“Fed sees 4.2% growth, and full employment in the New Year“– Paul Ebeling
The Fed said Wednesday that it will keep buying government bonds until the economy makes “substantial” progress. Thus reassuring financial markets and keeping long-term borrowing rates low indefinitely.
The FOMC reiterated after its latest policy meeting that expects keep its short-term benchmark interest rate near Zero through at least Y 2023.
Fed officials painted a bright picture for the New Year.
The improvement reflects the expected impact of new coronavirus vaccines. The FOMC foresees the economy contracting 2.4% this year, less than the 3.7% decline it envisioned in September.
For Y 2021, in anticipation of a rebound, the officials have upgraded their growth forecast from 4% to 4.2%.
By the end of Y 2021, the Fed expects the unemployment rate to fall to 5% (full employment) from the current 6.7%, that lower than the 5.5% rate it had forecast in September.
The Fed’s latest policy statement aligns with weakened short-term outlook and the brighter long-term picture, and complications some policymaking as it assesses how much more stimulus to pursue.
At his news conference Wednesday, Fed Chairman Powell acknowledged the challenge. While the economy and job market should rebound strongly in 2-H of Y 2021, he said, “the issue is the next 4-5 months” should the virus weaken growth.
He noted that the virus induced instant recession has been painful for the most disadvantaged American households.
With its benchmark interest rate near Zero, the Fed has turned to bond purchases, buying $80-B of Treasury securities and $40-B of mortgage-backed bonds a month. Thus lowering rates on mortgages, auto loans and credit cards, with the aim of encouraging more consumer borrowing and spending.
The Trump Fed’s intention is clear, Keep this Economy Growing!
Wednesday, the benchmark US stock market indexes finished at: DJIA -44.77 to 30154.48, NAS Comp +63.13 at 12658.10, S&P 500 +6.55 at 3701.18
Volume: Trade on the NYSE came in at 953-M/shares exchanged.
HeffX-LTN’s overall technical outlook for the major US stock market indexes is Bullish with a Very Bullish bias in here.
- NAS Comp +41.1% YTD
- Russell 2000 +17.0% YTD
- S&P 500 +14.6% YTD
- DJIA +5.7% YTD
Looking Ahead: Investors will receive weekly Initial and Continuing Claims, Housing Starts and Building Permits for November, and the Philadelphia Fed Index for December Thursday.
Have a healthy day, Keep the Faith!