FED keeps rates unchanged at 0.25% and promises to leave rates unchanged through 2022. Furthermore, Chairman Jerome Powell stated that they would “increase treasury purchases at least at the current pace.” This supports Jerome Powell’s supportive tone in helping to recover from what he regards as the “biggest economic shock in the US, and in the world in living memory.”
The USD is mixed on the news, with US Markets generally reacting positively on the news throughout the conference. SP500 was gaining ground with the NASDAQ flirting wit hall time highs. Chairman Jerome Powell reiterates that their tools are “lending powers, not spending powers” and that “once the pandemic has passed, they will put these emergency tools back in the chest.” This is about the $120B monthly asset purchases and the US dollar swaps available to governments across the world. He firmly reiterated that the FED is not “thinking about thinking about raising rates”, confirming the likelihood that low rates is here to stay for the foreseeable future.
Jerome Powell pushed back on criticism on the effects of their purchases inflating asset prices, stating that the “purchases are accommodating financial conditions, which [he] believe is a good thing.” and that “a non-working financial system can amplify an economic shock.”
With low rates and accommodative financial, we may see an extension to the unprecedented rally in the markets, with Banks predicted to have a difficult time in generating profits in this low-interest-rate environment. However, the FED has the livelihood of Americans in check, with employment front and center and inflation “below their 2% objective”, citing “weak demand” in many pockets of the economy.
With the NASDAQ hitting all-time highs, if the FED continues to prop up the equity markets implicitly, is this a sign for you to enter the markets?