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The US general elections continue to open ballots in several states and the new corona epidemic threatens the US economy. On Thursday (5), the Federal Reserve (Fed) concluded its decision-making meeting on rates interest rate for November and announced that the interest rate policy will remain unchanged and that the benchmark interest rate corridor will remain unchanged from 0% to 0.25%.
The highlights of the latest Fed interest rate statement and Bauer’s press conference are as follows:
Key Point 1: Bauer called for the key to economic recovery to be “wearing a mask”
The latest FOMC statement mentioned that economic activity and employment continue to recover, but still well below the level of the beginning of the year. This is a slight adjustment to the previous announcement: the September interest rate release mentioned that economic activity and employment “have improved in recent months.”
In the third quarter of this year, the US gross domestic product (GDP) achieved the fastest growth in history, with an annualized growth rate of 33.1%. Of the 22 million jobs lost in March and April, the US economy has regained 11.4 million, but job growth has slowed in recent months and the number is expected to drop to 530,000 in October.
Fed Chairman Bauer mentioned the current economic performance and future prospects of the United States at the press conference. Bauer cautioned that the economic outlook remains extremely uncertain and that the rising rate of new diagnoses from the crown is particularly concerning. The Fed plans to adjust its economic forecasts in December.
Bauer said that the new corona epidemic has not disappeared, announced that the elimination of extreme risks (Tail Risk) is still far away and that ordering the use of masks in public places will help the recovery of the US economy.
Key two: forward-looking guidance with no interest rate changes
The Fed continues to adopt a flexible average inflation targeting system. Additionally, the Fed maintains forward-looking guidance on interest rates. The three main points include: until labor market conditions reach full employment that meets the committee’s assessment; the inflation rate rises to 2%; and the inflation rate is expected to remain moderately above 2% over a period of time.
Three keys: Bauer asked again for more stimulus measures
Ball reiterated: “The economy needs more fiscal and monetary policy support. I think the support provided by the CARES Act is absolutely necessary. If we can at least get at least more financial support, we will have a stronger recovery.”
Ball said that so far, the US government’s fiscal policy has had a major impact, and for some people, direct financial support may be needed. Tax policy can do what we cannot do to compensate for lost revenue.
Key 4: Has the Fed run out of ammunition and food?
The Fed reiterated the use of all tools to support the economy. Bauer mentioned: “Is the Fed’s monetary policy powerless or exhausted? The answer is no. We are firmly committed to using these powerful tools that we have to support the economy in this difficult period, as long as Yes, no one. I should have no doubt about it. “
Key 5: keep the asset purchase plan unchanged
The Fed maintained the current asset purchase rate on Thursday, did not change its monthly purchase plan and did not give a signal of possible changes at the interest rate meeting next month (December 15-16).
The latest statement reiterated that in the coming months at the current rate, US $ 120 billion in US Treasury bonds and real estate mortgage securities (MBS) will be purchased monthly.
Ball said today’s meeting is about the analysis of asset purchases. The Federal Reserve still has ammunition and many measures to support America’s economic recovery. We have never considered reducing asset purchases. If necessary, we can change the duration of the asset purchase. And scale.
Bauer mentioned that no major changes in bond purchases are expected at this time, the current plan is very effective and is providing adequate support to the market.
Approach 6: US elections are not the focus of the FOMC meeting
Ball said that at the Federal Open Market Committee meeting, we discussed the economy, markets, risks, and policy responses; elections often occur, but they are not the central focus.
Wall Street Analysis:
Bankrate.com chief financial analyst Greg McBride said many of the tools they have are already in use or designed to solve problems like financial market failures. At this point, they can’t do anything that is obviously effective.
Bill Merz, senior portfolio strategist and head of fixed income research at Bank of America Wealth Management, said that, as Bauer often reminds investors, the Federal Reserve has the power to lend, not spend.
Karen Shaw Petrou, co-founder of the Federal Financial Analysis Corporation, said that since the outbreak of the epidemic in March, the Federal Reserve has been transformed into a quasi-financial agency of the US government. They decided to take on this huge and unprecedented role in reducing the macroeconomic damage caused by the epidemic.
John LaForge, head of real assets strategy at the Wells Fargo Bank Investment Research Institute, said the Fed’s expectation to provide more monetary support in the coming months is driving demand for gold.
Roberto Perli, a former Fed economist and partner at Cornerstone Macro LLC in Washington, said that as the scale of financial support appears to be getting smaller and less likely, the Fed will have to think more about how to move the economy toward Development in the desired direction.
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