The Fed’s new statement on its longer-run goals now notes the central bank’s monetary policymakers seek “to achieve inflation that averages 2% over time” and that “following periods when inflation has been running persistently below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time.”

Paul Ashworth, chief US economistat Capital Economics, said this will mean targeting a higher rate of inflation in reality, but whether a higher bar means they can jump further remains to be seen. Ashworth said:

With long-term interest rates already so low and the Fed still ruling out negative rates as undesirable, we don’t expect that additional stimulus to provide any significant boost to the real economy, which means the Fed might struggle to hit its 2% inflation rate at all, let alone deliver above-target inflation.

The policy is deliberately vague, however, with Powell not clarifying exactly how high inflation would need to get before FOMC officials did become uncomfortable.

In another major change, the Fed will now interpret its maximum employment goal as a “broad-based and inclusive goal”, which suggests that rather than focusing solely on the aggregate unemployment rate, officials will also explicitly take into account how low-income and minority labour market participants are faring.

But where exactly is this inflation going to come from?

Neil Williams, a senior economic adviser to Federated Hermes, said:

Chair Powell’s comments formalise what the Fed has been doing for 18 months, and confirm his frustration that better growth doesn’t necessarily mean an inflation lift-off.

In theory, by pursuing an average, rather than fixed, inflation target, he can allow it to travel beyond its preferred 2% destination before tightening rates. This should give the recovery extra room to breathe. The challenge, though, will be getting the inflation train to get that far, given the disinflationary forces still working the other way, including slow labour recovery, sluggish productivity, and, in a liquidity trap, growth’s insensitivity to low rates.

Inflation is set to rise, but, it’ll be the ‘wrong sort’ – driven more by shortages and cost factors, rather than demand. Without wage acceleration, this could snuff itself out – meaning, with or without his change today – Fed rate tightening may remain yesterday’s challenge.

Jerome Powell has now finished speaking. And just as he does the Dow Jones industrial average turns positive for the year - a symbol of the support that he and the central bank have given to equity markets since the pandemic began.

The main event was of course the new determination to tolerate inflation above 2% for some time if it helps the labour market to recover. It came after a detailed review of the monetary policy framework that began well before the pandemic.

The Fed will target an average of 2% inflation over time, rather than worrying when it does approach what was previously seen as something of an upper limit. For the central bank, that means it can keep economic stimulus in place for longer.

Candice Bangsund, vice president and portfolio manager at Fiera Capital, said:

This more relaxed view on inflation will reinforce the notion that rates will remain pinned at these rock-bottom levels for an extended time – which will be instrumental in guiding the economy back to health and acting as a key source of support for risky assets in general.

Indeed, the subsequent output gap and the elevated level of unemployment stemming from the economic stop in March and April will keep inflation pinned lower and allow central banks to pursue extremely accommodative monetary policies for the foreseeable future, with the end result being a strong, above-trend growth cycle that will follow for the next several years as the central bank focusses on closing that gap in the economy.

In this lucrative environment, it is likely that equities will make new highs over that timeframe.

Neil Birrell, chief investment officer at Premier Miton, said:

The Fed has moved to a more relaxed approach to inflation, looking at an average of 2% rather than a target, earlier than expected. This has come as it acknowledges the challenges of persistently low rates and suggests that it’s possible to have a robust jobs market without inflation. There’s not a lot in this for markets to get excited about.

If we can keep the disease under control we can help the economy to recover, Powell says.

But we need to support workers in sectors that are most affected, Powell says. There might be “stop and starts “ in general recovery, but there could be a “long tail” of people who are left out for at least a couple of years, he says.

Some responses from economists and commentators:

The new policy does not dictate particular outcomes, Powell says.

It’s part of a broad programme to “aggressively seek” transparency and accountability, Powell says.

The new approach is not new among central banks (just look at the Bank of England and the European Central Bank) but it does mean that the Fed faces a political battle to sell it against hawks.

Q: On the new average inflation targeting strategy, how will this be communicated and how will it change things?

Public communications are very important, Powell says.

We’re talking about “moderate” overshoots, not “permanent or for sustained periods of time”, he says. This is not a formulaic approach.

I think it is the approopriate solution, he says. Undershoots of inflation are not frogotten but are made up later.

Powell says the central bank will engage in regular reviews of monetary policy roughly every five years, and with that he is finished - but there is a Q&A coming up (via a rickety connection with the questioner).

It is a robust updating of our monetary policy framework, Powell says.

The bank will be highly focused on fostering as strong as labour market as possible for all Americans, as well as steady inflation over time.

And it looks like equities are getting a boost.

The dollar is weakening as Powell speaks (with a dovish message so far).

US DOLLAR INDEX DECLINES TO 92.67, EURO JUMPS TO $1.1870 AFTER POWELL COMMENTS

Longer-term inflation expectations may have been holding down inflation more than expected, Powell says.

Persistently low inflation is a “cause for concern”. It can cause a serious risk for the economy and a “adverse cycle” of ever lower inflation expectations.

This would give less scope for cutting interest rates in a downturn.

Once it sets in it can be very difficult to overcome, and the central bank wants to prevent it happening in the US, he says (perhaps a reference to Japan’s experience).

There have been four main developments in understanding of monetary policy, Powell says:

1. Assessments of the long-run growth rate have declined.
2. Interest rates have fallen across the world, partly because of demographic and population growth. The Fed has less scope to support the economy in a downturn because of this.
3. Following the crisis the best labour market that had been seen for some time developed.
4. The historically strong labour market did not trigger strong inflation, despite repeated forecasts that it would do so.
   

The Federal Reserve’s updated framework has been published here.

Inflation targeting has had an emphasis on transparency, showing the understanding that public communication is important for monetary policy, Powell says.

Powell is summarising the development of the inflation targeting regime through previous chairs.

A 2012 update was a “significant milestone”, but it happened early on in the recovery from the financial crisis, but the understanding of monetary policy has developed since then.

Jerome Powell will be starting in less than 10 minutes.

You can watch an introduction followed by his speech live here:

The level of initial jobless claims was 1,006,000, a decrease of 98,000 from the previous week’s revised level, according to the US Department of Labor.

The four-week moving average for new jobless claims was 1,068,000, a decrease of 107,250 from the previous week.

The scale of the pandemic’s toll on the US labour market can be seen in this (quite squished) chart tracking initial jobless claims. Before the pandemic the idea of more than 1m jobless claims a week was unheard of, but since then it has become the norm, following a major spike in March.

The US Bureau of Economic Analysis (BEA) said the slightly better GDP reading was down to “private inventory investment and personal consumption expenditures (PCE) decreas[ing] less than previously estimated”.

However, even with the tinkering in the revisions the figures still show a historic drop in US output in the second quarter.

The BEA said:

The decrease in real GDP reflected decreases in PCE, exports, nonresidential fixed investment, private inventory investment, residential fixed investment, and state and local government spending that were partly offset by an increase in federal government spending.

The FTSE 100 has nudged into positive territory in recent minutes but US stock market futures have held their losses ahead of Wall Street opening.

With about 90 minutes until Jerome Powell starts talking, European stock markets are suffering something of a dreary day.

The FTSE 100 has dipped by a paltry 10 points to 6,035, a decline of 0.2%. France’s Cac 40 has lost 0.5% and Germany’s Dax has lost 0.3%, contributing to a 0.3% decline for the broad blue-chip Euro Stoxx 600 index.

The major currency markets are largely unchanged. Traders’ eyes are clearly on Powell - although there is the potential for some volatility around the US initial jobless figures at 1:30pm BST, as well as any revisions to US second-quarter GDP data at the same time.

Locked-down punters swapping sports betting for online poker and casino games during the coronavirus crisis helped the Paddy Power and Sky Bet owner, Flutter Entertainment, to report better-than-expected profits in the first half of 2020.

The world’s largest online betting company, created via the $12bn (£9.1bn) merger of Flutter and Canada’s The Stars Group, said pre-tax profits fell by 70% to £24m in the six months to the end of June.

Flutter’s chief executive, Peter Jackson, lauded a performance that resulted in the enlarged firm brushing off the effect of the pandemic lockdown, which led to cancelled or postponed sports events and the closure of its network of high street bookmakers in the UK and Ireland.

You can read the full report here:

Something to sink your teeth into before lunch: more discounts on dining out.

Restaurants are extending their offer of discounted meals in the government’s eat out to help out scheme after it ends on 31 August because of its popularity with diners, although the eateries will have to cover the costs themselves.

In September, consumers will be able to take advantage of reduced prices at nationwide chains including Harvester, Toby Carvery, Tesco Café, Bill’s, Pizza Hut and Prezzo.

You can read the full report here:

Mark Haefele, chief investment officer, UBS Global Wealth Management, said:

While we expect the Fed to shy away from more radical easing measures, such as explicit controls on government bond yields, we believe Powell will likely outline other dovish measures. These could include a move toward average inflation targeting, giving the central bank more leeway to allow inflation to overshoot the 2% target while keeping rates pegged close to zero.

The classic western Shane was filmed in the Jackson Hole valley, noted Kit Juckes, chief global foreign exchange strategist at Société Générale. The film shows the end of the age of gunslingers, he said:

Maybe the age of the independent, activist central bank head is also coming to an end. Fiscal policy is more powerful and monetary policy needs to work in harmony with it. Monetary policy is being asked to do things (like tackle economic inequality) that it really isn’t suited to. But, here we are, waiting for Jay Powell to turn up at Grafton’s Saloon. He’s already done everything he can, he’s almost out of bullets and he may even have already won the fight, but we have placed our faith in him and desperately want fresh encouragement.

In the Hollywood version Powell wins, stocks surge and the dollar falls, but in reality adjusting the way the Federal Reserve looks at its inflation targets or signalling low rates are here for longer are “small beer”, said Juckes.

The Fed has really been the dominant force in markets since the pandemic started. It laid on trillions of dollars of support for assets in the form of quantitative easing stimulus and opened the dollar taps as demand for the reserve currency rocketed during the panic.

However, there are concerns that it is running out of firepower to stimulate the US economy (which is why central bankers have been so keen for fiscal stimulus since the financial crisis).

Lee Hardman, a currency analyst for MUFG Bank, said:

It has been widely speculated that the Fed will soon strengthen their forward rate guidance in response to the review to signal that rates will remain on hold for much longer into the economic recovery than during past economic cycles. The Fed is expected to signal a greater tolerance for allowing inflation to overshoot their target for a period perhaps through adopting a form of average inflation target.

Another option, which is thought to be under consideration by some in the Federal Reserve (albeit not expected today) is yield curve control. Hardman said:

Another potential focus could be any updated views on the effectiveness of other policy tools such as yield curve control whereby the Fed contemplates capping yields, although recent comments suggest it is unlikely to be implemented at the current juncture.

Yield curve control would require the central bank to buy any government bonds on sale above a certain yield - yields move inversely to prices, so this would mean supporting the price of the government debt.

In contrast to quantitative easing, which aims to keep short-term interest rates down, yield curve control would look at the difference between short- and long-term rates (which usually form a curve on a graph). The thinking is that lowering longer-term borrowing costs will also help to stimulate the economy.

The pandemic caused a surge in online shopping in many major markets, and particularly for groceries that had seemed (oddly) resistant to the trend before then.

But Delivery Hero - a German rival to Anglo-Dutch Just Eat Takeaway, the UK’s Deliveroo and the US’s Uber Eats - clearly thinks it will be a growth area: it announced a $360m (£270m) deal for InstaShop, a grocery delivery company.

The company only operates in the United Arab Emirates, Lebanon, Egypt, Bahrain, and Greece, the home country of the founders, Ioanna Angelidaki and John Tsioris.

The company had only ever raised $7m from investors previously, according to TechCrunch, so it is a huge gain for the founders and early investors - not to mention an eye-catching moment for the Greek tech scene.

One of the big business news stories from earlier this morning was the resignation of the boss of TikTok, the Chinese social network that has found itself at the middle of a geopolitical struggle.

Tik Tok’s chief executive, Kevin Mayer, has quit just months after his appointment, amid a “sharply changed” political environment after Donald Trump accused the platform of threatening national security.

The Financial Times reported on Thursday that the former Disney executive would be replaced in the interim by Vanessa Pappas, the general manager. In a letter to staff, parts of which have been seen by the Guardian, Mayer said he had decided to leave after Trump ordered TikTok’s parent company, ByteDance, to sell its US assets to a US company within 90 days.

You can read the full report from the Guardian’s Helen Davidson here:

There’s more from WPP, the world’s biggest advertising agency, which announced a big writedown on the value of previous acquisitions, and a big loss, but still beat market expectations.

Chief executive Mark Read was speaking to reporters this morning. Asked if the multi-billion pound write-down was the fault of Sorrell, who has always had a penchant for making the big deal, Read said:

I don’t think we are saying that. It relates primarily to Y&R Group, before my time, which was acquired in 2000 at the height of the market in a stock transaction when both Y&R and WPP group’s stock were also high.

WPP’s figures show that the UK is proving to be one of the worst hit ad markets in the world, with revenues down 23% in the second quarter.

By contrast, WPP’s finance chief John Rogers said that the US, the world’s biggest ad market by some distance, has proven to be the “outlier” with revenues down just 9.6% in the second quarter despite the ongoing impact of the pandemic.

WPP’s share price is up by 4.6% % in early trading as investors warmed to the better-than-expected news.

The mid-cap FTSE 250 index is mostly flat this morning, but one stock is flying: mortgage specialist OneSavings Bank is up 18%.

The bank said it was “encouraged by the recovery in application volumes for our products since the housing market reopened”, running at about 60% of pre-lockdown levels on tighter lending criteria and higher pricing.

Andy Golding, the bank’s chief executive, said:

We expect to deliver double digit underlying net loan book growth for the full year.

The share price bump has gone at least some way towards making up for recent share price falls - although it’s nowhere near pre-pandemic levels.

John Cronin, banks analyst at Goodbody, a stockbroker, said:

While we are more cautious than consensus on impairments, we still see upside in the name given return on tangible equity delivery and the very strong capital position [...] Clearly, OSB has considerable headroom to cope with any negative shocks in an asset quality context as furlough schemes are tapered. We remain positive on the name.

Another data point for investors and central bankers to add to the mix from earlier: an apparently strong rebound from Chinese industry.

China was of course by all indications the source of the coronavirus outbreak, but a very strict lockdown relatively early on has meant that much of its industry has reopened.

This is from the Reuters report:

Profits at China’s industrial firms grew for a third straight month in July and at the fastest pace since June 2018, marking a bright spot in the economy as the manufacturing sector slowly recovers from its coronavirus slump.

Profits at China’s industrial firms grew 19.6% on-year to 589.5 billion yuan ($85.58 billion), the statistics bureau said on Thursday, following an 11.5% increase seen in June, the National Bureau of Statistics (NBS) data showed on Thursday.

The eyes of the oil industry are on the US east coast at the moment to see what will happen with Hurricane Laura and its effect on production, but in the UK there has been another reminder of the chaos in the industry as prices have plunged.

British oil well drilling tools company Hunting has revealed that it has cut 624 jobs during the first half of the year with the closure of multiple sites in the US.

WPP has reported a £2.6bn loss in the first half after the impact of the pandemic prompted the company to wipe billions off the value of expensive advertising acquisitions made by founder and former chief executive sir Martin Sorrell.

However, the world’s largest advertising group, which has shed 5,000 jobs in the first six months, surprised investors by re-instating its dividend declaring that the worst is now behind it, assuming there is no second wave of the virus.

Shares gained 4.6%, leading the FTSE 100 after the company beat city expectations to report a fall in adjusted revenues of 9.5% in the first half - peaking with a 15% fall in the second quarter, and a 44% fall in headlong pre-tax profits was also better than feared.

WPP’s loss was mainly down to the decision to write-down the value of certain advertising agency assets in light of the impact of Covid-19. The majority of the £2.5bn non-cash write down of ad assets relates to purchase of Young & Rubicam in 2000. The global agency group was acquired by Sorrell in a $4.5bn stock deal, which propelled WPP to become the world’s biggest marketing service group.

Mark Read, WPP’s chief executive, said:

Assuming there is no second wave nor major lockdowns, the second quarter is expected to be the toughest period of the year, although we remain cautious on the speed of the recovery.

The company, which is seeking to make cost savings of £700m to £800m this year, said that its headcount has dropped from 106,000 to 101,000 in the first half due to voluntary leavers who haven’t been repacked and redundancies.

Stock markets have also retreated across Europe after an initial flurry of positivity (in Germany and France at least).

The Euro Stoxx 600 index, which tracks most of the biggest European companies, is down by 0.2%. Germany’s Dax is down by 0.1%, France’s Cac 40 has lost 0.3% and Italy’s FTSE MIB has lost 0.7% in early trading.