FOMC Preview

June 10, 2020

Following a flurry of activity during March done on an unscheduled basis and which included two reductions of the federal funds rate by a total of 150 basis points to 0-0.25%, the Federal Open Market Committee held a scheduled policy review in late April at which no fresh initiatives were undertaken.  Since the April 29th FOMC statement, the dollar has weakened 4.4% against the euro but ticked modestly higher relative to the yen. The 10-year Treasury yield has risen 18 basis points, recouping less than a fifth of the drop seen in the previous three months. The Dow Jones Industrials is 9.4% stronger now than then but weakened yesterday and so far today. The price of WTI oil has more than doubled but remains over 40% below its 52-week high.

Aside from the aforementioned interest rate target reduction, a number of unconventional stimulatory measures were done in March including the removal of any quantitative or time of duration limit on asset purchases to support the economy and promote smooth market functioning.

Today’s big FOMC suspense concerns the release of updated macroeconomic forecasts of individual members and their expectations regarding the likely path of the interest rate target. This is normally done on a quarterly basis, but the scheduled meeting in March was cancelled and, in any case, pandemic-related uncertainty was too high then to have produced informed guidance. Today’s forecasts will thus be the first ones since December and thus before any notion of the coming pandemic and activity shutdown. The forecast last December envisaged growth of 2.0% in 2020, 1.9% in 2021, and 1.8% in 2022. Officials anticipated the PCE price deflator going up 1.9% this year and hovering at the 2.0% target in both 2021 and 2022. After holding steady in 2020, the federal funds target was considered likely to rise to 1.6-2.6% in 2022. A great deal has changed since then, but one constant that still permeates spoken comments by policymakers is a broad predisposition against taking their interest rate target into negative territory. That’s a goal that President Trump would like to see but which to the FOMC presents more risk than opportunity especially since there is a whole array of safer tools to stimulate growth.

Another area to watch at Chairman Powell’s press conference will be his reaction to any questions about fiscal policy. These are usually ducked, but the economy is now at a stage where fiscal policy stimulus is needed more urgently than any augmentation of monetary support.

EUR/$ $/JPY 10Y, % DJIA Oil, $
06/30/04 1.2173 109.44 4.63 10396 37.95
06/30/05 1.2090 110.89 3.96 10370 57.00
06/29/06 1.2527 116.07 5.20 11077 73.41
06/28/07 1.3452 123.17 5.10 13456 69.82
08/07/07 1.3749 118.55 4.73 13510 72.27
09/18/07 1.3888 115.75 4.51 13475 81.42
10/31/07 1.4458 115.28 4.42 13873 93.59
12/11/07 1.4682 111.49 4.11 13645 89.78
01/30/08 1.4792 107.31 3.70 12454 91.70
03/18/08 1.5786 98.73 3.41 12257 107.53
04/30/08 1.5562 104.58 3.83 12953 111.54
06/25/08 1.5568 108.37 4.18 11837 133.62
08/05/08 1.5445 108.42 3.97 11484 119.82
09/16/08 1.4144 105.16 3.36 10936 91.18
10/08/08 1.3625 99.87 3.50 9447 87.02
10/29/08 1.2933 97.15 3.81 9145 67.38
12/16/08 1.3790 90.14 2.52 8687 44.14
01/28/09 1.3253 90.01 2.61 8356 42.92
03/18/09 1.3115 98.13 2.94 7340 47.73
04/29/09 1.3331 97.06 3.02 8194 51.05
06/24/09 1.3984 95.43 3.59 8373 68.76
08/12/09 1.4221 96.17 3.71 9366 70.64
09/23/09 1.4779 91.50 3.50 9859 69.13
11/04/09 1.4884 90.75 3.51 9896 80.66
12/16/09 1.4542 89.78 3.56 10478 73.14
01/27/10 1.4045 89.49 3.61 10148 73.31
03/16/10 1.3756 90.64 3.67 10645 81.45
04/28/10 1.3157 94.10 3.75 11043 82.57
06/23/10 1.2284 90.12 3.13 10307 76.50
08/10/10 1.3107 85.85 2.81 10605 79.94
09/21/10 1.3132 85.21 2.66 10747 73.05
11/03/10 1.4059 81.35 2.53 11174 84.59
12/14/10 1.3423 83.37 3.38 11497 88.47
01/26/11 1.3658 82.55 3.41 12001 87.36
03/15/11 1.3969 81.04 3.29 11815 98.09
04/27/11 1.4665 82.63 3.36 12612 112.48
06/22/11 1.4392 80.12 2.97 12175 94.87
08/09/11 1.4234 77.09 2.36 10993 81.76
09/21/11 1.3778 76.34 1.93 11377 86.74
11/02/11 1.3724 78.11 2.03 11805 92.77
12/13/11 1.3067 77.92 1.98 12130 100.20
01/25/12 1.3027 77.96 1.97 12670 98.85
03/13/12 1.3096 82.76 2.08 13044 106.34
04/25/12 1.3226 81.37 1.97 13096 104.13
06/20/12 1.2693 79.28 1.66 12837 83.63
08/01/12 1.2300 78.10 1.49 13028 88.98
09/13/12 1.2895 77.43 1.72 13342 97.60
10/24/12 1.2948 79.75 1.77 13115 85.72
12/12/12 1.3082 83.24 1.70 13325 87.13
01/30/13 1.3584 91.16 2.02 13949 97.63
03/20/13 1.2948 95.65 1.94 14497 92.82
05/01/13 1.3195 97.48 1.62 14740 90.47
06/19/13 1.3364 95.76 2.23 15304 98.38
07/31/13 1.3301 97.92 2.67 15565 105.63
09/18/13 1.3363 98.28 2.76 15606 107.01
10/30/13 1.3764 98.18 2.48 15660 97.42
12/18/13 1.3696 103.81 2.89 16198 98.06
01/29/14 1.3651 102.13 2.73 15719 97.23
03/19/14 1.3918 101.75 2.71 16335 99.96
04/30/14 1.3868 102.11 2.66 16553 99.52
06/18/14 1.3584 101.93 2.61 16892 106.12
07/30/14 1.3372 102.84 2.51 16878 101.45
08/17/14 1.2961 107.60 2.57 17151 94.05
10/29/14 1.2677 108.40 2.33 16956 82.51
12/17/14 1.2409 117.58 2.11 17201 57.85
01/28/15 1.1337 117.77 1.78 17457 44.75
03/18/15 1.0637 120.98 2.05 17733 42.49
04/29/15 1.1164 118.67 2.05 18039 59.16
06/17/15 1.1255 124.22 2.39 17862 59.12
07/29/15 1.1073 123.61 2.29 17720 49.17
09/17/15

10/28/15

 1.1334

1.1081

 120.86

120.50

 2.26

2.07

 16778

17687

 47.01

45.83
12/16/15

01/27/16

03/16/16

04/27/16

06/14/16

07/27/16

09/21/16

11/02/16

12/14/16

02/01/17

03/15/17

05/03/17

06/14/17

07/25/17

09/20/17

11/01/17

12/13/17

01/31/18

03/21/18

05/02/18

06/13/18

08/01/18

09/26/18

11/08/18

12/19/18

01/30/19

03/20/19

05/01/19

06/19/19

07/31/19

09/18/19

10/30/19

12/11/19

01/29/20

03/03/20

03/15/20

03/23/20

04/29/20

06/10/20

 1.0956

1.0874

1.1089

1.1339

1.1205

1.0998

1.1160

1.1099

1.0641

1.0741

1.0638

1.0910

1.1149

1.1735

1.2010

1.1631

1.1815

1.2424

1.2271

1.1963

1.1788

1.1668

1.1765

1.1400

1.1420

1.1415

1.1355

1.1244

1.1217

1.1132

1.1066

1.1117

1.1112

1.1002

1.1179

1.1087

1.0697

1.0859

1.1363

 

 121.72

118.48

113.70

111.37

106.15

105.65

100.84

103.33

115.37

113.52

114.48

112.47

111.55

111.17

111.34

113.91

112.58

109.31

106.27

109.91

110.38

111.69

112.94

113.88

112.26

109.55

111.42

111.17

108.36

108.59

108.16

108.89

108.62

109.14

107.21

108.33

111.26

106.73

107.24

 2.29

2.02

1.99

1.89

1.62

1.53

1.70

1.78

2.45

2.49

2.57

2.30

2.13

2.29

2.24

2.35

2.34

2.73

2.89

2.97

2.96

2.99

3.08

3.23

2.81

2.72

2.57

2.48

2.08

2.02

1.75

1.80

1.80

1.61

1.01

1.01

0.81

0.61

0.79

 17583

16002

17217

18013

17675

18461

18151

17989

19915

19890

20885

20920

21375

21711

22376

23405

24585

26259

24839

24095

25309

25310

26543

26195

23881

24841

25727

26624

26452

27210

27048

27067

27877

28833

25917

23185

18592

24667

26978

 35.95

30.85

37.79

44.89

48.29

41.91

43.44

45.18

51.83

53.33

48.43

47.96

44.71

48.75

50.55

54.24

56.60

64.41

65.00

67.57

66.77

67.62

71.68

60.93

47.80

54.51

59.48

63.38

53.65

58.48

58.16

54.60

58.68

53.52

47.18

31.73

23.36

15.30

38.17

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.   

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