The Strategist

US Fed notes improvement in the economy, indicates new risks

07/30/2020 - 08:50

The Federal Reserve System (Fed) of the USA, following the results of the July meeting, left the key rate at the level of 0-0.25% per annum. At the same time, the regulator again promised to use “the entire set of support measures” and continue the practice of bond redemption. The Fed also extended the term of emergency lending programs until the end of the year. The regulator separately indicated that the trajectory of economic recovery will depend on the situation with the pandemic.

Following the results of the July meeting, the Open Market Committee of the US Federal Reserve System expectedly refrained from changing the rate. In March, it urgently reduced it to the level of 0-0.25%. Recall that the dot chart with forecasts for the rate, updated in June, does not imply an increase until the end of 2022.

In a July 29 statement, the regulator once again promised to use the full range of measures to maintain employment and price stability, as well as buy back assets in the amounts necessary to maintain the efficient functioning of the market. Even before the announcement of the results of the meeting, the Fed announced its intention to extend the current emergency lending programs until the end of the year - most of them expired at the end of September.

In the statement, the Fed used a more optimistic tone, noting that business activity and employment indicators improved slightly, but remained well below the levels of the beginning of the year. At the same time, weak demand and falling oil prices are putting pressure on inflation, while conditions in financial markets have improved.

The Fed emphasized that the trajectory of recovery will depend on the development of the pandemic. According to the latest forecast from the Fed, the US economy will decline by 6.5% this year. Inflation (excluding energy and food) is expected to rise by 0.8%, and the unemployment forecast for this year has been sharply raised to 9.3%.

Recall that the regulator has already made three decisions on measures to support the economy against the backdrop of the fight against the coronavirus. First, the rate was lowered and additional short-term liquidity was provided, and at the end of March the committee for the first time promised to use "the entire set of measures", removing the restriction on the volume of asset repurchases. In addition, large-scale concessional business lending programs were initiated, their volume was expanded to $ 2.3 trillion.


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