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.
The views expressed herein are those of Asset Consulting Group (ACG). They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. This report was prepared by ACG for you at your request. Although the information presented herein has been obtained from and is based upon sources ACG believes to be reliable, no representation or warranty, express or implied, is made as to the accuracy or completeness of that information. Accordingly, ACG does not itself endorse or guarantee, and does not itself assume liability whatsoever for, the accuracy or reliability of any third party data or the financial information contained herein.
Certain information herein constitutes forward-looking statements, which can be identified by the use of terms such as “may”, “will”, “expect”, “anticipate”, “project”, “estimate”, or any variations thereof. As a result of various uncertainties and actual events, including those discussed herein, actual results or performance of a particular investment strategy may differ materially from those reflected or contemplated in such forward-looking statements. As a result, you should not rely on such forward-looking statements in making investment decisions. ACG has no duty to update or amend such forward-looking statements.
The information presented herein is for informational purposes only and is not intended as an offer to sell or the solicitation of an offer to purchase a security. Please be aware that there are inherent limitations to all financial models, including Monte Carlo Simulations. Monte Carlo Simulations are a tool used to analyze a range of possible outcomes and assist in making educated asset allocation decisions. Monte Carlo Simulations cannot predict the future or eliminate investment risk. The output of the Monte Carlo Simulation is based on ACG’s capital market assumptions that are derived from proprietary models based upon well-recognized financial principles and reasonable estimates about relevant future market conditions. Capital market assumptions based on other models or different estimates may yield different results. ACG expressly disclaims any responsibility for (i) the accuracy of the simulated probability distributions or the assumptions used in deriving the probability distributions, (ii) any errors or omissions in computing or disseminating the probability distributions and (iii) and any reliance on or uses to which the probability distributions are put.
The projections or other information generated by ACG regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Judgments and approximations are a necessary and integral part of constructing projected returns. Any estimate of what could have been an investment strategy’s performance is likely to differ from what the strategy would actually have yielded had it been in existence during the relevant period. The source and use of data and the arithmetic operations used for calculating projected returns may be incorrect, inappropriate, flawed or otherwise deficient.
Past performance is not indicative of future results. Given the inherent volatility of the securities markets, you should not assume that your investments will experience returns comparable to those shown in the analysis contained in this report. For example, market and economic conditions may change in the future producing materially different results than those shown included in the analysis contained in this report. Any comparison to an index is for comparative purposes only. An investment cannot be made directly into an index. Indices are unmanaged and do not reflect the deduction of advisory fees.
This report is distributed with the understanding that it is not rendering accounting, legal or tax advice. Please consult your legal or tax advisor concerning such matters. No assurance can be given that the investment objectives described herein will be achieved and investment results may vary substantially on a quarterly, annual or other periodic basis. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.