Stocks mixed after Fed speech

Stocks mixed after Fed speech 150 150 Realm

Fed Chairman Jerome Powell announced a major change in policy that allows inflation to run above the 2% target level to support the economy. This suggests that rates are likely to remain low.

 

Global Macro

  • Fed Chair Powell announced a robust updating of the Fed’s monetary policy framework during his virtual speech at the Jackson Hole Symposium on August 27th 2020. The Fed’s new approach could be viewed as a flexible form of average inflation targeting, allowing inflation to run moderately above or below the Fed’s 2% target for some time. This means that interest rates could be left lower for a longer period despite a rise in inflation. Regarding employment, the revised statement reflects the Fed’s view that a robust job market can be sustained without causing an outbreak of inflation and the maximum level of employment is a broad-based and inclusive goal. The Federal Reserve has left the target range for its federal funds rate unchanged at 0-0.25% on July 29th, 2020 but opened the door for further monetary easing to support the world’s largest economy through the pandemic.
  • The US economy shrank by an annualized 31.7% in the second quarter of 2020, lower than a 32.9% plunge in the advance estimate and compared to market forecasts of a 32.5% fall. Still, it is the biggest contraction ever, pushing the economy into a recession as the coronavirus pandemic forced many businesses including restaurants, cafes, stores and factories to close and people to stay at home, hurting consumer and business spending. Private inventory investment and personal consumption expenditures (PCE) decreased less than previously estimated. In contrast, business investment fell more, mainly due to structures and intellectual property products. The recovery will depend on the capacity of the country to control the pandemic and avoid more waves of infections. Fed officials see the US economy shrinking 6.5% in 2020.
  • Contracts to buy previously owned homes in the US jumped 15.5% over a year earlier in July of 2020, following a downwardly revised 5.3% rise in the previous month. It is the biggest gain since April of 2012 as the housing market is recovering from the coronavirus crisis. On a monthly basis, pending home sales went up 5.9%, beating forecasts of a 3% gain. Each of the four major regions saw gains in both month-over-month and year-over-year pending home sales transactions. “We are witnessing a true V-shaped sales recovery as homebuyers continue their strong return to the housing market,” said Lawrence Yun, NAR’s chief economist.
  • On Thursday: European stocks ended on a negative note, despite staging a fairly good recovery from lower levels during the closing hours after the Federal Reserve Chairman Jerome Powell outlined historic changes to Fed’s monetary policy strategy. Concerns over rising U.S.-China tensions and lingering worries about the impact of the coronavirus pandemic rendered the mood cautious. US stocks fluctuated over the course of the trading session but largely maintained a positive bias. The mixed close by major averages came after Federal Reserve Chair Jerome Powell announced a widely expected shift with regard to the pricestability side of the central bank’s dual mandate. Asian stocks ended mixed as geopolitical concerns returned to the fore and investors waited for Fed Chairman Jerome Powell’s speech at the annual central bankers’ conference later in the day for clues about whether a shift to easier policy is possible in the coming months

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