The Fed is cautious about the prospect of recovery

category:Finance
 The Fed is cautious about the prospect of recovery


Federal Reserve Chairman Powell repeatedly said last week in a hearing before the financial committees of both houses of Congress that the impact of the epidemic on the economy is medium - and long-term. Powell believes that even if some indicators suggest a moderate rebound in the economy, the current level of output and employment is still far below the level before the new crown pandemic, and there is still a long way to go to regain its footing. To a large extent, uncertainty comes from uncertainty about the route of disease transmission and the effectiveness of measures to curb disease. The economy is unlikely to fully recover until the public is convinced that the disease is under control. He said.

A number of Fed officials subsequent speeches were also similar to Powells. In a speech to the providence chamber of Commerce, Boston Fed chairman Rosen Glenn warned that the US economy is unlikely to recover quickly and still needs more support from the Federal Reserve and Congress. The economic rebound in the second half of the year is expected to be lower than previously expected.

In contrast, rating agencies are still optimistic about the economic outlook of the United States. Moodys released a report on the 19th to maintain the credit rating of AAA in the United States, with a stable outlook. Moodys predicted that the U.S. economy would recover in time after the unprecedented challenge of the new crown pandemic. While fiscal strength continues to weaken, economic strength, governance strength, and very low credit related shock exposure will continue to support the US rating. According to the report.

In an interview with first financial reporter, Bob Schwartz, an economist at Oxford Institute of economics, said that as the economy was unsealed, part of the pent up demand was released in retaliation, which could explain the positive boost to recovery expectations from retail data in May. At least in most data trends, the impact of the epidemic on economic activity in the second quarter was better than expected.

However, the possibility of V-shaped recovery is still in doubt. Schwartz believes that the U.S. economy will rebound in the second half of the year, but it should not be expected to be too high. From the perspective of the economic cycle of the United States after the war, the first stage of economic recovery is often very fast, but it is difficult to avoid falling back again. The economy needs to find new momentum. From the perspective of the living environment and the employment environment behind American enterprises, this hidden danger cannot be ignored.

In order to support companies to survive, the Federal Reserve last week updated its secondary market corporate credit facility (smccf), which will start buying a wide and diversified portfolio of corporate bonds, including individual corporate bonds, to support market liquidity and the credit availability of large employers. Since March, the Fed has shifted its focus from liquidity to credit guarantees, as the top priority is to prevent a wave of personal and corporate bankruptcies from creating greater economic loopholes.

Schwartz told the first financial reporter that the tug of war between the economic recovery and the increased worries about the epidemic will continue. It is a positive signal for the capital market that the Federal Reserve purchases ETF of corporate bonds, but it also proves that the current economic recovery is still in the initial stage, and more fiscal and monetary stimulus measures are needed to support the just started recovery.

Where is the new driving force to boost the market

At present, the trump government is promoting a nearly $1 trillion infrastructure proposal for the construction of traditional infrastructure such as roads and bridges, while also reserving funds for 5g wireless infrastructure and rural broadband. In this regard, schrosberg believes that infrastructure investment is a factor to boost the economy, and now it is more important to see whether the $600 extra unemployment benefit subsidy due at the end of July can be extended, because the recovery of the employment market is still slow.

The first financial reporter noted that as of last week, the number of initial claims for unemployment benefits in the United States has exceeded 1 million for 13 consecutive weeks, and the growth rate is falling. Meanwhile, the number of new claims for unemployment benefits has been maintained at a high level of more than 20 million for four consecutive weeks. Steven blitz, chief U.S. economist at tslombard, believes that the U.S. economy is losing workers and jobs, in addition to the initial impact of business failures. Many industries have been hurt and have begun to shrink.

The new outbreak poses a threat to the labor market, which may also turn the Federal Reserves concern about the risk of permanent layoffs into reality. Nearly half of the states in the United States, including California, have seen an increase in new infections and hospitalizations since they reopened. Apple Corp announced on 19 novel coronavirus pneumonia, which is expected to surge again, will close some stores in Florida, North Carolina and Arizona, triggering a short-term stock index panic.

Concerns about recovery have already weighed on the formation of some hot targets, with recent significant adjustments in sectors benefiting from economic restart, including airlines, cruise lines and hotels. American Airlines and Delta Airlines have been in the dark for two weeks, and carnivals, Norwegian Cruise Lines and MGM resorts, which belong to the tourism and leisure sector, are also underperforming.

Mr schrosberg told first financial reporters that the overall mood in the market has not deteriorated and that bulls are still buying on the cheap as investors look forward to economic recovery and stimulus policies. But the increase in volatility is a sign that risk appetite has been curbed, suggesting that the market may be under pressure to pull back from high levels. Research on vaccines may be a big point, which schrosberg believes will be the most effective way to dispel market concerns about economic recovery. U.S. President trump reiterated on the 17th that he would not choose to close the city again and other measures affecting the economy, revealing that the United States is very close to developing a vaccine. According to fudge, director of the National Institute of allergy and infectious diseases, the new crown vaccine may be available by the end of this year or a few months before 2021. In Europe, vaccine research and development are also advancing rapidly. The UK health minister said that the new crown vaccine developed by Oxford University has been produced by AstraZeneca, and the vaccine can be put into use after passing the clinical trials. Source: First Financial Editor: Chen Hequn_ NB12679

Mr schrosberg told first financial reporters that the overall mood in the market has not deteriorated and that bulls are still buying on the cheap as investors look forward to economic recovery and stimulus policies. But the increase in volatility is a sign that risk appetite has been curbed, suggesting that the market may be under pressure to pull back from high levels.