Federal Reserve Chairman Powell CARES Act Testimony: Can he invigorate the risk trade?
|- Opening US economy happened sooner than Fed expected.
- Hiring and spending gains more rapid than bank’s projections.
- The push to reopen the economy harbors its own risks.
- Optimistic testimony could help revive the risk trade.
In testimony prepared for the House Financial Services Committee Federal Reserve Chairman Jerome Powell said the recovery in the US economy has happened faster than the central bank anticipated.
Mr. Powell and Treasury Secretary Steven Mnuchin will speak on Capitol Hill on Tuesday in a quarterly appearance required by the coronavirus relief legislation. His remarks were published on the Fed website on Monday.
“While recent economic data offer some positive signs, we are keeping in mind that more than 20 million Americans have lost their job,” noted Mr. Powell’s statement.
Fed actions
The Fed cut the fed funds upper target rate to 0.25% on March 15 before the first initial claims data almost two weeks later showed the extent of the layoffs that have since risen to almost 50 million.
Fed funds rate
“We expect to maintain interest rates at this level until we are confident that the economy has weathered recent events and is on track to achieve our maximum-employment and price-stability goals.”
The Fed also inaugurated a $2.3 trillion loan program for companies and local governments and a $750 billion bond purchase program among others to backstop the economy through the pandemic.
Congress provided more than $450 billion to the Treasury to defray losses in the Fed’s emergency lending program.
“Output and employment remain far below their pre-pandemic levels. The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus,” said the Fed Chairman in his written remarks.
Markets
The increase in coronavirus cases though not in fatalities in a number of American states has prompted a mild risk-aversion rise in the US dollar. From its post-pandemic panic low in the second week of June the dollar has gained in all major pairs.
If Mr. Powell can be more optimistic than he was two weeks ago in his Semiannual Monetary Report to Congress on June 16 and 17 currency traders may be able to clip the same risk discount coupon at use in the stock market.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.