The Federal Reserve’s monetary policy-making committee will conclude its third scheduled meeting since the pandemic began on Wednesday, amid concerns about the pace of recovery and uncertainty about Washington’s ability to agree on a new fiscal stimulus package.
Here are five things to watch out for when the Federal Open Market Committee makes its statement and the subsequent press conference by US Federal Reserve Chairman Jay Powell.
The virus damaged recovery, but how much?
The Fed has warned that the US recovery depends on the trajectory of the virus, and new Covid-19 influxes across the country have slowed economic recovery over the past two months. Based on high-frequency employment and mobility data, senior Fed officials have expressed concern about the economic downturn this summer.
Mr Powell and the FOMC can say more about whether they believe this is a gradual move towards better economic health, or the reverse change, which could do more damage as a result of permanent business closures and job losses.
Mr. Powell can stress the importance of fighting the virus and helping the economy keep Americans following the instructions of U.S. health officials, especially with regard to wearing masks.
The Fed is preparing to step up its monetary support, but how and when?
The FOMC is not expected to make substantial changes to its political statement. Interest rates are expected to remain close to zero in the near term, and the Fed is likely to reiterate its commitment to use all its means to support the recovery.
However, the US Federal Reserve, especially during Mr Powell’s press conference, may offer more insight into his next steps.
June The minutes of the meeting showed that Fed officials are increasingly in favor of clearer preliminary guidelines for the conduct of policy courses – to strengthen the particularly easy stance of monetary policy.
Possibilities for linking prior inflation or unemployment guidelines. Mr Powell can provide information on the progress of such discussions and whether a best solution is agreed.
In addition to specific policy measures, Priya Misra, TD Securities’ global head of interest rate strategy, said it was important for the Fed to sound “very generous” this week and send a clear message that more political support would be forthcoming.
“The Fed knows the market is meeting expectations,” she said. “They have to provide something for it.”
Can the Fed push Congress toward a fiscal deal?
Mr Powell has subtly but unequivocally pushed the White House and Capitol Hill lawmakers to support fiscal support for the economy during the crisis, and the recent slowdown in recovery has made that help even more important.
The FOMC meeting is taking place at a crucial moment as lawmakers try to agree on a new stimulus package that would include emergency unemployment benefits.
Democrats in the House of Representatives transferred 3 million. USD bill with $ 600 a week in unemployment benefits. The Republican-controlled Senate is considering the possibility of 1 million. USD plan to allocate $ 200 per week for such assistance.
Mr Powell will not want to look openly political. However, given the urgency, it may not be as subtle as it used to be about the risks posed by the cessation of fiscal support, and it may prove that a large package is needed.
Will the Fed adjust its bond purchase terms?
A key pillar of the Fed’s crisis management strategy was the commitment to buy an unlimited amount of public debt.
Due to the biggest market turmoil, the Fed buys $ 75 billion. USD per day for any term in US Treasuries. Gradually reduced the volume of its purchases as soon as market conditions stabilized. Now the central bank is buying 80 billion. USD per month.
Strategists believe the Fed will have to change the way it buys its bonds, shifting most of its purchases to longer-term Treasury bonds. They note that the Treasury has spent more money on funding record aid packages adopted to limit the economic damage caused by the outbreak.
The central bank does not appear to be ready to announce a more structured asset purchase plan with fixed bond purchase amounts. This is only likely when and when the economic outlook becomes clearer.
Nor does it appear that the Federal Reserve will soon begin to control the yield curve as the central bank sets Treasury yield targets and buys and sells as many securities as needed to maintain that level.
Kathy Jones, chief fixed income strategist Charles Schwab, said such a policy is not needed yet as treasury yields remain close to records.
Will the Fed signal changes in its lending opportunities?
On Tuesday, when JPMorgan economist Michael Feroli described it, the Fed moved to avoid its “credit limit” by extending the duration of emergency loan plans from late September to the end of the year.
The move came as no surprise, as Fed officials had indicated they would stick to multi-billion dollar schemes as long as the crisis continued, even if they weren’t widely used. However, he noted how worried the Fed continues about the ongoing economic anxiety and the possible financial market turmoil that will continue in the fall.
The big question about the facilities is not so much how long they will last, but whether they are enough to help the poor, especially medium-sized businesses and troubled states and municipalities. The Fed has faced criticism that the loan criteria are too strict and may need to allow for more generosity, especially if the crisis deepens.