Talk about a Fed focus.
The central bank has already taken unprecedented steps to stem the economic damage tied to the ongoing coronavirus pandemic, including cutting its benchmark rate to almost zero and pouring billions of dollars in stimulus into some areas of the market.
While market watchers generally don’t expect much to come out of this meeting, many will still be hanging on Powell’s every word.
Here’s what three of them were expecting ahead of the press briefing on Wednesday:
Economic ‘green shoots’
Jeff Saut, chief investment strategist at Capital Wealth Planning, doubled down on his call for a late-year rebound:
“I don’t think you’re going to see any policy change out of the Fed. I think that Powell will talk of the green shoots that are starting to appear in the economy. I think the equity markets are looking past the softer earnings and economic reports over the next month or two, and I think you’re going to get a much stronger rebound in the third and fourth quarter than most people are expecting.”
Opportunity in stocks
Sarat Sethi, portfolio manager and equity analyst at Douglas C. Lane & Associates, said investors should be treading carefully:
“Investors have to be very careful here. The market’s been driven by these FAANG stocks, but underneath, there is still value. It is in cyclicals, it’s in financials, but it’s also in other specific stocks. And I think as we go forward and we see more of the opening of the economy, fits and starts, no question about that, but I think given where we are with the amount of stimulus we have, the Fed and fiscal stimulus behind it, I think the opportunity for the stock market over the next six to 12 months is higher. But given how far we’ve come back, I think we need to have a little bit of consolidation and then we go forward from here.”
The Fed’s challenge
Rick Rieder, global chief investment officer of fixed income at BlackRock, highlighted the Fed’s difficult position:
“The Fed’s goal is maximum employment and price stability. And so … while the employment number was breathtaking — I mean, it was breathtaking in terms of the speed of the recovery — there is still going to be a persistent unemployment dynamic that is going to keep the Fed on hold for a long time, which we’re going to hear from the chairman [Wednesday]. … By the way, people 65 and above who’ve left the workforce, that’s going to be a persistent drag, and the question is when that comes back. You’re going to have what is a higher unemployment rate for a period of time going into the beginning of next year. You’re probably going to have an unemployment rate that’s in the high single digits. If that’s right, that’s a recessionary type of unemployment rate. So, what it means and what we’re going to hear from the chairman [Wednesday] is you’re going to keep rates on hold at these levels for a long period of time. That gets into part of one of the challenges you’re going to have, [which] is the equity market is going to respond to that and financial conditions are going to get easier and easier alongside of that, but that’s the bind that the Fed’s in and that’s part of the challenge that they’re going to have to deal with over the coming years.”