We were completely vexed with the minutes from the Fed’s last monetary policy meeting (which was held on 28-29 July 2020 and released yesterday at 7pm in the UK), given policymakers thought the US economic rebound would be slower than they previously thought (which would naturally result in more stimulus from the central bank), yet policymakers didn’t give any indication that more stimulus would be provided.
Additionally, although the Fed made it clear that it is not planning to increase interest rates any time soon, policymakers did discuss how they should assess when it would be appropriate to start increasing them!
To top off our frustration, there was no mention of negative interest rates, little interest in yield curve control and no sign as to whether the central bank will replace its 2% inflation goal with an average inflation targeting – thus allowing inflation to temporarily rise above 2% following a period of slower inflation.
This means the Fed’s next monetary policy meeting on 16 September 2020 is now even more important. While consumer related data, such as retail sales, have been strong, this has been helped by Donald Trump’s fiscal stimulus package, which included $600 in extra weekly unemployment benefit. However, this expired at the end of July following the ongoing political stalemate in Washington. Although Donald Trump signed an Executive Order giving $400 in extra weekly benefits, this hasn’t yet been implemented by every state, meaning that many of the unemployed will see a big drop in their benefits this month – and these extra benefit payments have supported the economy as the majority have been spent. As a result, it is highly likely that we will unfortunately see the side-effects of this in disappointing economic data for August.
We weren’t the only ones left disappointed as US equity markets fell following the release of the minutes. Having been up just over 0.5% earlier in the day, the Dow Jones ended the day down 85 points, or 0.31%, while the S&P 500 fell 0.44%.
This weakness has followed through to the UK market this morning, with the FTSE-100 currently down around 80 points, or 1.25%.
Our attention now turns to the ECB minutes and the weekly US jobless claims data.
Investment Management Team