditures and lower taxes should be the primary tools for stimulating the economy.

Alternatively, Milton Friedman warned against increasing the money supply too fast because it would be counter-productive by creating inflation. Friedman predicted we would enjoy a Goldilocks economy where unemployment and acceptable level of inflation would be prevalent.

In an environment where yields on government securities are so low many investors have gravitated toward dividend aristocrats. These are public companies that have consistently raised their dividends for 25 years in a row. Examples of dividend aristocrats are Johnson & Johnson (2.72% yield), Procter & Gamble (2.3% yield) and Automatic Data Processing (2.64% yield). Over time, dividends have provided close to 40% of the total return of equities. By contrast the yield on the 10-year U.S. Treasury is .69%.

A 2015 American Express survey revealed that at least 20% of the American public plan to hide bills in a secret location in their home – cookie jar, freezer, or underneath their mattress.

Low yields on traditional bank savings accounts have incentivized such behavior.