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 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.

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.

In the semi annual monetary policy report, the Federal Reserve said that economic activity is still weak, and many enterprises may close down or resume operation on a reduced scale, resulting in temporary layoffs becoming permanent layoffs. Because low wage workers are widely employed in small businesses, which usually have fewer financial resources than large businesses, they may face higher risks.

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

With novel coronavirus pneumonia cases and the geopolitical factors in recent years, stocks have been falling for the past two weeks since the current rally, and trading volume has increased with market divergence. When the economic recovery begins to be materially disturbed, the market is more vulnerable to negative news than in the past when investors almost ignore bad news.

Boris Schlossberg, macro strategist at bkasset management, an asset management firm, said in an interview with CFI that investors remained focused on the potential stimulus plan and Congress appeared hesitant in policy-making compared with the Fed. Although it can be seen that retail sales in the United States rebounded more than expected in May, most of the spending was driven by the stimulus policy. Without new measures to follow up, the current situation will not maintain consumer confidence.

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.

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.

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.