Fed could give more insight into its string of unprecedented actions

Federal Reserve Chairman Jerome Powell speaks at his news conference following the two-day meeting of the Federal Open Market Committee (FOMC) meeting on interest rate policy in Washington, January 29, 2020.

Yuri Gripas | Reuters

The Fed is not expected to announce any new policy initiatives when its meeting ends Wednesday, but it could provide more details on the unprecedented moves it made to help the economy and financial markets over the past six weeks.

The Fed releases its statement at 2 p.m. ET and could provide more clarity on its view of the damage to the economy from the coronavirus. It may comment on its policy, but it is not likely to reveal anything new about how long it will keep interest rates low.

Fed Chairman Jerome Powell briefs the media at 2:30 p.m. ET.

“They’ve laid out a whole series of initiatives. I think they have to spend time on implementation and evaluation of them and quite frankly I think the June meeting may be the most important Fed meeting in maybe 10 years,”  said Rick Rieder, CIO of global fixed income at BlackRock.

Economists said by June, the Fed will have a better idea of the unemployment rate and how the economy is faring, as it starts emerging from the shutdowns.

To battle the impact of the virus, the Fed cut its benchmark interest rate to near zero at a on March 15, and has bought about $2 trillion in Treasurys and mortgage securities. In addition, it announced numerous facilities aimed at easing conditions in multiple parts of the credit market, including corporate debt, mortgages, municipal bonds and commercial paper.

Powell will sound reassuring and reiterate that the Fed is committed to its actions. “I think they’ll do whatever it takes and just a bit more, to be sure,” Rieder said.

Rieder said the markets are looking for more information on the size of the Fed’s asset purchases, but he does not think Powell will be specific Wednesday. 

“I think they’ll do up to $200 billion a month, which is higher than most think,” said Rieder.

There’s been some speculation that the Fed could look at yield curve control, meaning targeting interest rates in the Treasury market. 

“In terms of yield curve control, what level do they want the 10-year yield at?” said Drew Matus, MetLife Investment Management chief market strategist. He said he doubts the Fed would take any action on that. The 10-year yield has been at a near record low and was at 0.61% Tuesday.

“There’s nothing good for them to do and no reason to do it right now. You can’t stimulate an economy that doesn’t exist,” said Matus.

Matus said the Fed has acted aggressively outside of meeting dates, and it has acted in a matter of days when it finds problems in markets. “The overarching goal of the Fed right now is to keep markets functioning,” he said.

Barclays chief U.S. economist Michael Gapen said the meeting is a transitional one, coming on the heels of emergency actions. “It’s an ending stage of the emergency response, the risk management lender of last resort, the throw-liquidity-at-the-problem phase.”

He said the Fed can discuss its broader view of the impact of the virus on the economy but not give new specifics on its forward guidance.

“Within the next 30 to 40 days, we could have a better view of how the economy is behaving as we come out of the lock down,” he said.

Economists expect the economy started deteriorating in the first quarter and that it will decline sharply in the second quarter. Gapen expects the nation’s gross domestic product to contract by 45% in the second quarter, which should be the trough of the downturn.

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