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%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.