** More to the point, with the negotiations for the Phase IV fiscal legislation between House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin now nearing a critical make or break moment this week, we think the Fed Chairman is likely to adopt a significantly harder edge in making the case for more fiscal policy as soon as politically possible.
** And while it is highly doubtful Chairman Powell would publicly make an explicit link, we also think a fiscal deal this month would make it far more likely if not near certain that the Federal Open Market Committee Fed will complete its shift to a more accommodative monetary policy stance at its December meeting, with a weighting in its current asset purchases to the longer term treasuries.
Powell Warns of Weak U.S. Recovery Without Enough Government Aid
‘Risks of overdoing it’ are smaller than too little stimulus
GOP opposition to larger fiscal package has hampered a deal
Federal Reserve Chair Jerome Powell warned of a weak U.S. recovery without sufficient government aid and said providing too much stimulus wouldn’t be a problem.
Powell’s remarks Tuesday came amid Republicans’ opposition to a larger relief package that’s kept talks with Democrats at a stalemate in Congress since aid to jobless Americans and small businesses expired in July and August.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell said in the text of a speech for a virtual conference hosted by the National Association for Business Economics. “By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.”
Fed to Debate Bond-Buying Program at Future Meetings
Some U.S. central bankers sought further debate on the future of the Federal Reserve’s asset-purchase program when they met last month, signaling they’d be open to altering or increasing bond buying going forward.
Minutes of the Federal Open Market Committee’s Sept. 15-16 meeting released Wednesday showed that some participants “noted that in future meetings it would be appropriate to further assess and communicate how the committee’s asset-purchase program could best support” the Fed’s dual-mandate objectives.
Policy makers agreed at the meeting to hold rates near zero until the labor market reached maximum employment, and inflation reached 2% -- and was on track to moderately exceed that goal for some time. Forecasts also released on Sept. 16 showed officials didn’t expect the economy to reach those targets until 2023 or 2024, as it gradually recovers from the steep recession inflicted by the coronavirus pandemic.
U.S. central bankers, gathering virtually as a precaution against Covid-19, agreed to keep purchasing Treasury and mortgage-backed bonds at a combined pace of about $120 billion a month.
At upcoming meetings in November and December, officials could seek to give the economy more monetary policy support by increasing the amounts of Treasuries and mortgage-backed securities they buy in an attempt to lower borrowing costs for households and businesses.