Powell Warns Of Long Road To Recovery
Amidst a backdrop of increased expectation that the Federal Reserve might be considering moving into negative territory on rates, Fed chairman Jerome Powell quashed this prospect yesterday. Speaking at the Peterson Institute for International Economics yesterday evening, Powell gave his latest economic outlook and addressed the Fed’s monetary policy approach.
The bottom line of Fed’s Powell was a stark warning that the US economy is in for a long journey in terms of the economy recovering. Powell said: “It will take some time to get back to where we were. There is a sense, growing sense I think, that the recovery may come more slowly than we would like. But it will come, and that may mean that it’s necessary for us to do more.”
However, addressing the prospect of negative rates, Powell was keen to downplay the idea explaining that while the Fed will “use our tools to their fullest until the crisis has passed and the economic recovery is well under way,” negative rates are “not something that we are considering.”
In a clear sign of just how severe the crisis has become, the Fed chairman called on the need for further support from the government saying: “Additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.”
In a particularly worrying statistic issued by Powell, he noted that the fed estimates 40% of households with less than $ 40,000 include someone without work since the COVID-19 crisis began.
Concerns Over Job Losses
The key concern now is how many of these jobs will have disappeared as a result of business closures which could further prolong the economic recovery with people remaining out of work for longer than anticipated.
As its stands, the Fed has cut rates to record lows of just above 0% while moving into unprecedented levels in terms of QE amounts and the setting up of new programmes to support lending and liquidity in the economy. The government for its part, has provided round $ 3 trillion in economic relief. The question now is how much more is it going to take to help support the economy over the coming months and how will the fed and the government act if the US does suffer a second wave of the virus leading to a return to lock-down measures.
S&P500 ( Bearish below 2884.50 )
From a technical viewpoint. The index continues to show signs of an interim top here. Momentum studied flagged bearish divergence on the last three peaks which could prove to be a head and shoulders pattern suggesting a forthcoming reversal lower. If price breaks below the 2765 level the yearly pivot at 2692 will be the next support to watch.
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