In terms of a market impact, expectations are low for the outcome of the Federal Open Market Committee’s meeting tomorrow. Economists expect the Fed to continue with their supportive language of the markets while reminding investors they are prepared to step in if markets turn bearish again.
While Congress continues to deliberate details of the next stimulus package, the Fed may enjoy a relatively calm meeting. They will almost certainly leave the Fed Funds rate at the 0-.25% level for the foreseeable future and issue a cautious statement to avoid making headlines. Considering the past 4 or 5 months have been a learning experience for everyone, it is noteworthy to mention that the Fed did accomplish their goal of a V-shaped recovery in the markets.
At this stage of attempting to manage the economic impact of the COVID-19 pandemic, the Federal Reserve is comparable to a fire department waiting at the station. Equity prices have rebounded, markets have ample liquidity and volatility is down. The rise in new coronavirus cases is concerning, but does not yet warrant action from the Fed as the market has taken it in stride.
This may be a situation where the market is due for a reckoning as jobs data is a lagging indicator. Further, those states with the largest spikes have remained open with some restrictions, but nothing close to the shutdowns we saw in March. For now, the market seems happy to grind higher on stimulus checks and Fed spending.
Those planning to trade during and following the FOMC announcement should have a clear and focused risk management strategy in case of unexpected developments.
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