THE OUTCOME OF THE FED MEETING WAS LARGELY AS EXPECTED

In my view, the outcome of the 2-day FOMC meeting largely met expectations.  The Committee put a floor under its large-scale asset purchases and projected interest rates will remain near zero through at least 2022.

The FOMC remarked “to support the flow of credit to household and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.”

In other words, QE for the foreseeable future and zero interest rates through 2022.

Additionally, the Fed is projecting GDP to decline by 6.5% in 2020 and rising 2021. Regarding unemployment, the FOMC said the rate would fall to 9.3% in the final three months of the year from 13.3% in May.

Equities were whipsawed in a very volatile session, the dollar fell and Treasuries rallied.  Crude also advanced.  Markets interpreted the Chairman’s view negatively, suggesting that the pandemic could inflict longer lasting damage via its pledge to keep interest rates at zero to at least 2022 and maintain the current rate of bond purchases.

What will happen today?

Last night the foreign markets were down.   London was down 2.09%, Paris down 2.23% and Frankfurt down 2.24%.  China was down 0.51%, Japan down 2.82% and Hang Sang down 2.27%.

The Dow should open moderately lower as fears of a second wave of the virus and a cautious outlook form the Fed clouded the hopes for a speedy economic recovery.  The 10-year is up 9/32 to yield 0.70%.

 

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