Fed: Interest rate relief speculations to support stocks

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The Federal Reserve kept its economic relief programs and the fed funds rate unchanged as expected. Dollar and Treasury rates fall, equities rise, erasing the pandemic loss, and this trend is expected to continue while the US economy is unable to show a robust recovery, FXStreet’s analyst Joseph Trevisani briefs.

Key quotes

“The Federal Reserve kept its policy and rate matrix unchanged at the July meeting while Chairman Powell warned that a slowing economy would require support for the foreseeable future.”

“Chairman Powell said that high-frequency data such as credit card purchases, travel, restaurants visits and the like suggested that the  US economy began to slow after virus cases began to accumulate in early June though whether that would continue is uncertain. The FOMC statement and Mr. Powell noted that progress on the economy is closely linked to the control of the virus. ‘A full recovery is unlikely until people believe it is safe to undertake a full range of activity,’ said the Chairman.”

“The Fed is fully engaged in the fight against the economic weakness stemming from the Covid pandemic and though the Chairman did not directly mention expanding its rate impact to the longer end of the yield curve, its commitment to providing as much support as possible leads in that direction.”

“As long as the US economy fails to achieve a robust self-sustaining recovery, whatever the reason, speculation on lower rates will continue to support stocks and bond prices and weaken the dollar.”

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