No Change from FOMC; Fed Calls for More Govt Spending

Vito J. Racanelli

Though nothing new was expected from the Federal Open Market Committee’s two-day regular meeting last week, you can bet investors had at least one ear tuned to it—just in case. In the event, not much happened, and it couldn’t have gone more smoothly if it had been scripted. Wait, it was in a way. No policy news emerged from the FOMC meeting, and that was the way stock markets liked it.

Federal Reserve Chairman Jerome Powell reiterated his view Wednesday that the U.S. economy faces a long road to recovery. He also reiterated the FED would maintain “aggressive” measures to support the economy. While that seems redundant, you can bet markets would have fallen if not for the repeated guidance.

That’s doubly true, given the awful US second quarter GDP news. The Commerce Department said U.S. gross domestic product fell at a seasonally and inflation adjusted 32.9% annual rate in the second quarter, or 9.5% compared with the prior quarter. The figures were the steepest declines in more than 70 years of record-keeping. I doubt people alive today ever imagined that they would experience such a contraction.

And the Labor Department’s workers applying for initial unemployment benefits rose for the second straight week—by 12,000 to 1.43 million in the week ended July 25—after nearly four months of decreases following a late-March peak. The number of people receiving unemployment benefits increased by 867,000 to 17 million in the week ended July 18, ending a downward trend that started in mid-May.

As we’ve noted in these pages, the US economy has slowed a bit in June-July, after the second wave of increased infection cases in states like California, Florida and Texas, among others, which lead to renewed state shutdowns of various degrees. Though employment did rebound in May and June, the latest data isn’t so good.

Mr. Powell said various data sources the Fed monitors suggested hiring and consumer spending had slowed recently. Powell reiterated—yes, he was doing a lot of reiterating—an oft mentioned suggestion that the pandemic will require more spending from Congress and the White House. Of course, more spending. Why not? Those who will pay the bill are so young now. What do they know about the future?

Leaders of both parties began deliberations this week on a new round of stimulus. For more on this see page 10.

The yield on the benchmark 10-year U.S. Treasury is 0.53% down from 0.58% last week.

Again, the next FOMC meeting: Sept. 15-16. Will things stay quiet until then?

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Vito J. Racanelli
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