The Fed will be revealing its first forecast for the economy and interest rates since late last year, as it skipped a forecast in March just as the pandemic forced the abrupt shutdown of the economy.
The US Central Bank is widely expected to keep rates on-hold, alongside the hip load of stimulus programs, meant to keep the economy afloat throughout the ongoing coronavirus-related crisis.
The statement will possibly strike a more dovish tone than the regular market sentiment. However, we suspect the Fed will give a more nuanced assessment, warning of many potential potholes in the road ahead. More stimulus, not less, remains our expectation for the months ahead.
These are the 3 things investors should watch for today:
1. Fed Will Ensure That There is Still an Opportunity For Further Stimulus:
Against this background, the Fed will probably leave the Fed funds target rate unaltered at 0–0.25% as we speculate the Fed try as much as possible not to offer a lot of new forward guidance. The Fed’s Mainstream Lending Program is, at last, coming on stream and that will strengthen the view that Fed activity will keep on supporting the economy notwithstanding various other loaning facilities that are now operational.
2. Economic Projections:
It’s been six months since the Fed’s last economic projections were released. On Monday, the National Bureau of Economic Research confirmed that the U.S. economy fell into recession in February. Its projections for 2020 growth will be ugly, but investors are prepared for that. Instead, it will be focused on how long before a meaningful recovery. The U.S. economy is on the road to recovery but might take nine to 12 months, or two to three years? The faster the recovery, the better it is for the U.S. dollar.
3. Interest Rate Forecast:
The month of March was filled with so much uncertainty, therefore, it would be harmful to put out the best guess. However, it would be important to see how quickly the Fed sees the unemployment rate dropping. The Fed may look past any interest rate forecasts because the outlook remains uncertain, and longer-term forecasts are likely to change. As of now, the Fed Funds Rate is 0.25.
In conclusion:
Strategists expect Fed Chairman Jerome Powell to seek to soothe markets, but there are some questions pros hope to have answered, like how much Treasury purchases does the Fed plan as the government issues more and more debt. The Fed has thrown an unprecedented amount of stimulus at markets and the economy, and what it says next may impact the direction of rates and other markets.
-Winsala Gbotemi.
- Staff Writer, Eagle Global Markets.
Originally published at https://www.egmanalytics.com on June 10, 2020.
