Small Uptick in Main St. Loans; Policy Review Results Coming
Small Uptick in Main St. Loans; Policy Review Results Coming
It was another quiet week for the Fed. In case you missed it, its Main Street Lending Program, targeting U.S. small and midsize businesses, gained some traction this week with loans held by the Fed increasing to about $230M.
Didn’t we stop caring about numbers this small ages ago? Well, yes and no.
In the grand scheme of things, $230M is a speck on the Fed’s $7TN balance sheet. Nevertheless, the Main Street Program could provide some insight into the health of the economy into the Fall. Fed officials have been diligent in noting that a slow uptake is not a failure. And depending on how the economy recovers in the fall, this program could become a more central policy tool and merits watching.
And oh yeah, remember how Fed was doing a year-long policy framework review? That is about to wrap up sometime over the next few weeks. For those who couldn’t wait to hear the results, Fed Chair Jerome Powell, as he does so well, provided some guidance: “To a large extent, we’re already doing the things that are in there.”
Of all the “things that are in there”, I’d expect the policy framework around inflation to be one of the most important. The Fed has consistently undershot its 2% inflation target for a long time and this review could formalize an average inflation target rather than an informal ceiling. In short, expect the Fed to think twice before raising rates this time around.
The Labor Department reported U.S. CPI jumped 0.6% in July; an uptick of about two times what economists had expected and matching the June increase. Maybe the deflationary forces that the Fed waged an all-out war against are not as strong as we had thought? Should inflation inch above 2%, the Fed may need to put its money where its mouth is and not pump the breaks.
The 10-year Treasury saw some movement this week with yields jumping about 10bps to around 0.71%. Massive stimulus has undoubtedly pumped extra supply on the market. But rest assured, as promised, the Fed continues to do its part on the demand side. It is purchasing $80BN of Treasury securities over the next four weeks. Just like it did the month before. And the month before that. And the month before that. OK, you get it.
While a far cry from March purchases, when the Fed was buying $75BN per day, expect these purchases to provide material support and a potential increase if they prove ineffective.
Next FOMC meeting: Sept. 15-16.
