With no clear winner in the U.S. presidential election and hopes for more economic stimulus in limbo, all eyes will be on the Federal Reserve’s policy meeting beginning Wednesday for signs of whether the central bank will step up and do more.
Fed Chair Jerome Powell has been increasingly vocal in his calls for Washington to do more to help support the economy’s recovery from the coronavirus pandemic, but has also said the central bank can deploy more of its monetary arsenal to prevent a worse downturn.
The Fed’s rate-setting Federal Open Market Committee (FOMC) opened its two-day policy meeting hours after US polls closed, but with no clear winner yet in the tight race between President Donald Trump and his Democratic challenger Joe Biden.
Some states showed razor-thin margins in the vote tallies, but should Biden pull off a victory, it appears likely Republicans will retain control of the Senate, calling into question the fate of a new spending package.
And the uncertainty around the election could weigh on the economic recovery, which has been showing signs of losing steam.
The FOMC is not expected to directly address the election in its policy statement on Thursday, but rather will repeat its commitment to keep the benchmark borrowing rate at zero for the foreseeable future.
However, analysts will be watching Powell’s press conference that same day to see if central bank leaders again make their case that the United States needs more stimulus to aid its recovery after Congress failed to reach an agreement on a spending bill before the election.
“Covid doesn’t care about election outcomes, but the Fed worries about the impact Covid has on the economy,” economist Diane Swonk of Grant Thornton told AFP.
“A lapse and lack of fiscal aid at a time when the wounds triggered by Covid could fester means more scarring of the complexion of the US economy.”
– More lending? –
The world’s largest economy showed signs of a solid rebound over the summer after Congress approved a $2.2 trillion stimulus package, but key provisions, including extended unemployment benefits, have expired and recent data have shown job gains and other activity are slowing.
Private employers added 365,000 jobs in October, according to data from payroll services firm ADP released Wednesday, a significant undershoot in hiring.
Meanwhile, the Institute for Supply Management’s services index slipped to 56.6 percent last month, reflecting softening growth in the dominant sector, amid a decline in new orders and hiring.
The Labor Department’s monthly employment report will not be released until Friday, but at least 10 million US workers remain jobless, and new applications for unemployment benefits have remained high in recent weeks.
The Fed has pumped trillions of dollars in liquidity into financial markets and provided lending backstops to ensure corporations have access to funding, as well as rolling out loans for small and medium businesses — although that program has made only 400 loans so far.
Economists say Powell could highlight his pledge to do more to support the economy, steps that could include increasing ongoing purchases of government and private debt, and potentially creating a financing vehicle for state and local governments.
“Despite the light usage of the emergency lending facilities, Fed officials see the facilities as a key backstop to help sustain market functioning and keep financial conditions accommodative,” Kathy Bostjancic of Oxford Economic told AFP.
She said the Fed could extend the programs that are set to expire at the end of this year and also could look for ways to make the loans “more accessible to the businesses.”
Powell may indeed signal the bank’s intention to do more, Swonk said, because “the worry is that the Covid recession could suffer another leg down in the fourth quarter.”