Federal Reserve gears up for final meeting ahead of election

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What is happening: Fed officials are meeting for their final meeting before the November election on September 15 and 16. The central bank is expected to make new economic and interest rate projections through 2023. It could also put more meat on the bones of a new strategy, unveiled last month, in which it could let inflation increase to help the economy recover.

Andrew Smith, chief investment strategist at Delos Capital Advisors, believes this is a “seismic shift” in the Fed’s approach to inflation, which the market is not paying enough attention to. “We believe it is important for the Fed to provide clear and substantive guidance on this new approach given the ever-increasing role of monetary policy within the financial system,” he told CNN Business.

The central bank has already supported the economy and, with it, President Donald Trump’s reelection prospects, by lowering interest rates near zero and buying billions of dollars in bonds.

Now, there isn’t much more the Fed can do to help the people who need it most (and who will vote in November).

This could be a problem for Trump, who would love to brag about rising stock markets and falling jobless claims in the final weeks of the campaign.Already, the efficiency of public spending appears to be faltering, as bankruptcies increase and America’s job recovery may be slowing.

See here: Nearly 90% of the 860 small business owners surveyed by Goldman Sachs have exhausted their paycheck protection program funding and plan to lay off more workers in the coming months.

But back to the central bank policy: The Fed released an updated strategy at the end of last month, which is not very detailed, but suggests that it would be comfortable leaving inflation a little above its 2% target in the future, since it has been consistently below this level for some time.

He also changed the way he defines his congressional mandate to promote employment, making it more inclusive and therefore beneficial for low and middle income groups. “Research shows that these groups derive disproportionate gains from very low unemployment rates,” according to the Brookings Institution.

These changes suggest that the central bank is for the first time considering whether monetary policy can be used as a tool to tackle inequality, said Laura Veldkamp, ​​professor of finance at the Graduate School of Business at Columbia University.

This week, we will get a first look at how the changes will play out in practice, including the importance of unequal consideration in monetary policy debates versus traditional factors such as the threat of inflation and economic weakness, Veldkamp said.

Market Observer: While the market does not anticipate any changes in interest rates or any major new fiscal stimulus, investors will still be looking for clues as to how the Fed plans to run the economy.

“In a situation where you know so little, new information is really valuable and you react to it very strongly,” added Veldkamp.

How strong is the recovery from the coronavirus?

It promises to be another important week for the global economy, with a series of data releases that will give some idea of ​​the pace and shape of the recovery.

Market participants are struggling to predict how quickly businesses and consumers will return to normalcy, with signs that rebounds this summer could lose momentum. Coronavirus cases are also on the rise in much of Europe, leading to further restrictions on travel and gatherings in several countries.

Early warning: The Organization for Economic Co-operation and Development warned of a second wave in June, when it released the bleakest forecast among multilateral institutions, forecasting a 6% contraction in global GDP this year. The Paris-based agency will release a new outlook on the global economy on Wednesday.

Demand for oil could provide a glimpse of the recovery. The International Energy Agency will publish its monthly report on the August oil market on Tuesday. Last month, the agency lowered its demand forecast for this year and next, mainly due to weakness in the aviation sector.

Any sign of weakening demand could hit Brent, which this week fell below $ 40 a barrel for the first time since June.

The Bank of England and the Bank of Japan will also be holding policy meetings this week, although economists expect little action this cycle.

A point of interest: It will be the first BoJ meeting since Prime Minister Shinzo Abe announced his resignation at the end of last month.

“With a lot of work to do to get Japan out of the Covid-19-induced recession, it is obviously a difficult time for a change of Prime Minister”, said ING’s Asia-Pacific regional research manager, Robert Carnell. “But we don’t want to think that this will usher in an even easier policy on the part of the Bank of Japan. “

following

Monday: Lennar (LEN) gains

Mardi: American industrial production; Unemployment in the United Kingdom; Adobe and FedEx revenues; Industrial production and retail in China

Wednesday: Federal Reserve meeting; Retail sales in the United States; OECD Intermediate Outlook; Japan trade data

Thursday: Meetings of the Bank of England and the Bank of Japan; Ryanair AGM

Friday: UK Retail Sales

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