The Federal Open Market Committee on Wednesday The last meeting took place before the presidential election – and for the first time adopted a new fiscal strategy that would be more tolerant of higher inflation and more committed to promoting full employment.
The American economy is still reeling from the shock of the Covid-19 epidemic, and with less financial support on the horizon, Federal Reserve Chairman Jay Powell and other officials will have to weigh in on what additional support they can provide for recovery.
Here are five things to look for:
A rosary forecast with warnings
Fed officials expect to make a rosary set of economic forecasts for this year than in June.
The unemployment rate has already fallen to .4..4 per cent, below the Fed’s year-end unemployment forecast of j..3 per cent – so the question is how low it is expected to be by December.
Meanwhile, output is expected to fall to less than .5.5 per cent this year, as predicted by US central bankers three months ago.
Improvements in dealing with the outbreak of infection during the summer have shown a better-than-expected performance for the economy. But long-term forecasts could attract more attention, as it will expand by the end of 2023.
Do Fed officials expect U.S. interest rates to remain at zero until then, especially given the shift in their ultra-dual strategy announced last month, which allows them to keep inflation above the 2 percent target before tightening policy? Is? And will their inflation forecast show any overshooting?
The Fed’s view is still that the U.S. Facing a long and challenging recovery recovery and there are big risks on the horizon. The course of the coronavirus in autumn and winter, as it intersects with seasonal flu, is unclear; New financial support for the economy is very much in question; If it yields an uncertain result, the U.S. Elections can be volatile.
Financial alarm sound
Mr Powell – and other Fed officials – have made it clear that they want Congress and the White House to agree on a new relief package to maintain the re-impediment. But given how far the Trump administration on Capitol Hill and the legislators have so far been ignored, how difficult will it be for the Fed chairman to put them in trouble for failing to act?
The Fed is concerned that the lack of a financial agreement will threaten recovery and make its job harder. The US Central Bank does not want to be left alone in pursuing the recovery.
The Fed has also admitted that it lacks the tools to solve all the problems of the economy, as it can only give money, but will not spend to help businesses or households. And the Fed is firmly aware that its policies have done much to protect financial markets from distress, but not so easily to benefit low-income households and the unemployed.
A new guide to a new era
After the Fed made its historic announcement last month that it would tolerate high inflation, investors wondered how such a policy would work in practice. Fed officials in the past and present have since backed the new fiscal structure, but little has been said about what action is being taken, and when.
A potential tool that has attracted the attention of both market participants and FOMC members is a more explicit form of guidance. This would include interest rate adjustments to build the Fed into specific economic metrics, such as unemployment rates or inflation.
There is a line in the FOMC statement to see if the central bank changes its commitment to keep rates close to zero until the latest developments in the economy weaken until it comes to confidence.
The second is whether the Fed will maintain its commitment to assess economic conditions in line with its “maximum employment target and its parallel 2% inflation target”. Some economists have suggested that the Fed may tweak the reference to the average 2% inflation target “over time” – reflecting its new policy framework.
Investors arguing for new guidance this week say credibility is at stake if the Fed does not act quickly to strengthen its monetary shift.
Move on bond-buying
This month, Fed Governor Lyell Brennard said “shifting from stability to housing for monetary policy” will soon become important as economic recovery recovery fits and begins.
Investors expect to eventually implement the US Central Bank’s Bond-B program King program, which currently includes an increase of up to 80bn b of all mature Treasury securities per month. The Fed has made the purchase necessary to ensure the smooth functioning of the financial markets – a trend that has persisted since March, when it took over the world’s largest government debt market.
The question facing the Fed includes the duration of the debt it buys. As the federal government borrows more, the Treasury has turned a large part of its issue into long-term debt with bills maturing in a year or less. Many strategists are now calling for a corresponding move in the Fed’s purchases to ensure the financial situation remains loose.
Finding space for Main Street
The Fed generally made guilty earnings for advancing a range of emergency credit facilities at the onset of the epidemic that stabilized and then surged in financial markets.
But there is one exception. The main street lending program – set up to help the midside business – has attracted a few customers. Critics believe the terms of its financing are too strict. Feeling left out in a struggling sector like commercial real estate.
Mr. Powell may address whether he is willing to cancel the program to make it more attractive, which involves taking more credit risk along with the Treasury.
“We don’t think the Fed will meet the demands of all industry and legislators, but we expect it to continue to find ways to expand and flexible Main Street in the coming weeks to help more companies.” , Capital Alpha’s policy analyst in a recent note.
If the Main Street facility is seen as a flop, Congress could turn the money allocated to it for other purposes – presumably Mr. Powell will want to stop it.
