After its two-day July meeting, the Federal Open Market Committee (FOMC) acknowledged the economy's improvements from its lowest points but remains concerned about the economy's trajectory and outlook. It emphasized that it will continue to support the economy, and many see the meeting and commentary as a precursor to further action in September. Following the FOMC statement and Chairman Jerome Powell's press conference, stocks, bonds, and gold were all higher.
The Federal Reserve will also maintain its current pace of asset purchases and keep its lending and liquidity programs in place that it created in mid-March. Additionally, the Fed has maintained swap lines to provide foreign central banks with U.S. dollars to prevent any overseas liquidity issues.
In its statement, the committee said that economic activity and employment have improved but remain well-below levels from before the coronavirus. That is resulting in weaker demand which is leading to a weaker inflation outlook. To address this, the Fed instituted a variety of measures to ensure that financial conditions remain accommodative. Rates would remain at these levels until the economy is back on track to achieve its goals of maximum employment and price stability. It also added that its future path and policy is largely contingent on the virus.
The pace of economic improvement hasn't been significant enough for the Fed to remove these emergency measures. And, the economy's biggest threat is high unemployment and deflation due to weak demand. Based on the economy's underwhelming recovery and the Fed's stance, markets are projecting negative rates for later this year.
Powell's Press Conference
At Powell's press conference, he emphasized that everything is dependent on the virus, including the economy and Fed's path. He also stressed the need for more action from Congress and said that history would like kindly upon the CARES Act and PPP program which he said saved many jobs and prevented the economy from falling into a downward spiral.
He also said that efforts to fight the virus are beneficial to growth in the long-term, as no real recovery is possible if the virus' spread continues. The biggest boost to growth and the economy would be to get the virus under control.
However, the most impactful thing he said was, "We're not even thinking about thinking about thinking about raising rates." This follows his infamous statement at the last press conference when he said, "We're not even thinking about raising rates." This sentence in particular caused assets like stocks and gold to leap higher, as it emphasized that rates are going to stay low for a long period. From this. the Fed doesn't anticipate a V-shaped rebound. Instead, the Fed will likely take more aggressive measures at future meetings like instituting "yield curve control" or negative rates to further stimulate the economy.