Federal Reserve officials are unlikely to make any new policy announcements when it releases a statement at 2 p.m. today, according to WSJ. But here’s what to expect from this week’s meeting and Fed Chairman Jerome Powell’s follow-up virtual news conference:
Economic Outlook: Officials remain concerned about two key risks: rising Covid-19 cases and a lack of additional fiscal stimulus. The economy has surprisingly held up (for now) despite rising virus cases, while new pandemic relief measures have stalled.
- Any outcome here heavily depends on the presidential election results, so we’ll have to wait a little longer.
Fiscal Policies: Powell has repeatedly said more federal spending will be needed to help the economy recover. But again, a new relief package hinges on whichever party takes the White House and Senate in the new year.
- Updated economic projections could come in the Fed’s next meeting in mid-December.
Asset Purchases: The absence of policy changes isn’t surprising — the Fed released guidelines in September, “indicating they expect to hold interest rates near zero for a long time.” But officials could rethink their purchases of government assets. The Fed is currently buying $80 billion in Treasurys and $40 billion in mortgage bonds, net of redemptions, each month since June after buying even larger quantities in March once the market chaos began.
- Several officials have pointed to the issue as a “less pressing matter,” given the low level of long-term Treasury yields. But the Fed could choose to target longer-term securities at some point, as they did in the 2012-14 bond-purchase program.
Lending Programs: Other than last week’s changes to the Main Street Lending Program to help reach small and midsize businesses, the Fed has otherwise “indicated comfort with the status of existing lending backstops.”
- A key question for Powell: What’s going to happen to these programs after they expire on Dec. 31?
The Fed has been reaffirming the importance of more fiscal stimulus, something we’ve been focused on since August. It looks like we may have to wait until 2021 actually to see a stimulus bill passed.