Washington (AFP) – The Federal Reserve meets next week amid mixed signals about the health of the US economy, with some sectors recovering from the coronavirus recession and others struggling.
Retail and new home sales were among those showing growth in the past two months, but the Labor Department said last week that new claims for unemployment benefits had increased week after week after months of declines.
Analysts say mixed indicators will not be enough to get the Federal Open Market Committee (FOMC) to change course, particularly not after it cut the benchmark credit rate to 0-0.25 percent in March when the pandemic hit.
“We don’t expect much from this particular meeting,” said Jonathan Millar, deputy chief economist for the United States at Barclays Investment Bank.
The two-day meeting that begins Tuesday comes as coronavirus cases rise again, particularly in the southern and western United States, raising fears that the world’s largest economy is poised for a protracted recession.
The Fed has offered trillions of dollars of liquidity to keep markets moving amid rising unemployment and sharp declines in activity, while warning in its “beige book” survey released earlier this month of a prospect “highly uncertain”.
– Ready to help –
Central bankers will meet by conference call as lawmakers in Washington negotiate whether or not to extend parts of the $ 2.2 trillion CARES bailout package approved in March to mitigate the pandemic recession.
Democrats and Republicans took advantage of the latest Labor Department report on weekly unemployment claims as they negotiated aid.
Democrats noted the surge in new claims as proof of aid is needed for the unemployed, while Republicans said the decline in the four-week moving average of claims and the insured unemployment rate was evidence that the people are going back to work.
Fed officials have repeatedly called for more fiscal support to get the country out of the recession.
Mickey Levy of Berenberg Capital Markets said Fed Chairman Jerome Powell is likely to remain lazy on any comment on the health of the economy at his post-FOMC meeting press conference.
“He would respond by saying that the Fed is aware of the recent increase in the spread of the pandemic and how high-frequency data suggests that it is adversely affecting economic activity, and that the Fed is prepared if necessary to provide further support to the economy”. Levy said.
– Nothing political –
Although inflation rose 0.6 percent in June as gas prices rose, there is little expectation that it will accelerate as COVID-19 continues to hamper demand, even with low interest rates and abundant liquidity.
Oxford Economics predicted that the Fed could in fact link its interest rate movement to inflation.
“We believe the Fed is leaning to assert that it will not raise interest rates to the effective lower limit until inflation is sustainably equal to or above the 2 percent target,” they said.
“We now forecast that the rate hike will not take place until mid-2024, as inflation struggles to hit 2 percent on a sustained basis and the unemployment rate is declining in the overall economy.”
In an interview with The Washington Post earlier this month, Dallas Federal Reserve Chairman Robert Kaplan echoed a call by public health officials for people to wear masks to prevent transmission of the coronavirus.
However, despite more and more companies demanding coverage, some Americans have rejected it as a violation of personal freedom, which means Powell is unlikely to be involved in the matter, Millar said.
“I would be surprised to see them come and make a political statement,” he said.
