Sound Bites from FOMC Members on What AIT Could Mean
Sound Bites from FOMC Members on What AIT Could Mean
It was a busy week for Fed Chairman Jerome Powell. On Tuesday he testified in the House Financial Services Committee. On Wednesday he testified before a House panel overseeing the U.S. response to the coronavirus pandemic. On Thursday he appeared before the Senate Banking Committee.
Already having issued powerful forward guidance last week, the Fed Chair once again reiterated that direct fiscal support may be needed as the Fed has limited powers. For evidence of the Fed’s limited tools, look to the Main Street Lending program. This program, which aims to support medium sized businesses that has made a meager $2.4 billion of loans out of a potential lending pot of up to $600 billion. Powell mentioned that he could see $10Bn to $30Bn of loans through the facility by year end.
The seemingly endless quest for more details on what the Fed’s new average inflation targeting regime will actually look like in practice continues. And this week some FOMC participants provided some sound bites, on what inflation “moderately” in excess of 2 percent could mean.
Minneapolis Fed President Neel Kashkari wrote last week that he thinks not raising rates for roughly one year after core inflation first crosses 2 percent is consistent with the strategy of aiming for a modest overshoot. Chicago Fed President Evans stated that “2.5% inflation for some period of time is likely in the cards if we’re doing our jobs right”.
Abstracting from the semantics, keeping inflation expectations anchored at 2% is the goal. And so far, forward guidance, albeit with some mixed signals sent by regional Fed Presidents, appears to be working. Should this no longer be the case, look for yield curve control (i.e. explicitly targeting interest rates across the treasury term structure) or increased asset purchases.
The number of applications for unemployment benefits held steady in September at just under 900 thousand per week, about 300,000 above their highest level during the 2008-2009 financial crisis.
The Fed’s purchases of Treasury and mortgage backed securities will continue at at least the current pace of $80B worth of treasury and $40B of mortgage backed securities per month.
The yield on the benchmark 10-year U.S. Treasury is 0.65% down from 0.70% last week.
Next FOMC meeting is Nov. 4-5. No action expected.
