The Fed remains on the sidelines with election results still uncertain

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(Bloomberg) – Federal Reserve officials have kept monetary policy in a hold pattern, leaving interest rates close to zero and making no changes to asset purchases, as the final presidential election results and US legislative decisions remain uncertain.

“Economic activity and employment have continued to recover but remain well below their levels at the start of the year,” the Federal Open Market Committee said in a statement on Thursday after a two-person meeting. days, extensively repeating the language on economics they employed. since July. This marked only a slight change from the previous statement that the economy and jobs had “picked up in recent months”.

The Fed has kept the target federal funds rate within a range of zero to 0.25%, where it has been since March. Fed Chairman Jerome Powell is scheduled to hold a video press conference at 2:30 p.m.

“The current public health crisis will continue to weigh on economic activity, employment and inflation in the near term, and poses considerable risks to the medium-term economic outlook,” the FOMC said in identical language to the previous September statement.

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Ten-year Treasury yields were little changed after the statement was released, hovering around 0.77%. The yield curve, measured by the spread between 5 and 30 year yields, also held steady at around 121 basis points.

As the vote count continues in the hotly contested US states, the two main parties could separate from control of Washington. Democrat Joe Biden is set to capture Donald Trump’s White House and his party will retain the House of Representatives. But Senate control may depend on the second round of elections in Georgia.

A shared outcome would reduce the chances of a big congressional fiscal stimulus package in the new year, even as the Covid-19 pandemic continues to threaten the economy. This could push the Fed further to step up its bond purchases, or at least change the mix of its purchases, in an effort to lower borrowing costs and further stimulate the recovery.

Budget hope is fading

“With budget support looking both smaller and less likely, the Fed will need to think more about what it can do to steer the economy in the desired direction,” said Roberto Perli, former Fed economist and partner at Cornerstone Macro LLC in Washington. Before the meeting.

Fed officials, however, made no changes to monthly purchases on Thursday and gave no signal that they might do so at their next meeting on December 15-16.

The FOMC statement reiterated its past pledge to increase holdings of Treasury securities and mortgage-backed securities in the coming months “at least at the current rate”.

The combined monthly purchases of the securities currently total approximately $ 120 billion.

The economic recovery remains uneven amid a surge in Covid-19 cases, with more than 12 million Americans still out of work. The October jobs report, due on Friday, is expected to show the unemployment rate continues to fall to 7.6%, while the pace of new hires has likely slowed for the fourth month in a row.

The vote was unanimous. Minneapolis Fed Chairman Neel Kashkari, a voter this year, did not attend the meeting after the birth of a child on Tuesday. San Francisco Fed President Mary Daly voted as alternate.

© 2020 Bloomberg L.P.

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