Federal Reserve likely to lay low this week

Cautious approach: The Federal Reserve Board building in Washington, DC. The US central bank’s policy-setting Federal Open Market Committee is expected to stick closely to its last statement and repeat its pledge to do whatever it can to help the economy through the coronavirus-triggered recession. — AFP

WASHINGTON: The Federal Reserve (Fed) was scheduled to release its latest policy statement soon after two days of debate in which policymakers lacked a critical piece of information: who will run the United States for the next four years.

With the final result of Tuesday’s presidential election still uncertain, the US central bank’s policy-setting Federal Open Market Committee is expected to stick closely to its last statement and repeat its pledge to do whatever it can to help the economy through the coronavirus-triggered recession.

Until it’s clear who the next US president will be, “it is the wrong time to be in the public eye, ” said William English, a former head of the Fed’s monetary affairs division and now a professor at the Yale School of Management.

“They mostly don’t want to be a source of any additional uncertainty at this point. So they’d aim for a pretty quiet meeting, ” he said in a recent interview with Reuters.

The Fed’s latest policy statement, due to be released at 2pm EST (1900 GMT), will update the central bank’s view of the economy and likely repeat its prior promise to keep its key overnight interest rate near zero until the US labour market returns to “maximum” employment and inflation is on track to exceed the 2% target “for some time.”

Fed Chair Jerome Powell was scheduled to hold a news conference at 2:30pm EST.

Financial markets, at least, reacted calmly on Wednesday to the unresolved presidential election – relieving the Fed of a possible additional problem. Major US stock indexes rose for a third straight day while US Treasury yields fell. Cornerstone Macro analyst Roberto Perli said the decline in yields provided “no fundamental story to tell” about investor perceptions of election-related risk or the path of the economic recovery.

The policies expected to be embraced by Democratic presidential nominee Joe Biden if he is ultimately declared the winner of Tuesday’s election may be starkly different from those that would be pursued by Republican President Donald Trump in a second term and could reshape the outlook among investors for US fiscal and health policy, and expectations about growth and inflation.

As of yesterday afternoon, votes were still being counted in a number of battleground states, with Biden leading in two critical Midwestern states that could tip the election in his favour.

What may be required of the central bank in coming months hinges on not just the policies the next president pursues, but what is approved by a Congress that is expected to remain divided, with Democrats controlling the House of Representatives and Republicans leading the Senate. In the run-up to the election the two chambers could not agree on further fiscal measures to support the economy as the virus continued to spread.

More than 232,000 people have died in the US from Covid-19, the disease caused by the virus.

The recession stemming from that health crisis has left millions out of work. As of September, it was estimated that the number of people employed was about 12 million below what it would have been if the pre-pandemic pace of job growth had continued from March onward. The US Labor Department is scheduled to release its closely watched monthly employment report for October today, with many analysts suggesting the job growth pace is slowing to a point where it may require years to fully rebound.

Nonfarm payrolls are expected to have grown by 600,000 last month, according to a Reuters poll of economists. — Reuters

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