Fed Minutes: Upbeat Economic Forecast Based On Stimulus Likely To Not Happen

Fed Minutes: Upbeat Economic Forecast Based On Stimulus Likely To Not Happen

Investing.com  | Oct 08, 2020 03:13

When they made their upbeat economic forecasts last month, Federal Reserve policymakers said they presumed there would be additional fiscal stimulus from Congress—a condition that appears less likely to be met after President Donald Trump broke off talks to find a compromise on a broad stimulus package.

The minutes of the Sept. 15-16 Federal Open Market Committee meeting, published Wednesday said:

“Many participants noted that their economic outlook assumed additional fiscal support and that if future fiscal support was significantly smaller or arrived significantly later than they expected, the pace of the recovery could be slower than anticipated.”

The September projections of the FOMC members had heartened investors. They softened their estimate of this year’s decline in GDP to 3.7% from a 6.5% drop at the June meeting. They also lowered their forecast for unemployment to 7.6% for 2020 from 9.3% at the earlier meeting.

Both of those projections are now in doubt after the ongoing stalemate in talks prompted the president to call a halt to the effort. Democrats led by House Speaker Nancy Pelosi were holding out for $2.2 trillion in further aid, which included federal funds for state and local governments. Republicans, represented by Treasury Secretary Steven Mnuchin, balked at the aid for governments and set a ceiling of $1.6 trillion for the package.

Piecemeal Spending Measures; Outcome-Oriented Guidance

Subsequently, the administration has held out the prospect of piecemeal measures, one-off deals for aid to airlines or another round of checks for individuals, but there seems to be little chance even for those prior to the election.

The five members of the Federal Reserve Board and the 12 regional bank presidents who make up the committee also discussed what kind of forward guidance they should give for the flexible policy on inflation announced in August, which rules out preemptive rate hikes to head off inflation.

Most participants favored an outcome-oriented guidance on when rates might be increased.

FFR Dot Plot Sept. FOMC Meeting

This led to the consensus statement that rates will be held at their current level of near zero until:

"...labor market conditions were judged to be consistent with the committee's assessments of maximum employment and inflation had risen to 2% and was on track to moderately exceed 2% for some time.”

In the event, two of the 10 voting members dissented.

Dallas Fed chief Robert Kaplan wanted more flexibility for the committee in the guidance, while Minneapolis Fed chief Neel Kashkari wanted a firmer commitment on inflation running above 2% on a sustained basis.

The policymakers postponed further discussion of the Fed’s asset purchase program to “future meetings” after agreeing to continue the current monthly rate of $80 billion in Treasury securities and $40 billion in mortgage-backed securities and to add language to the consensus statement that the purchases are “accommodative” and not made just to keep markets functioning.

Investors are looking for clarification on a possible move to longer-term securities from the current mixture of maturities. The minutes hold out the prospect that the Fed will increase its purchases or alter the mix at the two remaining meetings this year, November 4-5 and December 15-16.

However, the November meeting, scheduled unusually for a Wednesday-Thursday because of Election Day on Tuesday, Nov. 3, may take place before the results of the election are known.

A massive increase in mail-in ballots because of the coronavirus pandemic is expected to slow counts in many states and may leave the outcome of an Electoral College vote up in the air. That won’t make the next discussion any easier.


Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (UK) English (India) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
Saving Changes


Download the Investing.com App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.

Investing.com is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.