FED - STATUS QUO ON RATES TILL 2023

This was most certainly a non-event and given the circumstances, it was the best thing to do.

The US Fed Reserve kept rates near zero, where they are and plans to keep it there, not increase rates for the next three years, till 2023. The US markets already expected this; actually most analysts were looking at no-change for the next five years.

Keeping its eye on inflation, the Fed said it will sit tight on the rates, “until labor market conditions have reached levels consistent with the committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.”

Very much in tune with what Powell had stated last month, this shows Fed’s long-term policy framework to allow inflation to overshoot the 2% target after periods of under-performance. What no one knows is how long does one wait for inflation to get over 2%; what is that timeline? And how much over 2% does inflation to go before the Fed starts hiking rates?

The Fed said that it was committed to providing more support to an economy that faces an uneven recovery from the pandemic.

The Fed also raised its estimates for 2020 GDP and lowered its forecast for unemployment to 7.6% in light of a rapid rebound in the economy over the summer. That tweak to the outlook comes after stronger economic data during the third quarter.

At this point of time, something coming from the Fed is unlikely. And chances of more stimulus from the US Govt is also slim. There, investors are turning all their attention to the US elections in November and their gamble is now only on the outcome.

The message we get from all across the world, from all central banks is that debt is cheap, get more! But the big question is whether we can engineer a recovery without creating more debt and without growing a massive financial asset bubble?

On the US markets, cloud company, Snowflake made its fantastic debut on the NYSE, surging more than 120%.  The IPO had received a huge response after Warren Buffett’s Berkshire committed $250 million of stock at the IPO price in a concurrent private placement. 

And on our Indian bourses, all eyes will be on the debut of Happiest Minds. It received an overwhelming response, subscribing 151 times with strong response across all three – institutional was subscribed over 77 times, HNIs over 351 times and Retail by 71 times.

Well, the truth is that despite everything that the central banks and Govts across the world do, the bitter truth is that the economy is pinned down by the coronavirus, and cannot achieve full recovery until the health crisis under better control. Unless we keep the virus in check and vaccination does not come in, with people regaining confidence to move around freely, full recovery is a far away ship on the horizon.