Summary of the Fed’s Statement:
- As expected, rates were held steady and the Fed reaffirmed its dovish forward guidance.
- The statement was largely unchanged from the June edition, acknowledging the pick-up in economic activity but noting “The path of the economy will depend significantly on the course of the virus.” Powell repeated this point in his post-statement press conference, pointing to high-frequency data which indicated slowing growth as virus cases spike.
- The Fed will continue QE asset purchases of Treasury and mortgage bonds at least at the current pace.
- Notably, Fed officials did not adopt forward guidance linking any future rate increases to an explicit inflation or unemployment target. This was considered a possibility and may occur in September.
- The statement reiterated the Fed’s commitment to “using its full range of tools to support the US economy,” promoting the flow of credit as a means to achieving its primary goals of maximum employment and price stability.
Cumulative Monetary Policy Response:
- March 2020 – Fed Funds rate reduced by 150 bps to a targeted range of 0.00% to 0.25%; announcement of open-ended QE “in amounts as needed,” re-launch of Commercial Paper Funding, Primary Dealer Credit, and Money Market Liquidity facilities, intervention into financial markets with Primary and Secondary Market Corporate Credit Facilities and TALF 2.0.
- April 2020 – Paycheck Protection Program Liquidity Facility, Main Street Lending Program, and Municipal Liquidity Facility established.
- May 2020 – The Fed begins purchases of ETFs through the Secondary Market Corporate Credit Facility
- June 2020 – New programs continue to evolve and expand, with more lenient terms given for Paycheck Protection and Main Street Lending program loans. The Municipal Liquidity Facility opens, with Illinois becoming the first and, so far, only state to avail itself of the program. The Primary Market Corporate Credit Facility begins operation.
- July 2020 – The deadline to apply for PPP loans is extended by congress with $130 billion still available. The Fed begins purchasing loans through the Main Street Lending Program and expands the program to include non-profits. Seven of the Fed’s emergency loan programs are extended for three months, until the end of 2020.
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