Fed Chairman Jerome Powell and the Federal Reserve are facing a very tricky moment.
So far, the monetary response to the pandemic has been “fire-fighting.” That is, the Federal Reserve has dumped huge amounts of liquidity to fight the economic fallout from the pandemic.
At first glance, one would think the “fire-fighting” would continue. The short-term economic outlook is deteriorating due to new coronavirus surges.
However, the economic picture for later in 2021 – and forecasts from the Federal Reserve itself – are improving. This is thanks to the vaccines. This would suggest the Federal Reserve turn off its fire hose of liquidity.
But Powell knows this would send the market for a loop. Instead, he chose a middle ground . . .
The Fed chairman held off on a big boost to the central bank’s asset purchases. But he did introduce guidance that will keep the asset purchases in place longer.
The Federal Open Market Committee said it would continue to buy $120 billion of debt per month until “substantial further progress” was made towards its goals of price stability and maximum employment.
These targets will likely not materialize in the post-pandemic economy for a very, very long time.
Powell showed no signs of prematurely declaring victory over the coronavirus-battered economy. And he repeatedly stressed the willingness of the Federal Reserve to take additional action. This included additional asset purchases, if needed.
This should preserve Powell’s dovish credentials with the stock market. It sends the message that the Federal Reserve will remain in the fight for a long time.
This will soothe investors and keep the stock market on its upward path.
The Big News
How Coronaviruses Can Spread Widely
A scientific conference in Boston in February kicked off a superspreader event that ultimately infected an estimated 245,000 people in the United States. Researchers analyzed the genomes of 772 strains of SARS-CoV-2 in Boston to uncover how the city’s epidemic had evolved. They found that the conference ultimately led to one strain, C2416T, spreading to 29 states and to countries including Australia, Sweden and Slovakia.
When Will the World Get Vaccinated?
The WHO said high-risk populations in all countries may be able to get a Covid vaccine by the end of 2021. But beyond those high-risk populations, the WHO says it may be another one or two years before the public broadly get vaccines. And it added that its timetable may be overly optimistic.
Luxury Sales in China Boom During Pandemic
China nearly doubled its share of the global luxury market to 20% this year. The pandemic forced Chinese shoppers to buy locally. For years, international luxury brands have depended on travelers from China for sales growth. But with international travel restrictions, big-spending Chinese consumers turned to domestic malls and e-commerce sites for shopping sprees. Luxury sales in mainland China is expected to grow 48% to $52.8 billion by the end of 2020, according to the consultancy Bain & Co.
It’s Good to Be a Kiwi
The island nation of New Zealand has been praised for handling the pandemic so well. And its economy shows it: the economy grew at a record 14% in the third quarter. This followed a drop of 11% in the second quarter. “This is as close as you get to a true V-shaped recovery,” said Kiwibank Chief Economist Jarrod Kerr.
Good Times for General Mills
General Mills beat sales and profit expectations in its just-released earnings report. It was buoyed by demand for pet food and consumers eating at home during the pandemic. General Mills’ North American retail business enjoyed a revenue increase of 9% to $2.92 billion. It was helped by “elevated demand for food at home.” At the same time, pet food sales climbed 18% to $460 million, with double-digit improvements in both dog and cat food.
The Coronavirus Numbers
Here are the numbers from Thursday at 8 a.m. ET from Johns Hopkins University:
- 74,356,119 Infected Worldwide
- 1,651,891 Deaths
- 16,981,302 Infected in the U.S.
- 307,512 Deaths in the U.S.
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The risk-on mood continues in global stock markets.
U.S. futures rallied and looked to open at record highs. This came after the Fed signaled it will stand by the economy and keep the cash “taps” on full blast.
It also look like Congress is moving close to agreeing on a $900 billion Covid relief bill. The bill could include $600 stimulus checks as well as extended unemployment benefits.
The risk-on sentiment is evident again in the currency market. The U.S. dollar index broke down to its lowest level – under 90 – since April 2018.
This will continue to support everything from multinationals to emerging markets to commodities to tech stocks to IPOs.
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Yours in Health & Wealth,