Federal Reserve Jerome Powell is testifying at a Senate Banking Committee hearing on the “CARES quarterly report to Congress” on Capitol Hill in Washington, USA, December 1, 2020.
Susan Walsh | Reuters
Federal Reserve Chairman Jerome Powell will try to avoid hawkish noise in any way when he talks Wednesday afternoon about the Fed’s commitment to its discount policies, particularly its bond-buying program.
The Fed is not expected to take any action at their January meeting, and is likely to reaffirm its commitment to low interest rates and other discount policies when it issues. his statement at 2pm ET.
When Powell speaks at 2:30 pm ET, he is also expected to acknowledge that the economy has slowed, consumer spending has weakened and the labor market has plummeted since December meeting.
“Rates are going to say that rates remain low,” said John Briggs, head of global strategy at NatWest Markets. “We need more fiscal [stimulus]. We are not out of the woods with the virus, and levels will stay low for a long time. There is still much progress to be made. ”
The market is based on what Powell says about the purchase of Fed bonds, the subject of much profiteering and something that the Federal Open Market Committee tended to discuss behind closed doors.
Stocks were hitting Wednesday with the Dow down 1%.
The Fed buys $ 80 billion in Treasurys and $ 40 billion in mortgage securities each month. He is expected to grab those purchases when he sees that the economy is strong enough.
CNBC’s Fed survey found that 60% of the 32 Fed watchers surveyed expect policymakers to start making those purchases back in the next 12 months, with the majority starting in November. But bond strategists say the market could take a negative surprise on that, at this point.
“I think I would focus more on the taper speech. If Powell puts that down for sure that’s one thing.
If it’s wishy washy, that’s another one, “said Michael Schumacher, director of rates at Wells Fargo. , including Atlanta Fed President Raphael Bostic, commented on the potential for the Fed to reduce purchases.
But Powell and Vice Chairman Richard Clarida moved to stop the profiteering. Clarida said he expects to see the same pace of buying before the end of the year, and Powell said the Fed will begin discussions about the program long before it starts tapering. Yields have also been raised in anticipation of increased government spending but have come down this week with the idea that the next fiscal stimulus package could be less than suggested.
Rick Rieder, BlackRock CIO’s global revenues revenue, said he sees the economy building more than widely expected, even with the softer pay data. He said views of development are reflected in things like the Philly Fed study and strength in manufacturing, housing and construction.
“I think in the second and third quarters, growth is going to be much higher, and people will start to explain that because the Fed is not going to hold on forever,” he said. I think in June, the Fed will start their discussion on tapering, and I’m not sure they’ll start tapering this year. … I think there’s potential. “
Rieder said the Fed needs to go slow to bring tapering into the market. It also needs to see how to get it and will have the flexibility to reverse course if there is a strong market response that will suddenly raise interest rates.
As of Wednesday, Powell expects President Joe Biden to support a $ 1.9 trillion incentive program.
“Of course they won’t give numbers, but I think they point out a number of things. One is that the system can handle more fiscal policy and that the Fed is willing and able to support it. [through bond buying and interest rates], “he said.” The Fed is now a co-pilot for the crown, and I think they will do what they can to keep the policy well supported by monetary policy. “
The Fed is also expected to reiterate that the course of the economy will be determined by the coronavirus.
Bank of America strategists say little is expected from this week’s Fed meeting but they see a risk of the Fed moving the markets. They don’t expect the Fed to taper buy bonds until the second half of next year, but it could move faster if there is a fiscal stimulus package early this year to help the economy.
“Markets don’t expect much at this meeting, but Fed’s communication risks appear to be unfair: it will be difficult for the Fed to sound more dovish but easy for the Fed to sound more dovish So, markets may be misinterpreting Chairman Powell ‘s talks around the risk of being hawkish, “the Strategies said in a note.