“the Coronavirus and the measures taken to protect public health, led to a sharp decline in economic activity and a sharp reduction in jobs. Weak demand and a significant decline in oil prices restrain consumer price inflation. Financial conditions have improved, partly reflecting policy measures to support the economy and the flow of credit to households and businesses in the United States,” – said in a statement.
the Ongoing public health crisis will greatly affect economic activity, employment and inflation in the short term, and poses significant risks for the economy in the medium term, says the fed. To support lending to households and businesses in the coming months, the fed will increase the reserves of Treasury securities and Agency residential and commercial securities mortgage-backed to maintain the smooth functioning of the market.
the Committee on open market U.S. Federal reserve leaves key interest rate unchanged for the second consecutive time, if to speak about planned meetings. To the current minimum level, the fed lowered its two unscheduled meetings in March, when the financial markets was panic because of the pandemic of coronavirus.
Over the last few months from the lows of late March, the us stock market rose by 40%. Since then, the fed has twice increased its balance sheet, bought Treasury bonds at 1.8 trillion dollars and poured about 0.5 trillion dollars of liquidity in the repo market, the analyst of “VTB Capital” Neil McKinnon. “The pace of growth of the US money supply (M2) currently exceed 20%, and the budget deficit of the Federal government in the current fiscal year as a percentage of GDP may reach 20%,” he says.
It will increase the Federal debt by 4 trillion dollars, causing it to exceed 100% of GDP (for comparison: the figure of 106% of GDP was recorded in 1946). Before the current recession, the us budget deficit was about 5% of GDP, which is at the moment by historical standards was high level for the final phase of the record cycle times of recovery (which, according to the National Bureau of economic research (NBER), “officially” ended in February), said McKinnon.
While the fed has abandoned the idea of setting negative interest rates – perhaps by analyzing the experience of the Euro area and Japan, whose economy for many years can not get out of the trap of disinflation. “However, the fed has publicly stated that it is considering the possibility of using the control mechanism of the yield curve, that is, setting limits bond yield. However, based on the experience of the Bank of Japan is implementing a similar program, hardly ��ожно can say with certainty that the use of this tool will ensure a positive result,” – says the analyst.
due To the fact that the fed actually exhausted the Arsenal of short term actions and to date has achieved its main objective – to prevent a debt crisis, and now the us regulator has shifted the focus on the long-term financial strategy, the analyst said, “freedom Finance” Valery Yemelyanov.
In particular, the market is very interested in how the US will get out of the liquidity trap, when the growth rates will be possible, but necessary. Debt market in may signaled the intention to return to normal values. The yield on 10-year US government securities now exceeds 0.9 percent, rising much higher than from the bottom, where it stood in March at the peak of sales is 0.5%. The answer to the most important and exciting question of when and how rates will rise rates, was given as follows: up to 2022 inclusive rate will remain near 0%, and longer term (when exactly is unknown what speed, especially) the purpose of the fed is to bring it to 2.5%, indicates the reason.
