Bloomberg:
The Fed stuck to the script of a cautious outlook with a long, uncertain recovery path ahead. Expectations for any stimulus fireworks were muted heading into the confab, but markets wanted more detail on how much the stimulus pumps can churn. And looking beneath the surface – it’s a lot.
The flag of full employment and price stability was waved vigorously, with the door wide open to doing more.
• “Humble” bankers: Powell remarked that a 128-month expansion did not lead to 2% inflation on a symmetric and sustained basis. Yet he remains committed to spurring price growth, leaving the taps fully turned on
• Bond bulls emboldened: Treasury yields have sunk to recent trading ranges, and with the front-end effectively locked down by the promise of a Fed funds rates on hold through 2022, demand should work its way up the curve on the back of indefinite QE
• Asset bubbles? Meh: So long as financial conditions support the real economy, the Fed will not intervene. The concept that they would, noted Powell, would undermine those they are “legally supposed to be serving”
• Main Street support: The facility has yet to come online given difficulty in creating the complex program. Yet with different conditions than ‘healthy capitalism’, direct support is needed and is in the final stages of launch
• Fiscal front: Developments here have been “large, forceful and quick”. PPP is supporting re-hiring efforts, yet the question is whether it is enough? Powell’s take is that it probably isn’t.
What was more surprising was that few changes were made to the outlook. The longer-term Fed funds rate is still seen around 2.5% with long-run unemployment and nominal growth little changed. This despite warnings of permanent job losses and lasting damage to productive capacity. Perhaps no wonder the goal is stimulus until jobs recover -- which won’t be until at least the end of 2022.
All told, the path of the pandemic will deliver more clarity on the need for stimulus – but with forward guidance signaling there is only room for more, the shake-up in markets may not hold. That looks to be up to the virus now.
The Fed stuck to the script of a cautious outlook with a long, uncertain recovery path ahead. Expectations for any stimulus fireworks were muted heading into the confab, but markets wanted more detail on how much the stimulus pumps can churn. And looking beneath the surface – it’s a lot.
The flag of full employment and price stability was waved vigorously, with the door wide open to doing more.
• “Humble” bankers: Powell remarked that a 128-month expansion did not lead to 2% inflation on a symmetric and sustained basis. Yet he remains committed to spurring price growth, leaving the taps fully turned on
• Bond bulls emboldened: Treasury yields have sunk to recent trading ranges, and with the front-end effectively locked down by the promise of a Fed funds rates on hold through 2022, demand should work its way up the curve on the back of indefinite QE
• Asset bubbles? Meh: So long as financial conditions support the real economy, the Fed will not intervene. The concept that they would, noted Powell, would undermine those they are “legally supposed to be serving”
• Main Street support: The facility has yet to come online given difficulty in creating the complex program. Yet with different conditions than ‘healthy capitalism’, direct support is needed and is in the final stages of launch
• Fiscal front: Developments here have been “large, forceful and quick”. PPP is supporting re-hiring efforts, yet the question is whether it is enough? Powell’s take is that it probably isn’t.
What was more surprising was that few changes were made to the outlook. The longer-term Fed funds rate is still seen around 2.5% with long-run unemployment and nominal growth little changed. This despite warnings of permanent job losses and lasting damage to productive capacity. Perhaps no wonder the goal is stimulus until jobs recover -- which won’t be until at least the end of 2022.
All told, the path of the pandemic will deliver more clarity on the need for stimulus – but with forward guidance signaling there is only room for more, the shake-up in markets may not hold. That looks to be up to the virus now.