Fed keeps federal funds rate unchanged at 0-0.25% as widely expected. The forward guidance is unchanged too. “The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
Full statement below.
Federal Reserve Issues FOMC Statement
The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.
The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. The disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit to U.S. households and businesses.
The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.
The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
To support the flow of credit to households and businesses, the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor market conditions and is prepared to adjust its plans as appropriate.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.
NASDAQ lost -2.6% while 10-yr yield extends up trend
Major US stock indexes, particularly the NASDAQ tumbled sharply overnight, while benchmark treasury yields surged. Investors are still in the process of adjusting to the evolution of a more aggressive Fed in terms of stimulus withdrawal. At the same time, it’s unsure when the no-longer-transitory inflation would start easing down, and Fed’s response to that.
NASDAQ dropped -2.6% to close at 14506.89. The development is not a surprise as price actions from 16212.22 are seen as correcting the up trend from 10822.57 to 16212.22. Deeper fall could be seen. But we’d expect strong support around 14100/14200 to contain downside to bring rebound. The support zone coincides with 14715.11 resistance turned support, 14181.69 structural support, and 38.2% retracement of 10822.57 to 16212.22 at 14153.37. However, sustained break of this level will argue that NASDAQ is already in a larger scale correction.
10-year yield rose 0.093 to close at 1.865. The medium term up trend is back in full force. 2% handle now looks rather approachable. But TNX should start to feel heavy above there. There should be strong resistance from 2.16/18 zone to repel the rally. This is a cluster level of 61.8% projection of 0.398 to 1.765 from 1.343 at 2.187 and 61.8% retracement of 3.248 to 0.398 at 2.159. But then, a strong break there would indicate some substantial underlying development is underway.