Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Fed Watch: Markets Hoping For Optimism From Fed As Pandemic Grip Continues

Published 2021-01-25, 03:00 a/m
Updated 2020-09-02, 02:05 a/m

Investors will be listening carefully to the tone of remarks coming from the Federal Open Market Committee meeting this week even as they don’t expect any significant changes in monetary policy.

The meeting Jan. 26-27 will be the first in the New Year and the first under a new administration after Joe Biden was sworn in as the 46th president of the U.S. on Jan. 20.

Last week’s meeting of the European Central Bank governing council is probably as accurate a preview of the Fed meeting as anything. The ECB stood pat on monetary policy and the president, Christine Lagarde, noted the obvious – the pandemic still poses serious risks.

Europe is in worse shape than the U.S. in almost every respect with a resurgence of infections, new draconian lockdowns and curfews, and an even more disjointed vaccine rollout among the EU’s 27 members than among the 50 states of the U.S. Inflation in the eurozone is negative and the ECB’s deposit rate remains negative as well.

Fed's Tough Mission: Additional Stimulus Needs Vs. Economic Optimism

The Fed meeting will take place against a backdrop of potential congressional gridlock as Democrats and Republicans bicker over a new fiscal stimulus package, the impeachment trial of former president Donald Trump, and even how an evenly divided Senate will conduct its business.

Investors want Fed Chairman Jerome Powell to walk the tightrope between acknowledging the need for monetary accommodation as COVID-19 continues to impact the economy and showing some optimism about the economic outlook as vaccines get wider distribution.

Between its emergency actions during the financial crisis and its recent volley of measures to cope with the impact of the pandemic, the Fed may have grown too critically important for its own good. Under a Biden administration pledged to racial equity and combating climate change, the Fed is under pressure to play its part in achieving these targets, historically beyond its mandate.

This not only means keeping money plentiful and cheap, but also becoming more inclusive in its policy outlook and promoting sustainability. Expectations range from greater racial and gender diversity in Fed staff to regulators stress-testing banks on climate-related losses and nudging them toward green investments.

The Senate is expected to confirm Janet Yellen as Treasury secretary this week after the finance committee unanimously approved her nomination. The former Fed chair will know exactly which buttons to push to get the Fed to go along with administration policy.

Always a dove, Yellen made it clear in her confirmation hearings last week that she is not worried right now about government debt and her top priority is aiding individuals and businesses to get through the pandemic. She encouraged lawmakers to “act big” in adopting a new fiscal stimulus package.

Biden has one open seat on the Fed’s board of governors to fill and the expectation is that he will lead the way in diversifying the central bank by naming either a person of color or a woman to that vacancy.

Meanwhile, Fed governor Lael Brainard, the only Democratic appointee currently on the board, made a point of saying that all 12 regional bank chiefs have been approved for another five years after undergoing a “rigorous” review. Who knew that they had to be reapproved every five years? Once again, nobody lost their job from this review, but Brainard—who headed up the process—was at pains to show this is not a rubber stamp.

Four different regional bank presidents are rotating into FOMC voting positions this month and newly confirmed governor Christopher Waller will be voting for the first time, but that is not likely to shift the committee’s consensus.

Powell will have to walk that tightrope between optimism and concern when he meets the press after the two-day FOMC meeting, reassuring investors on Fed policy while holding out hope for a better economy.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.