“We have seen some signs in recent weeks that the increase in virus cases and the measures taken to control it are starting to weigh on economic activity,” Fed Chair Jerome Powell said at a virtual news conference on Wednesday, as reported by the WSJ.
Here are the highlights of a Press Release following the Fed’s FOMC Meeting Today.
- Full Range of Tools: 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. - No Change in Fed Funds Rate: The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent.
- Monitoring: The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy.
- Balance Sheet Expansion: To support the flow of credit to households 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.
- Large Scale Repos: The Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate.
- Interest on Reserves: The Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on required and excess reserve balances at 0.10 percent, effective July 30, 2020.
- Do Whatever it Takes: Effective July 30, 2020, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Increase the System Open Market Account holdings of Treasury securities, agency mortgage-backed securities (MBS), and agency commercial mortgage-backed securities (CMBS) at least at the current pace to sustain smooth functioning of markets for these securities, thereby fostering effective transmission of monetary policy to broader financial conditions
Whatever It Takes
ZeroHedge commented Fed Goes “All-In”-er, Promises Low Rates For Longer-er; Extends Swap, Repo Facilities Into 2021.
But realistically, there is nothing shocking or new in today’s announcements. And the announcement itself was boring.
Contrast this effort to the ECB and its bond crisis in 2012.
On July 26, 2012, ECB president Mario Draghi gave a famous speech that rocked the European bond markets.
“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”
Q: So what did Draghi do?
A: Absolutely nothing.
The ECB did not start QE until years later.
However, bond yields on Italian, Portuguese, Greek, and Spanish bonds plunged. A freefall in the price of gold lasted for years.
Italy 10-Year Bond Yield
Chart from Trading Economics.
Although the ECB took no direct actions, Draghi’s speech restored confidence in the ECB.
Doing nothing worked for the ECB. Doing nothing will do nothing for the Fed.
But what else can be done?
How about Japanese Style Price Fixing?
For discussion, please see Japanese Style Price Fixing by the Fed is On the Way.
That did not come up in the official comments but it’s nearly certain to have been discussed.
But when implemented, the Fed will have as much success as the Bank of Japan. In other words, none.
Mish
this is not the time to be looking for, or being concerned, about bubbles. this is not the time to be concerned about the negative effects of any policy. it’s a do or die moment, so this is the time to be doing as much as we can so that we don’t die.
The Fed’s toolbox is, metaphorically speaking, nothing more than a collection of screwdrivers. Sure there are different sizes and different types of heads, but they all essentially do the same thing with the same effect. But at some point the threads on the screw are stripped (i.e. too much debt, collapsing dollar) and at that point, the Fed’s screwdrivers don’t work anymore.
The Fed will keep screwing (us), but their screwdrivers will no longer be effective. I think our economy’s screws are nearly fully stripped.
I understand your point Mish. Remember the date, just in case …
“…increase its holdings of … commercial mortgage-backed securities…” You mean, like, all those securities backed by mortgages that are going into default because businesses have gone broke? Are you going to eat the losses?
“Time for some humility seems appropriate.”
“Get ready for the top in SPX in June next year.”
Perhaps you should pay attn to your own point 1 with a call like that.
2> If past prognostications are any indication, the bottom will be in June next year.
As long as stonks are up, the Fed’s successful. That’s THEIR metric for success.
Call me again when stonk’s down 30%.
Aren’t low rates & yields more important with all the growing debt?
Yeah, but you can’t make insane returns with those unless you leverage up. Not that there’s no leverage in stocks, but had you invested at the bottom of the market in March, you would have been up 30% easy WITHOUT leverage.
They should’ve bought Silver then if that was their goal. -:)
I own some precious metals, but let’s get real here, their return has been pedestrian the last 8 9 years.
Gold last reached this level back in 2011? Silver hasn’t even retraced their previous level of 50 plus?
Stonks give you the illusion of investing for the common good.
I thought you started off talking about what was important to The Fed, not what’s been a good personal investment or not.
All I was really saying was that The Fed and Government would be more interested in rates and yields being low because of all the debt they’ve got to finance than equities rising. However The Republican Party would probably be more interested in stocks rising. Once the election’s over they won’t be so concerned of course, regardless of who wins.
20 years of public exchanges and markets with little consideration of fundamentals is kinda long time. Isn’t it?
Hey, there’s 2 things you can do. 1) Sit back, wonder, worry, and exist. Or 2) Don’t fight the Fed, if they are issuing credit and doing 2.5% re-fi’s, take advantage and live.
I’m not saying to be irresponsible and take out more credit than you can afford, I’m just saying go out and live some life. You only have 1.
They don’t seem worried about the dollar, the weakest link in their strategy.
Wait till China blows up.
A serious question Tony. I think the argument goes that there is so much debt outside the USA that has to be repaid in dollars, they’ll be massive ongoing demand for dollars.
Does not the trillions of additional debt being issued by The Fed within the USA of late, and to come, offset this in any way?
To a degree.
China will match, though.
$US long term? Probably not the place to be … but King Dollar has not retired yet.
‘worried about the dollar,’
Why worry? US $ is the least dirty shirt out there. The othe fiats are WORSE!
It is wanted all over the World.
I’m not so sure. Certainly that seems to be The Fed’s perception, which is perhaps why they’re so blasé about taking actions that would send other currencies plummeting if their CB’s did the same. The other Fiats can’t behave in the same way to the same extent, so although they might appear to be worse, their non-reserve status keeps them in check a bit. Something that seems to be a bit alien to The Fed at the moment.
Whatever you say Mish. Who cares. The trillion dollar question to ask here is what is ahead? When does the house of cards collapse? And what happens when it does?None of your posts are going to help us predict that. And I’m not yet convinced that gold will save us. I am not buying more here at these prices.
And ‘whatever it takes’ was and is not a flop. It worked and works a lot longer than we all thought it would. And the guys in bitcoin and Tesla did a heck of a lot better than us deflation bears. The reckoning will come but so far we were more wrong than right. Time for some humility seems appropriate. Get ready for the top in SPX in June next year.
“Time for some humility seems appropriate.”
“Get ready for the top in SPX in June next year.”
Perhaps you should pay attn to your own point 1 with a call like that.
GOLD & mining shares fluctuate, very much expected.
With Trillions of digital $ on the way, the ‘expectation’ of inflation has gotten the notice of investors. Hence the gold rush!
I don’t OWN them permanently ( definitely NOT physical gold)
I trade the gold ETFs and mining shares ETFs plus option trading long & short!
It works just fine for me.
Gold is Just a TRADE just like OIL!
Hate to say it is different this time but the same people who were calling for the crash were saying the same thing in 2009….rates kept at zero…debt…and the market went on a tear for 10 years…it appears as though as long as the Fed has the markets back there will not be a crash…
We will get back to the decade of 1/1/1 as I had been saying as far back as 2017. 1% growth/1% rates/1% inflation. That will all look good compared to what Covid has done to the economy. Konichiiwa.
“Doing nothing worked for the ECB. Doing nothing will do nothing for the Fed.”
…
A lot of bark … not much bite .
When “investor” sentiment turns … Look Out … Below …
I still don’t think there is a low floor (or a high ceiling). We could be range-bound for a decade and go nowhere interestingly. Only the traders are going to make money imho. Who does that favor ? The Fed acolytes.
You may well be right.
BUT I’m someone who still thinks fundamentals matter in the end.
Nothing this market has done has surprised me (yet) considering policy responses. What did take me by surprise was massive upfront stimulus (fiscal + monetary). I figured on a series of half measures.
Won’t matter as coming tsunami of bad debt will win the day.