With a federal budget deficit of roughly $100 billion/month adding that much in savings (and income) to the economy total spending can be done with less additions to debt than when the deficit was a lot smaller.

Because of the deficit spending, consumers have been able to support maybe 2-3% growth in consumption and at the same time pay down credit cards and other debt, and debt continues to fall as a % of income as well.

Note below that new debt for non revolving credit has been inching up for the last 4 months, a sign that modest improvement continues.

With weekly initial claims now below 450,000 it looks like the spike to 500,000 most likely was some kind of statistical blip.
And at current levels, which seem to be drifting lower, we could be looking at 150,000- 200,000 new jobs per month.
This would mean the unemployment rate would fall only very slowly, but it’s still an upside surprise, and with 7 year treasury yields closing in on 7 year JGB’s we could also see US equity PE’s now around 12 adjust upward towards Japan’s PE’s of about 23.

I have no idea what’s going to happen with QE, except it will have very little or more likely no effect on the economy.
But there will be a lot of trading around the prospects and outcome of the Fed’s decision.

The term structure of risk free rates is always and in the Fed’s hands, and subject to the Fed’s reaction function and not to market forces. And with the talk of the Fed targeting longer term rates they may be coming around to it, as best I can tell knowledge of actual monetary operations seems to be slowly gravitating from the monetary operations staff to the actual leadership.

US Consumer Credit Falls by $3.34 Billion in August

October 25 (Reuters) — Total U.S. consumer credit outstanding declined for the seventh straight month in August as credit card debt continued to fall.

The Federal Reserve said on Thursday total outstanding credit, which covers everything from car loans to credit cards, fell by $3.34 billion after dropping $4.09 billion in July.

Analysts polled by Reuters had forecast consumer credit contracting $3 billion in August.

So-called revolving, or credit-card credit, fell $4.99 billion in August after a $4.98 billion fall the prior month.

That marked the 24th consecutive month credit-card debt decreased.

Non-revolving credit, which includes closed-end loans for big-ticket items like cars, boats, college education and vacations, increased $1.65 billion after increasing $888.59 million in July. It was the fourth straight month of gains.

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