Robert R. Fragnito | Chief Operating Officer | Financial Advisor
The Federal Reverse’s Federal Open Market Committee (FOMC), the central bank’s main body for monetary policy, decided to leave the federal funds rate unchanged at 0.00%-0.25% on Wednesday, June 10. The members of the FOMC expect the rate will remain unchanged until 2022.
In addition to its rate decision, the Fed announced it will continue to purchase Treasury, agency mortgage-backed, and commercial mortgage-back securities at its current pace to maintain smooth market functioning. The Fed is targeting $80 billion a month in Treasury purchases and $40 billion in mortgage-backed securities.
Fed Chairman Jerome Powell warned the US economy faces “a long road” to recovery despite positive jobs data. On Friday, June 5 the Labor Department reported employment rose by 2.5 million jobs and the jobless rate declined to 13.3% for the month of May. A stunning and positive development for markets as economists were expecting the number of payrolls to drop by 8.33 million while the unemployment rate was to increase to 19.5%.
The Fed said it believes US GDP will decline to -6.5% in 2020 but should recover to 5% in 2021. The central bank is also projecting the median unemployment to fall to 9.3% in 2020, but subsequently falling to 6.5% in 2021 and 5.5% in 2022. Markets intraday reacted positively to the news, yet the Dow and S&P 500 closed lower on Wednesday, June 10 while the Nasdaq finished at an all-time high of 10,000. In the fixed income market, the 10-year Treasury yield fell to 0.74%.
In our view, despite markets temporarily cooling-off, comments from the FOMC are a positive for investors and should offer clarity on monetary policy going forward for at least the next two-years. We at MCF continue to monitor and comment on the actions of the Federal Reserve as it is an integral focus of our data driven approach to financial markets. To gain more insight for our June outlook, please see our recent Monthly Market Commentary.
If you enjoyed this article and have any questions please contact us directly at 949.472.4579, and feel free to forward this article and our contact information to anyone who might be interested.
SEND US A MESSAGE
Let us know how we can help you.
By submitting this form you will be added to our mailing list. Our subscribers get access to MCF's market commentaries, analysis, and events. If you don't want to subscribe please indicate in the message field below or unsubscribe when you receive our newsletters.
The opinions expressed here reflect the judgement of the author(s) as of this date and are subject to change without notice. Information presented here is for informational purposes only and does not intend to make an offer, solicitation, or recommendation for the sale or purchase of any product, security, or investment strategy. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here. The information being provided is strictly as a courtesy.
Wells Fargo Investment Institute, “Federal Open Market Committee Key Takeaways,” June 10, 2020. CNBC, Jeff Cox, “May sees biggest jobs increase ever of 2.5 million as economy starts to recover from coronavirus,” June 5, 2020. The Hill, Sylvan Lane, “Fed chairman warns of 'long road' to recovery,” June 10, 2020. CNBC, Jeff Cox, “Fed sees interest rates staying near zero through 2022, GDP bouncing to 5% next year,” June 10, 2020. CNBC, Fred Imbert & Maggie Fitzgerald, “Dow and S&P 500 post back-to-back losses, but Nasdaq closes above 10,000 for the first time,” June 10, 2020.
US Federal Reserve Chairman Jerome Powell. Photo Source: The Federal Reserve via flickr.