Fed Preview: Powell’s masterclass on central bank navigating in period of crisis

Fed Preview: Powell’s masterclass on central bank navigating in period of crisis

Macro
Christopher Dembik

Head of Macroeconomic Research

Summary:  The Federal Reserve is scheduled to announce its latest policy decision today at 6:00 p.m. GMT. We do not expect any major policy changes. Attention will likely shift to the central bank's nine liquidity facilities and the sharp increase in its balance sheet.


Context: Early this week, the Fed has expanded the scope and the duration of the Municipal Liquidity Facility in order to buy debt from counties and states with population of at least 500,000. The central bank will lend up to $500bn through the facility. Since the first week of March, the Fed has reacted fast and strongly to the crisis. It is basically engaged in unlimited QE to make sure the dollar funding market does not freeze. It has lowered the level of interest rate to all-time low between 0-0.25% and announced several credit support programs to help Main Street and Wall Street to cope with the crisis (see our G7 Policy Tracker for further details). As a result of all these measures, the Fed’s balance sheet increased by over $2.3tr in less than two months to reach a total of $6.6tr.

  • Tonight, we expect that Chairman Powell will give a masterclass on central bank navigating in period of crisis. He will explain the why, the what and the how of the latest Fed’s monetary policy tweak. We don’t anticipate any monetary policy change. A rate cut is out of the box – a rate cut while the economy is shutdown would have zero positive impact on aggregate demand. Powell should also rule out negative rates once again, which could be met with strong market disappointment.

     

  • It is unlikely that Powell will provide strong guidance on the path of interest rates or discuss extensively the future of QE or the Fed’s credit support programs, especially the Main Street lending program. It is certainly too early to have details. At best, we believe that Powell could give the market a hint on how the central bank sees the recovery and could allude to a target of unemployment rate as a pre-condition for monetary policy normalization.

     

  • Regarding recent market developments, especially oil prices turning negative, the Fed should downplay risk of outright deflation in the United States and indicates the recent volatility observed in the oil markets is seen as transitory by the committee.

     

  • To sum up, tonight’s press conference is essentially a confidence game during which the Fed will continue to repeat almost every minute its readiness to act as appropriate to offset the current crisis and avoid a market crash, which implies in our view a dovish statement on the Fed ballooning balance sheet.

     

  • You can watch the live press conference from 6:30 p.m. GMT here.

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992