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FED Keeps rates unchanged

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.”

FED funds rate over the past 5 years

FED's decision gets mixed reactions in market

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.

NASDAQ (Blue) against the Dollar index (orange) returns

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?

US Federal Reserve Unveils Drastic New Strategy

Yesterday, the US Federal Reserve announced extensive new measures in order to help the US economy. This included a new asset purchase program, which included the purchasing of corporate bonds for the first time since the 2008 financial crisis.

These announcements were able to stop most of the day’s losses, but the US stock indices still managed to finish the day in the red, with the Dow Jones Industrial Average closing at a 3% loss, and the NASDAQ and S&P 500 also in the negatives.

Essentially, the US Federal Reserve has expressed that they are ready to spend an unlimited amount of money on bond purchases in order to try keep the economy afloat. This includes printing new money as needed.

In their press release, the Fed highlighted that their biggest priorities were to stop the loss of jobs in both the private as well as public sector, as well as to ensure a swift recovery to the economy once the virus pandemic settles.

This level and scale of intervention is something that has not been seen from the Federal Reserve since the 2008 recession. However, despite this massive amount of support, the US economy seems to be showing no signs of recovery for the time being.

The deciding factor now is next month’s NFP, or non-farm payroll data. This will measure how many jobs have been lost due to the impact of the coronavirus, and just how much trouble the US economy is really in.

While stock indices have fallen into the pattern of having a day of recovery after a big loss, they still inevitably continue to push lower and lower, with the Dow currently still trading below 20,000 points.

Large parts of the US are now under lockdown, with the citizens of California, New York, and other states all under similarly heavy lockdowns and being urged to stay at home.

Despite these drastic measures, there have also been concerns that the US government is not doing enough to prop up the economy.

For the second day in a row, Senate Democrats have once again moved to stop the coronavirus bill from being passed, citing concerns over how exactly big businesses would use this bailout money. This almost $2 trillion economic stimulus package, which was proposed by the Senate Republicans, is also an attempt to help businesses from losing money and employees from losing their jobs. Part of this plan is a proposed $1,200 check going to all US citizens, with those earning above $99,000 not being eligible to receive it. Democrats also opposed this part of the plan with concerns that it was not enough.

For more information on the movement of the markets during the previous week, as well as how we are moving forward as we start working from home, watch our latest Monday Meetings video here, and follow us on Instagram and Twitter.