Skip to main content

News | Business | Economy | Banking: Fed to Stay on Sidelines Amid Election Drama: Decision Day Guide


Catarina Saraiva

Federal Reserve Close To Making Its New Inflation Strategy Official

Photographer: Erin Scott/Bloomberg

The Federal Reserve is likely to hold off from any major policy changes with the U.S. election still in the balance, even as pressure to act mounts amid diminishing prospects for aggressive fiscal stimulus.

With no shift expected, officials could still open the door to adjusting their asset purchase program in either the statement issued by the Federal Open Market Committee at 2 p.m. Washington time, or during Chair Jerome Powell’s press conference 30 minutes later.

“If I were Chair Powell and I was on the Fed, I would want to lay as low as I possibly could. I would not want to be making any sort of news that could be injected into the political fray,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. “They can certainly do whatever they want or need to do with regard to forward guidance on asset purchases in December, if they’re so inclined.”

While Joe Biden has a clearer path to the White House than Donald Trump, the race is still too close to call while Republicans look set to retain control of the Senate. Treasuries rallied on the prospect that this would limit the scope for another round of massive fiscal aid.

Here’s what to watch for:

Balance Sheet

If Powell and his colleagues want to do more to support the recovery, their bond buying is the obvious place to look because they’ve already signaled interest rates will be held near zero at least through 2023.

The Fed’s balance sheet also remains the biggest element of its emergency stimulus measures that is still somewhat open ended. Policy makers said following the last meeting that they would maintain asset purchases, at $80 billion in Treasuries and $40 billion in mortgage-backed securities per month, “at least at the current pace.”

The Fed's assets exceeded $7 trillion in May and keep rising

They so far haven’t pegged purchases to a specific end date, attached it to particular economic benchmarks or moved to target later-maturity bonds, and almost none of Fed watchers surveyed by Bloomberg last week saw the central bank changing that this week.

With the country still in the throes of the pandemic, this leaves the door open for the Fed to ramp up this aid lever when it feels the economy needs it. This may become a useful, if limited, tool to have as parts of the country grapple with a third wave of the virus.

Forward Guidance

Congress was unable to agree on additional stimulus before Tuesday’s election, with Democrats preferring a much larger amount of aid than Republicans in the Senate would agree to. Senate Majority Leader Mitch McConnell indicated Wednesday that the chamber’s top priority before the end of the year is passing further relief. With Senate control likely to remain in Republican hands, that bill may skew smaller.

Most Fed officials incorporated additional stimulus into their forecasts for 2020, the September meeting minutes showed. If no further fiscal support is passed, the chances of a change to the Fed’s asset purchase program before the end of the year and cuts to the central bank’s economic projections would increase.

Many policy makers have also been vocal about the need for more fiscal stimulus, including Powell, arguing that it would be more effective than monetary policy because many companies need direct grants, not Fed loans.

FOMC Statement

The FOMC may tweak its statement to say that it’s seeing new risks to the economic recovery as the virus picks up again. It might also more strongly emphasize that it’s ready to do more to aid the economy, especially as fiscal stimulus remains elusive.

What the statement and Powell in the press conference following the meeting will be careful to steer clear of, though, is any mention of the election or politics. The Fed will be careful to tread carefully this week as it seeks to maintain an image of independence.

San Francisco President Mary Daly, who isn’t a voting member of the FOMC this year, will vote at this month’s meeting, taking the place of Minneapolis Fed President Neel Kashkari, who will abstain from the meeting following the birth earlier this week of his second child. Daly will be a voting member of the committee next year.

Press Conference

Powell will likely reiterate that the central bank stands ready to do more to help the sputtering U.S. recovery. Central bankers have said for months that the fate of the economy hinges on the path of the virus.

He can also expect questions about the Fed’s emergency lending facilities, most of which expire at the end of this year. The Fed last week expanded its Main Street Lending Program to include smaller loans, bowing to pressure to make the program more accessible to a broader pool of borrowers.

With no more fiscal stimulus imminent, Main Street is one of the only pieces of relief available right now, but has to date only lent out $3.7 billion of a potential $600 billion pot. Central bank leaders have also faced criticism for the Municipal Liquidity Facility, which they argue serves as a backstop to the municipal finance market. The program has only bought two bonds.


Popular posts from this blog

Analysis | The Cybersecurity 202: How the shutdown could make it harder for the government to retain cybersecurity talent

By Joseph Marks 13-17 minutes THE KEY President Trump delivers an address about border security amid a partial government shutdown on Jan. 8. (Carolyn Kaster/AP) The partial government shutdown that's now in its 18th day is putting key cyber policy priorities on hold and leaving vital operations to a bare bones staff. But the far greater long-term danger may be the blow to government cyber defenders' morale, former officials warn. With the prospect of better pay and greater job security in the private sector, more government cyber operators are likely to decamp to industry, those former officials tell me, and the smartest cybersecurity graduates will look to industry rather than government to hone their skills. That’s especially dangerous, they say, considering the government’s struggle to recruit and retain skilled workers amid a nationwide shortage of cybersecurity talent. About 20 percent of staffers are furloughed at the De

Democrats call for investigation into Trump’s iPhone use after a report that China is listening:Analysis | The Daily 202 I The Washington Post. By James Hohmann _________________________________________________________________________________ President Trump and Chinese President Xi Jinping visit the Great Hall of the People in Beijing last November. (Andrew Harnik/AP) With Breanne Deppisch and Joanie Greve THE BIG IDEA: If Democrats win the House in two weeks, it’s a safe bet that one of the oversight hearings they schedule for early next year would focus on President Trump’s use of unsecured cellphones. The matter would not likely be pursued with anywhere near the gusto that congressional Republicans investigated Hillary Clinton’s use of a private email server during her time as secretary of state. Leaders of the minority party have higher priorities . But Democratic lawmakers made clear Thursday morning that they will not ignore a New York Times report that Trump has refused to stop using iPhones in the White House, despite repeated warnings from U.S. intelligence offici

RTTNews: Morning Market Briefing.-Weekly Jobless Claims Edge Down To 444,000. May 13th 2010

Morning Market Briefing Thu May 13 09:01 2010   Commentary May 13, 2010 Stocks Poised For Lackluster Open Amid Mixed Market Sentiment - U.S. Commentary Stocks are on pace for a mixed start to Thursday's session, as a mostly upbeat jobs report continued to relieve the markets while some consternation regarding the European debt crisis remained on traders' minds. The major index futures are little changed, with the Dow futures down by 4 points. Full Article Economic News May 13, 2010 Weekly Jobless Claims Edge Down To 444,000 First-time claims for unemployment benefits showed another modest decrease in the week ended May 8th, according to a report released by the Labor Department on Thursday, although the number of claims exceeded estimates due to an upward revision to the previous week's data. Full Article May 13, 2010 Malaysia's Decade High Growth Triggers Policy Tightening Malaysia's economy grew at the fastest pace in a decade in