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 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 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.