The Federal Reserve’s fifth meeting in the pandemic economy is not expected to change the bank’s fed funds interest rate or policy and program approach to the economic debacle brought on by the Covid virus. The darkening economic picture in the US is one factor behind the dollar’s fall, Joseph Trevisani, an analyst at FXStreet, reports.
Key quotes
“After the Fed’s extraordinary rate, QE and loan programs in March one common question was what could the bank do if, despite these interventions, the economy continued to fall. As Mr. Powell has noted, recovery depends largely on non-economic factors, on the course of the pandemic. It seems that the answer is yield curve control, which would set a cap or target for one or several specific long term rates, and buy or sell Treasuries to move the market yield to the desired return.”
“The economy appears to be slowing from the combined effect of new restraints and consumer pullbacks, but the Covid outbreaks that have prompted the retreat also seem to be peaking.”
“The dollar’s sharp decline in the last two is directly linked to the potential Covid impact on the nascent recovery in the United States and the possibility that the Fed will move again on rates.”
“In the end, the Fed will probably wait to see where the economy heads before instituting yet another ground-breaking policy and use the time to acquaint the markets with its latest prescription.”
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