Hawaii Six O – Gary Wagner
Wednesday September 16, 2020 18: 03
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
The most important economic event of the month concluded today. The FOMC meeting concluded today, and the Federal Reserve released a statement along with a press conference from the Fed Chairman Jerome Powell. The clarity in regards to the details of the Fed’s revamped monetary policy that market participants had waited for was answered.
In his opening statement made at the press conference immediately following the conclusion of today’s meeting Chairman Powell said, “Good afternoon, At the Federal Reserve, we are strongly committed to achieving the monetary policy goals that Congress has given us—maximum employment and price stability. Since the beginning of the pandemic, we have taken forceful actions to provide some relief and stability, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy. Today, my colleagues on the Federal Open Market Committee and I made some important changes to our policy statement, including an update to our guidance for the likely path of our policy interest rate.”
The statement released by the Federal Reserve began by saying, “The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.
The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment have picked up in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.”
While the Federal Reserve has gone to great lengths to convey that they are in this for the long run, and will do whatever it takes, it was the release of the September “dot plot” which gave market participants the greatest amount of clarity. As you can see from the chart above voting members of the Federal Reserve unanimously agreed to keep interest rates near zero for the remainder of 2020, and 2021.
It indicated that all voting members with the exception of one voted to keep interest rates where they are during the entirety of 2022. With the exception of four voting members the remaining Federal Reserve members voted to maintain interest rates where they are in 2023. In other words, many members of the Federal Reserve do not anticipate a raise in interest rates until the end of 2023.
In essence the Federal Reserve made it crystal clear that it will keep its revised monetary policy of interest rates near zero and expects this action will continue until two events occur. First that the labor market conditions return to “maximum employment,” and secondly raise rates only after inflation has risen to 2% and “it is on track to moderately exceed 2% for some time.”
The predictions by analysts were spot on. Bloomberg polled 31 economists in which they came to the following conclusion; “The Federal Reserve may hold interest rates near zero for three or more years, and its balance sheet will soar above $10 trillion as policymakers seek to revive the U.S. economy from recession.”
The uncertainty as to what the actual timeline was is no longer uncertain. The Federal Reserve continues its commitment to do whatever it takes to revitalize the economy and move towards maximum employment and it will be a long road to recovery.
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