What happened since yesterday ?
Yesterday, the Fed was once again the focus of investor attention. After a two-day meeting (the so-called FOMC Meeting), the central bank announced that it would not make any significant changes to its current monetary policy. This means that key interest rates will remain close to zero and the institution is committed to taking more measures to support the economic recovery if necessary.
The Fed Chairman, Jay Powell, also expressed fears that the increase in Covid 19 infections in many states could further burden the economy. He referred to “non-standard, high-frequency data” on credit card sales, employment, hotel and restaurant bookings. The Fed is not yet able to quantify how strong the impact will be.
Just how great the uncertainty is also shows that the Fed is preparing for any problems in the financial markets. In order to avoid a shortage of US dollars, as occurred at the beginning of the pandemic, swap lines with some central banks were extended until the end of the first quarter of 2021.
The stock markets responded positively to this news. The US leading index, the S&P 500, rose 1.24% after a few weak trading sessions yesterday. Risk margins on high-yield corporate bonds fell slightly yesterday, while credit safe government bonds were little changed. The price of gold has stabilized for the time being after the sharp rise to the 1953 USD level.
Prognoses are no reliable indicator for future performance.