"This is about as dire as the language the Fed uses can get." That was kneejerk reaction from Bespoke's George Pearkes as he reflects on what The Fed promises and worries about going forward.
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Since the weekend when The Fed went "all-in", the dollar is marginally lower, Treasury bond prices are marginally higher, Gold is strong... but stocks are f**king insanely bid...
And during that same exuberant rampage in stocks after The Powell Put was "reportedly" unleashed, earnings expectations have collapsed...
Is this really all that matters now?
Can The Fed not see it has fueled a FOMO-framed multiple-expansion versus complete collapse in consumer's economic confidence...
It would appear so and therefore any hint of a doubt about The Fed's full-throated "all-in", "print-or-die" approach to monetary policy forever will hit markets (stock markets most of all) like a ton of bricks.
But, don't forget The Fed has been tapering its QE-Infinity recently...
As we detailed earlier, WSJ's Fed watchers Jon Hilsenrath and Nick Timiraos started off their expose on how the "Fed Is Changing What It Means to Be a Central Bank" in which the only thing that really mattered was the first paragraph:
The Federal Reserve is redefining central banking. By lending widely to businesses, states and cities in its effort to insulate the U.S. economy from the coronavirus pandemic, it is breaking century-old taboos about who gets money from the central bank in a crisis, on what terms, and what risks it will take about getting that money back.
This is a good description of what the Fed has done in the past month: the breach of virtually every central bank taboo imaginable, crossing lines not even Ben Bernanke dared to cross by openly buying corporate bonds and backstopping virtually all credit instruments, all in the pursuit of stabilizing
markets the US economy and avoiding a full-blown depression, even if it meant institutionalizing moral hazard as the only imperative and ending free and capital markets as we know them, resulting in "markets by decree."
Broadly speaking, markets don't expect big policy decisions at today’s FOMC - After all, with rates at zero and QE already "unlimited" what can the Fed do absent announcing negative rates and starting to buy stocks (it will likely pursue both, but it first needs another market crash.)
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So what did they say...
Pretty obvious and expected: Fed says it will do all it can to help economy still facing considerable risk
The Federal Reserve on Wednesday committed itself to use its full range of tools to help the economy facing considerable risk from the coronavirus pandemic.
"The ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near term, and poses considerable risks to the economic outlook over the medium term," the Fed said in a statement after two-day meeting.
The Fed kept its benchmark rate close to zero and repeated it would hold policy steady until the economy has weathered recent events and "is on track" to achieve full employment and price stability.
"In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. "
That is unchanged from the March's broad-based forward guidance.
In a novel twist, the Fed went so far as single out oil prices as a reason for low CPI:
Weaker demand and significantly lower oil prices are holding down consumer price inflation
This should be sufficient to answer any questions if the Fed plans on hiking rates in the medium or long-term.
Also notable, in addition to inflation the Fed will now be monitoring incoming health data:
"The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy"
Finally, we note that The Fed offers no guidance on future QE (which we noted above is tapering rapidly), and surprised many Fed-watchers with a lack of actual quantitative forward guidance on asset purchases, timing, rates, inflation, or bubble size, suffice to say that it will be "in amounts needed to support smooth market functioning." Of course, the irony here is that it is the Fed's interventions in the first place that made smooth market functioning impossible.
To support the flow of credit to households and businesses, the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions
In the past statement the Fed was explicit, indicating it would buy "at least" $500BN in TSYs and at least $200BN in MBS, instead it merely said it would purchase in amounts needed to support smooth market functioning, which has been seen as another pledge for unlimited QE. This disappointed some, such as Neil Dutta, head of economics at Renaissance Macro Research in New York, was quick to criticize the Fed’s existing forward guidance, calling it confusing:
"The economy will weather recent events much sooner than it will be on track to achieve the Fed’s dual mandate goals. In the meetings ahead, the Fed should make it more obvious that it is keeping rates at zero long after the crisis has been put behind us."
There was also no mention of Yield Curve Control, although that will surely be brought up during the press conference.
Oh, and as we cautioned shortly before the FOMC, the Fed indeed punted on IOER, keeping it unchanged at 0.10%. Here is Ian Lyngen's take:
“The Fed announcement included a stable IOER level at 0.10% - demonstrating little willingness on the part of the Committee to risk any further disruption in the front end of the market. The forward guidance also confirmed a willingness to purchase Treasuries and MBS ‘in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.’ The absence of numeric caps confirms that QE remains of the limitless variety - which allows for inter meeting flexibility.”
Full Statement below:
Quite a cutdown from its 'war and peace' statement in March...