Market Event

FOMC Preview: Will the Fed stick or twist?

Ben Weiss, Wednesday, 29 July 2020

Fed stick or twist

The Fed finds itself in a strange predicament. On the one hand, the measures it has implemented previously such as lowering interest rates have worked, there’s no question about that. The threat from the coronavirus to the economy was huge, but the fact that businesses are well on the way to recovering is a reflection of the Fed taking swift and efficient action in dealing with the pandemic. However, with the second wave breaking out across the US and restrictions being tightened, the Fed might once again have to act to prevent an economic downfall. Here’s everything you need to know ahead of Wednesday’s FOMC meeting. 

When is the Fed’s interest rate decision?

The FOMC met this week to ultimately decide on what action to take, if any, regarding the monetary policy in the US. The final decision is to be announced at 19:00 BST on Wednesday 29 July, along with an official statement. What then follows after is the FOMC press conference at 19:30 BST.

Why is this Fed decision significant? 

It’s a strange time in the US at the moment, with certain states reimplementing lockdown restrictions as a second wave of the pandemic seemingly breaks out. Does the Fed now stick with the previous measures they’ve implemented, which were effective, or does it twist and take action to prevent another potential economic crash?  

We’re entering a critical period where the decision it makes could have an immense impact on how well the US economy copes with the pandemic going forward. The decision itself is massively significant, but the forward guidance and any implication in their future intentions will also be very important to hear. For this reason, the FOMC press conference carries even more weight than usual, as we may get some additional information on what could happen over the course of the next few months. 

What is the expected outcome? 

Analysts widely believe that the Fed won’t actually choose to take any action regarding monetary policy this Wednesday. Rather, it’s expected they will bide their time, see how things progress over the coming weeks and act at the next FOMC meeting. 

With rates at rock-bottom lows, there have been talks about these going negative. However, Fed Chair Jerome Powell has previously disrgearded claims that rates could go negative, with it not being an attractive option. As for any stimulus measures being added, again it’s expected that the Fed will wait until the next meeting to make any decisive action. 

What markets might be affected? 

USD, Gold and the Dow could all be volatile during and after the announcement.   

Investors will analyse the language used by Jerome Powell to determine how well the Fed believes the economy is performing, and perhaps more crucially, going to perform going forward. A grim outlook or any indication that the Fed is looking to impose monetary policy action that implies a weakening economy going forward could impact the markets. Gold in particular has seen movement during the pandemic, as it’s seen as a safer asset to own. Similarly, USD could see lowering demand if the US economic outlook looks bleak. The Dow will also likely be in the firing line.

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