National Post (National Edition)
Fed stays in holding pattern with rates, asset purchases
Lack of federal stimulus a concern
U.S. Federal Reserve chair Jerome Powell stressed that the economy needs more fiscal and monetary policy support, and warned that mounting coronavirus infection rates are a risk.
“I think we' ll have a stronger recovery if we can just get at least some more fiscal support,” Powell told reporters Thursday after the Fed kept interest rates near zero and made no change to its pace of asset purchases. “The recent rise in new COVID-19 cases, both here in the United States and abroad, is particularly concerning.”
The Fed earlier kept the federal funds target rate in a range of zero to 0.25 per cent, where it's been since March, and maintained bond purchases at US$120 billion a month. Powell spoke about the outlook for the economy as the results of the U.S. presidential election remained uncertain.
“Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year,” the Federal Open Market Committee said in a statement following its two-day meeting, largely repeating language on the economy they've employed since July.
“The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the FOMC said in language identical to the prior statement in September.
Ten-year Treasury yields were little changed after the statement was released, hovering at about 0.77 per cent. The yield curve, as measured by the gap between 5- and 30-year yields, also held steady at about 121 basis points.
While vote counting continues in closely-contested U.S. states, the two major parties could split control of Washington. Democrat Joe Biden is on the brink of capturing the White House from Donald Trump, and his party will retain the House of Representatives. But control of the Senate may hinge on runoff elections in Georgia.
A split outcome would reduce the chances for a big fiscal stimulus package from
Congress in the new year, even as the COVID-19 pandemic continues to threaten the economy. That may put more pressure on the Fed to ramp up its bond buying, or at least change the composition of its purchases, in an attempt to lower borrowing costs and further boost the recovery.
Powell deflected a question about the election, noting that it “comes up now and again but it is not at all a central focus of the meeting.”
“With fiscal support looking both smaller and less likely, the Fed will have to think harder about what it can do to steer the economy in the desired direction,”
Roberto Perli, a former Fed economist and partner at Cornerstone Macro LLC in Washington, said before the meeting.
Fed officials, however, made no change to monthly purchases on Thursday and gave no signal they might do so when they meet again Dec. 15-16.
Powell sounded a bit more hopeful, noting “There are plenty of people on Capitol Hill who see a need for further fiscal action.”
The economic recovery remains uneven against a backdrop of surging COVID-19 cases, with more than 12 million Americans still out of work. October's employment report, due Friday, is expected to show the jobless rate continuing to edge down to 7.6 per cent, while the pace of new hiring probably cooled for the fourth-consecutive month.
The vote was unanimous. Minneapolis Fed president Neel Kashkari, a voter this year, did not attend the meeting following the birth of a child. San Francisco Fed president Mary Daly voted as an alternate.
Powell's comments came a day before the Labor Department is to release its October report against the backdrop of a razor-thin election vote. The figures are forecast to show payrolls grew by 585,000 in October. That would be the weakest pace since pandemic lockdowns vaporized nearly 21 million jobs in April.
The unemployment rate may have edged down to 7.6 per cent from 7.9 per cent. That would be around half of the April level that was the highest since the Great Depression era — and a better decline than economists expected earlier this year — but still more than double the half-century low in February.
While Americans are getting back to work faster than anticipated, the labour market's internals reveal more worrisome signs such as women leaving the workforce and a surge in long-term unemployment. What's more, greater headwinds may be in store after daily new COVID infections this week soared to around 100,000 for the first time, and with payrolls still more than 10 million shy of their February peak, slower hiring means it could take a year or more to fully recover.
WILL HAVE TO THINK HARDER ABOUT WHAT
IT CAN DO.