Even if the U.S. economy performs poorly over the next month, third-quarter gross domestic product is going to look very good. And even if it does great, the economy will still be in a deep hole.

The second quarter was bad, with Commerce Department figures showing that GDP contracted at a 31.7% annual rate, but it ended on a high note. Monthly GDP estimates from IHS Markit show that the economy contracted at a 73.4% annual rate in April, which followed a 47.7% decline in March. But then it expanded at a 71% rate in May and...

The U.S. economy grew modestly over the summer but remained well below its pre-pandemic level of activity, a Federal Reserve report said Wednesday.

Manufacturing and consumer spending picked up in many parts of the country but at a slower pace than in the spring, the report said. Employment was up as well, but also at a slower pace. The labor market remained volatile with some firms laying off formerly furloughed workers and others struggling to find labor due to child-care concerns and the extended unemployment benefits in...

WASHINGTON—U.S. government debt will exceed the size of the economy in the government’s 2021 fiscal year, a milestone not hit since World War II that has been brought into reach by a giant fiscal response to the coronavirus pandemic.

The Congressional Budget Office said Wednesday that federal debt held by the public is projected to reach or exceed 100% of U.S. gross domestic product, the broadest measure of U.S. economic output, in the fiscal year that begins on Oct. 1. That would put the U.S. in the company of a handful...

You wouldn’t have picked Shinzo Abe as globalization’s future champion when he became prime minister of Japan in 2012. He was a proud nationalist intent on rekindling Japanese patriotism, loosening the shackles on the country’s military, and playing down its past aggression. No free-market ideologue, he criticized his predecessor’s negotiations to join the Trans-Pacific Partnership, an ambitious trade pact with the U.S. and 10 other Pacific nations.

Yet by the time Mr. Abe announced his resignation last week, he had presided...

Good day. Federal Reserve Bank of Richmond leader Tom Barkin in an interview with The Wall Street Journal said the Federal Reserve will need to provide sustained support to the U.S. economy due to a slowing recovery in the jobs market. Meanwhile, Federal Reserve governor Lael Brainard said Tuesday the economy faces substantial risks, adding that “in coming months it will be important for monetary policy to pivot from stabilization to accommodation.” Her comments came as a survey of purchasing managers in manufacturing found U.S. factory output grew in August at the fastest pace since November 2018, though the picture for...

Federal Reserve Bank of Cleveland President Loretta Mester said Wednesday more government aid is essential to help the U.S. economy weather ongoing stresses caused by the coronavirus pandemic.

“Several key parts of the fiscal policy support already in place are expiring,” Ms. Mester said in the text of a prepared virtual speech. “Given economic conditions, it seems clear that further fiscal support is needed to provide a bridge for households, small businesses, and state and local municipalities that have borne the brunt of...

Federal Reserve Bank of New York leader John Williams said the central bank’s plan to allow inflation to overshoot its 2% target to compensate for times when it is run short of that goal will help the central bank better achieve its job and inflation goals.

The new regime is “an important evolution in our thinking about how to achieve our goals and another step toward greater transparency,” Mr. Williams said, in remarks prepared for a virtual presentation, adding the change “positions us for success in achieving our maximum employment and price stability goals in the future.”

Last week, the Fed announced the outcome of its policy-review process that sought to find a new way to achieve the central bank’s goals in an economy where inflation has been persistently weak, overall interest rate levels had fallen, and the job market was able to produce historically low levels of joblessness without creating inflation.

As part of that review, the Fed said it...

WASHINGTON—U.S. government debt is on track to exceed the size of the economy for the 12 months ended Sept. 30, a milestone not hit since World War II that has been brought into reach by a giant fiscal response to the coronavirus pandemic.

The Congressional Budget Office is expected to report on Wednesday that federal debt held by the public is projected to reach or exceed 100% of U.S. gross domestic product, the broadest measure of U.S. economic output. That would put the U.S. in the company of a handful of nations with debt loads that exceed their economies, including Japan, Italy and Greece—though investors remain unfazed by the rising red ink.

By another measure, the U.S. passed the mark in the April to June quarter, when government spending surged to combat the new coronavirus and tax revenue plunged. But this would be the first time in more than 70 years for it to do so for the federal government’s full fiscal year.

The last time the U.S. debt...

Federal Reserve Bank of Richmond President Tom Barkin discussed his outlook for the economy, the Fed’s response to the coronavirus pandemic and the central bank’s new policy framework in an interview with Wall Street Journal reporter Nick Timiraos on Tuesday, Sept. 1. Here is a partial transcript of the interview, lightly edited for clarity and length.

WSJ: If April ends up marking the bottom for growth and the high point for unemployment, how should we think about the prospect for recovery or any expansion in the months to...

The Federal Reserve will need to continue providing significant and sustained support to the economy as it faces a slowing labor-market recovery, Tom Barkin, president of the Federal Reserve Bank of Richmond, said in an interview with The Wall Street Journal.

Mr. Barkin said the labor market’s recovery has been slower than he anticipated because the coronavirus has proven harder to contain than he expected. How individuals comply with public-health protocols will be a key factor in determining the durability of any recovery,...

Good day. Federal Reserve Bank of Richmond leader Tom Barkin in an interview with The Wall Street Journal said the Federal Reserve will need to provide sustained support to the U.S. economy due to a slowing recovery in the jobs market. Meanwhile, Federal Reserve governor Lael Brainard said Tuesday the economy faces substantial risks, adding that “in coming months it will be important for monetary policy to pivot from stabilization to accommodation.” Her comments came as a survey of purchasing managers in manufacturing found U.S. factory output grew in August at the fastest pace since November 2018, though the picture for employment was mixed.

 Now on to today’s news and analysis.

Low interest rates could widen income inequality by pushing up asset prices, but are needed to combat unemployment during the coronavirus pandemic, Reserve Bank of New Zealand Gov. Adrian Orr said.

Mr. Orr’s comments in a speech on Wednesday highlighted the challenges facing central banks as they try to stimulate growth without exacerbating financial and social risks.

There...

One of the Bank of Japan’s two deputy governors hinted at the possibility of the central bank reviewing its monetary policy to better serve an economy coexisting with the coronavirus pandemic, following in the footsteps of other major central banks.

“The bank deems it necessary to give further consideration to what kind of monetary policy should be taken in the Covid-19 era while referring to discussions being held at other central banks,” Masazumi Wakatabe said in a speech on Wednesday.

A top Federal Reserve official said the economy faces substantial risks, including the premature withdrawal of government spending to support growth, and will require continued stimulus from the central bank.

The risk of permanent layoffs and business bankruptcies will rise the longer that uncertainty related to the coronavirus pandemic remains high, said Fed governor Lael Brainard in a speech set for delivery Tuesday.

“With...

Good day. Federal Reserve Vice Chairman Richard Clarida said the central bank needed to be more skeptical of models predicting higher inflation when setting interest-rate policy, given the weak response of inflation to lower levels of unemployment over the past decade. Meanwhile, Atlanta Fed leader Raphael Bostic said he is concerned about declining fiscal aid: “The end of those supports brings risks to the economy that we need to be mindful of.”

Now on to today’s news and analysis.

The Federal Reserve’s new strategy means that interest rates are likely to stay exceptionally low for a longer—a boon to people looking for work, buying a home or investing in stocks.

The central bank Thursday set aside its longtime strategy of raising interest rates when it expects inflation to start moving higher.

In  practice, that means...

SYDNEY—The Reserve Bank of Australia is maintaining the policy position it first established in March to combat the sharp economic downturn brought on by the Covid-19 pandemic.

RBA Gov. Philip Lowe on Tuesday reaffirmed the central bank’s 0.25% target for the yield on three-year government bonds, adding that he still expects interest rates to remain ultralow for some time.

The...

Good day. Federal Reserve Vice Chairman Richard Clarida said the central bank needed to be more skeptical of models predicting higher inflation when setting interest-rate policy, given the weak response of inflation to lower levels of unemployment over the past decade. Meanwhile, Atlanta Fed leader Raphael Bostic said he is concerned about declining fiscal aid: “The end of those supports brings risks to the economy that we need to be mindful of.”

Now on to today’s news and analysis.

BEIJING--China’s central bank said Monday that it would make interbank repo rates by depository institutions a key reference for setting prices in the nation’s financial market, in its latest move toward interest-rate reform.

In a white paper published on its website, the People’s Bank of China said it would use the new reference rates in setting prices of floating-rate debt and interest-rate swap products, two types of financial products usually traded in the nation’s bond markets.

Federal Reserve Bank of Atlanta President Raphael Bostic said there are limits to how much the central bank can aid the economy in a health crisis, adding he is worried about the rest of the government pulling back support when the rebound from the coronavirus pandemic is likely to take longer than originally expected.

“The recovery is happening,” but recent data suggests it is slowing, Mr. Bostic said in a virtual appearance Monday.

A top Federal Reserve official said the central bank needed to be more skeptical of models that predict higher inflation when setting interest-rate policy, given the weak response of inflation to lower levels of unemployment over the past decade.

The Fed’s new framework, adopted last week, states that the Fed won’t raise interest rates simply...

The Federal Reserve has just given itself a license to do pretty much whatever it wants.

Chairman Jerome Powell will no doubt disagree: His speech on Thursday set out a new target for average inflation of 2%. But because he ruled out any mathematical definition of the average, anything from serious deflation up to inflation of 3.2% over the next five years could count as success.

This isn’t really a problem. The broad thrust of the Fed’s new strategy is that it will be even more dovish, and interest rates will stay low for even longer. But—and it is a vital point—what the Fed is really saying is that we should trust that it won’t let inflation spiral out of control, so any overshoots of 2% won’t last long. The Fed wants people to believe inflation will be roughly 2% in the long run, and more precision than that isn’t really necessary.

Those who prefer their monetary policy to be governed by rules will be disappointed. The Fed used to let...

Now that the Federal Reserve has formally codified changes to its policy framework to seek periods of higher inflation, the question is how to achieve it.

No one expects its policy-setting revamp to boost growth right away. Unemployment is above 10%. The coronavirus pandemic is devastating broad swaths of commerce.

But once the crisis recedes,...

The U.S. employment report highlights a week of data that will offer some of the first indications of economic activity in August.

Monday

China releases its official purchasing-managers index for manufacturing. Economists expect activity to expand at a slightly faster pace in August than in July, underscoring the durability of China’s recovery.

Good day. Now that the Federal Reserve has changed its policy framework to seek periods of higher inflation, it will be interesting to see how it achieves that. One concern is that the central bank may have fewer tools at its disposal. Meanwhile, Cleveland Fed leader Loretta Mester and Philadelphia Fed leader Patrick Harker cautioned of a slow economic recovery.  Mr. Harker also said the Fed would let inflation run above its 2% target for periods, aiming for a 2% average over time, as part of a bid to ensure price pressures don’t weaken too much. He noted “it’s really about the velocity of the inflation, not just the overall level.”

 Now on to today’s news and analysis.