The Federal Open Market Committee last met before the committee on Wednesday U.S. Presidential election – and then for the first time adopted a new monetary strategy that would be more tolerant of high inflation and more committed to promoting full employment.
This US economy Covid-19 is still glowing with epidemic shocks, and with little financial support on the horizon, Jay Powell, Federal Reserve The chairman and other officials will have to weigh what additional support they can provide for re-weighing.
Here are five things to look for:
A rosary forecast with warnings
Fed officials expect to make a rosier set of economic projections for June this year than in June.
Unemployment rate has already dropped.4. to per cent, which is below the Fed’s year-end o..3 per cent unemployment forecast – 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 forecast by US central bankers three months ago.
Improvements to deal with the surge in infections during the summer have had 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 their Ultra Dovish strategy shift Announced last month, allowing them to run inflation above the 2 per cent target before tightening policy? 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. No way Corona virus Autumn and winter, it intersects with the seasonal flu, it is obscure; New financial support for the economy is very much in question; If it gives an uncertain result, the U.S. Elections can be volatile.
Financial alarm sound
Mr Powell – and other Fed officials – has made it clear he wants Congress and the White House to agree on a new relief package to maintain the relief success. But given how far the Trump administration and legislators on Capitol Hill 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 worries that this Lack of financial agreement Will threaten the recovery and make his job harder. The US Central Bank does not want to be left alone in pursuing the recovery.
The Fed has also acknowledged that it lacks the tools to solve all the problems of the economy, as it can only provide money, but will not spend to help businesses or households. And the Fed is acutely aware that its policies have done much to protect financial markets from distress, but that low-income households and the unemployed cannot easily benefit.
A new guide to a new era
That was after the Fed made its historic announcement last month 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 will be taken, and when it will be done.
A potential tool that has attracted the attention of both market participants and FOMC members is a more explicit form of guidance. This will include interest rate adjustments to build the Fed into specific economic metrics, such as the unemployment rate or inflation.
There is a line in the FOMC statement to see if the central bank will change its commitment to keep rates close to zero unless it is confident that recent events in the economy are weakening.
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 be important as economic recovery fits and begins.
Investors expect to eventually apply to 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 financial markets – it has been doing so since March, when it took over trading position in the world’s largest government debt market.
The question of 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 has generally envisioned extending a range of emergency credit facilities at the onset of an epidemic that stabilized and then boosted financial markets.
But there is one exception. The main street lending program – set up to help intermediate industries – has attracted few customers. Critics believe the terms of its financing are too strict. Felt left out in conflict areas such as 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.
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