Central banks and governments panicked during the first wave of coronavirus in the spring, although this was justified as the global economy entered a rapid recession. Governments and central banks have thrown trillions of dollars into their countries ’economies, helping the economy recover over the summer, but new restrictions and blockades have again hurt developed economies.
The eurozone economy is heading for stagnation, although some economies are holding up well. The U.S. economy is one of them, despite certain weaknesses outlined in recent data. This puts analysts in a dilemma as to what position the Fed would take now. The Reserve Bank of Australia and the Reserve Bank of New Zealand sounded less willing in recent meetings, which was one of the reasons for AUD / USD and NZD / USD growth, apart from the weakness of the USD and the positive mood for new stimulus programs reintroduced by central banks and governments.
The Fed meeting was on Thursday this week, at which traders were glued to screens. The Fed issued its statement, and President Powell made his statement, which did not sound as dramatic and daring as the previous ones, which is a positive change.
Highlights from the FOMC statement of 16 December 2020
- There is no change in the weighted average portfolio maturity
- Prices remained unchanged at 0.00% -0.25%
- Expected interest on excess reserves% in relation to + 0.10%
- He reiterates that he has “committed himself to using his full range of tools to support the US economy”
- It will continue to buy $ 80 billion a month in treasuries and $ 40 billion a month in MBS
- It will continue to buy bonds “until significant further progress is made towards the Committee’s maximum objectives in terms of employment and price stability”.
- Reiterates that “the current public health crisis will continue to have an impact on economic activity, employment and inflation in the near future and poses significant risks to the medium-term economic outlook”.
- The dot display at the end of 2023 remains at zero.
The Fed has set the order here, saying it will shrink after “significant progress”, but will keep the policy “adaptable” until “inflation reaches moderately above 2 percent for a while.” The most important part is that the Fed continued to repeat zero rates until maximum employment and inflation exceeded 2%. The Committee has decided to keep the target range for the federal fund rate at 0 to 1/4 per cent and expects it to be appropriate to keep this target range until labor market conditions reach levels in line with the Committee’s estimates of maximum employment and inflation. at 2 percent and are on track to moderately exceed 2 percent for a while. The knee jerk increased by 15-20 pips in the US dollar and 2-3 bps in the treasury. The rise in US dollars continued somewhat longer to the comments of the less willing, but it did not last long and the decline continued in US dollars. I don’t think the market is bothered by inactivity, but there’s no stronger hint of action early next year either. We’ll have to see what Powell says at the end of the class.
Jerome Powell’s comments
- Spending on household products has recovered, but spending on services remains lower
- Recovery was faster than expected
- Predictions have been stepped up since September
- He won’t lose sight of millions without a job
- The prospects are extremely uncertain and depend on the virus
- It is still difficult to estimate the time and extent of vaccine introduction
- The next few months are likely to prove very challenging
- He sees fewer risks for the negative side in the Fed than in September
- Should progress toward our goals slow down, our policy is designed to respond
- It will take “some time” to return to the level of the economy and employment from the beginning of 2020
- We are a board for using a whole range of tools
- I don’t think the change in negative risks is significant. Few people would disagree with that assessment.
- The new leaderships are strong
- Recruitment will need to be ‘substantially’ closer to full employment
- Bond cuts buy “in a way”
- When we see that progress, we will say so ‘far in advance’ that it is narrowing
- We feel like we’re buying, we’re providing a big boost right now
- Whenever we feel that more purchases will help the economy, we will do so
- A BOC-style turnaround where they reduce purchases but extend maturity, ‘not high on our list’ of options
- The fiscal policy argument is “very, very strong”
- I expect the H2 2021 U.S. economy to be strong
- Some of the housing requirements may be overdue
- Many home builders we met said they had never seen anything like it
- Housing prices are not a problem of financial stability
- Our goal is excessive inflation, but it will take some time to arrive. Would you really change the timeline by changing the composition of an asset purchase?
- The markets found the Fed credible in the new inflation framework, I am pleased with how the markets have moved
- We have the option to buy more bonds and maybe the day will come to use them
- We ‘stay open’ to increase purchases or move to longer maturities, but we think the current stance is appropriate
- We think that today’s guidelines will support us
- Fiscal policy seems to be needed at this time
It is thought to think that the Fed will ever get stuck in action related to heavy numbers. As for inflation, he indicated that the Fed will look at the jump in inflation in 2021.