WASHINGTON – Much to the relief of US stock market investors, Federal Reserve Bank Chair Jay Powell confirmed Wednesday afternoon that the Fed intends to keep interest rates near zero into the indefinite future. The Fed’s continuing easy money policies should continue to prod at least some inflationary activity later in the year.
Powell’s Fed has tried many tricks in the past to increase inflation to a “normal” pace. But inflation, both in the USA and the rest of the world still can’t seem to overcome a long-time deflationary bias. We’ll see how things work this time around.
CNBC has more on today’s Fed announcements.
“As the central bank concluded its two-day policy meeting Wednesday, it said short-term rates would remain targeted at 0%-0.25%. Officials also changed their economic forecasts to reflect a smaller decline in GDP and a lower unemployment rate in 2020.
“Projections from individual members also indicated that rates could stay anchored near zero through 2023. All but four members indicated they see zero rates through then. This was the first time the committee forecast its outlook for 2023.
“In addition, the committee addressed a new policy regime in which the Fed will allow inflation to run somewhat above the 2% target rate before hiking rates to control inflation.”
FOMC emphasizes looser inflation goal, easy money policies
The Federal Open Market Committee (FOMC) put specific emphasis on its newly liberalized inflation goal. This confirmed information that the central bank had telegraphed earlier this month.
“‘With inflation running persistently below this longer run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,’ the post-meeting statement said.”
The committee added that “it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”
ZeroHedge chimed in Wednesday afternoon with the following headline
“Watch Live: Fed Chair Powell Explains How He Won’t Meddle In The Election”
ZH’s promised video is not yet live as we write today’s column. But the site offers an interesting tease.
“Remember, in August 2019, ex-Fed President Bill Dudley made a “modest proposal” in a Bloomberg op-ed in which he advised Powell to take a political stand against enabling Trump’s trade war, and even go so far as to push the economy into a recession to prevent Trump from getting reelected!”
Facing reality and evading Deep State pressure
Powell clearly isn’t following Dudley’s despicably hyperpartisan Deep State urgings, which is a happy choice in a Washington DC that continues its single-minded drive to defenestrate a legally elected POTUS even though voters will have a chance to endorse or reject President Trump in less than two months.
Powell and Trump clearly don’t see eye-to-eye on any number of fiscal issues. And yet Powell, who disappointed us early on with his apparent tin ear for economic reality, seems to have rapidly learned on the job.
By going way beyond even his two predecessors in trying to prime America’s still rather dry economic pump, he’s risking the economic ranch on his loose-money gamble. And yet the economy, plus a Congress that has flat-out refused to do its job for many years now has forced Powell to at least give Trump credit for seeing what the country needs to get going again. So, without acknowledging the connection, he’s kept the country mostly afloat despite the Democrats’ clear desire to keep the country under house arrest until they devise a way to deny Trump a second term.
Don’t forget the ever-morphing Election 2020 Effect
That’s assuming they don’t clobber him at the ballot box. With or without the tens of thousands of fake votes they’re already creating behind the scene.
Markets have reacted relatively well to today’s reasonably good news and continued easy money policies. Save for the banks. They’ll continue having a tough time fattening profits on the near zero mortgage refinancing consumers are clamoring for. Easy money policies are better for consumers and corporations. Not so much for bankers large and small.
Techs, too, after an early bounce, are trying to get back on the losing track as they attempt to reprice themselves closer to coronavirus reality. So while the S&P 500 is up very slightly an hour before the stock market’s 4 p.m. ET close, and while the Dow is also having a relatively nice day (up nearly a full percentage point), the tech heavy NASDAQ continues to falter roughly 0.25% below flatline.
Oil and oil stocks get a break
Oils finally experienced a bounce today, given that the effects and after-effects of Hurricane Sally are keeping refineries and some storage facilities in Texas and Louisiana offline, putting some pressure back on supplies of oil and gasoline. It’s uncertain how long this might last. But today, this hurricane is making at least investors happy. Gulf Coast residents, particularly those in coastal Mississippi, Alabama and the Florida Panhandle? Not so much.
Not much more to say today. All the swirling election news on top of the Fed’s way-into-the-future easy money policy continues to put a floor under most stock prices. More or less. But the upcoming election, and the likely sedition that will follow any outcome both make for restless nights. This keeps traders and investors our of irrational exuberance territory, at least for now, as stocks are essentially treading water.
– Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with Comically Incorrect.