Today's Federal Reserve meeting
Federal Reserve meeting
The Federal Reserve (the US central bank) will release details of its latest two-day meeting this evening. The Fed holds regular meetings where it discusses monetary policy and decides whether to make changes to its interest rates and asset purchases. In normal circumstances, this is little more than fine-tuning the plumbing which sits at the heart of the world’s largest economy. However, the coronavirus pandemic saw the Fed take dramatic action when it used two unscheduled meetings in early March to slash the fed funds interest rate by 150 basis points, while pumping in an additional $700 billion of quantitative easing (QE).
It’s fair to say that we now live in calmer times, at least as far as monetary policy and the coronavirus are concerned. Analysts and commentators expect the central bank to keep its fed funds rate unchanged at, or below, +0.25% with no alterations to its QE programme. But this meeting is important for another reason. The Federal Open Market Committee (FOMC) releases its quarterly Summary of Economic Projections. In this, all Fed members submit their forecasts for interest rates, unemployment, growth, and inflation for the year ahead and beyond. This gives traders their strongest insight into the thinking of members of the central bank.
When we delve into the data behind Smart News, there was one number that stuck out. In the chart below the purple line shows how frequently the subject of ‘equities’ has come up in direct reference to Federal Reserve meetings on social media.
We can see how this pairing of subject and event has risen in terms of social media mentions since the beginning of this year. Why should that be? Well it seems there could be two separate reasons: the first relates to the earlier stages of the pandemic in February and March as equities slumped and there was even talk of the Fed extending its range of asset purchases to include individual stocks, just like the Bank of Japan and the Swiss National Bank.
But now we have a reverse situation with the major US equity indices all within a few percentage points of their respective all-time highs, despite the economic damage caused by the coronavirus and the political response. Add in the unexpectedly strong Non-Farm Payroll numbers announced on Friday and it would seem that the Federal Reserve has no reason or excuse to ease monetary policy further. This hypothesis appears to be supported when we see that there are more than double the number of ‘dovish’ social media mentions attached to this Fed meeting than there are ‘hawkish’. In other words, despite stock market strength and a strong recovery in US unemployment, there’s little speculation that the Fed may reverse its March rate cuts, even partially. The overall takeaway ahead of the meeting? The Fed looks like keeping monetary policy unchanged.
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