Today is a Fed decision day. For the markets, the key question is “What more can they realistically do at this stage?” Indicative that there is still more to do is the fact that the virus has not stopped raging across the US, and indeed much of the world, even if it no longer deems major media coverage; that opening-ups are becoming locking-downs; that the most recent initial claims numbers were even more terrible than usual; and that, as things stand at time of writing, Congress is divided over the shape of the latest fiscal response package even though extended unemployment benefits have now stopped and the rental eviction moratorium expires at the end of the month. Moreover, the Fed already took the step of announcing a day before their meeting finishes that seven of their nine emergency lending programs will be extended to the end of the year. (When do they get extended into 2021?)
For a full preview of the upcoming meeting outcome, please see here from Philip Marey, but it seems too early for serious flagging of yield curve control, especially when yields are so low, or of negative rates, which are the final Rubicon for the Fed to cross. There certainly aren’t going to be any reasons for Treasuries to sell off on the meeting outcome, however. On the FX front, and against market chatter –not subscribed to here– that any new Fed dovishness presages the beginning of the end of the USD as a reserve currency, we might see USD on the back foot, which would hardly be exceptional at the moment. Again, let’s reiterate the only reason other major central banks are not having to keep ‘double dipping’ as much as the Fed is doing are: 1) because their fiscal stimuli, like nationalised payrolls, have been in place for months – and yet which runs out in after the summer in the UK case, for example; and 2) because nobody else globally is demanding their currency like the USD.