Stock market indices around the world have tumbled after a pessimistic outlook for economic growth was shared by Federal Reserve Jerome Powell, suggesting it would be a long time before the central bank would be able to pull out support for the economy. The statement said,
“The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”
The Fed also projected an economic contraction of 6.5% in 2020, the election year, after months of coronavirus-induced lockdowns, and unemployment rate to be 9.3% at year’s end. But the Fed has promised to support the economy on its “long road” to recovery.
The central bank also sees GDP rebounding 5% in 2021 and a further 25% in 2022.
The Fed further suggested that interest rates would remain near zero throughout 2022 and that they are not even “thinking about thinking about raising rates.” This, according to Deutsche Bank analysts led by Jim Reid, is a “strong signal” that the Fed believes the effects of the crisis will be lasting.
Satoshi foresaw current monetary madness (QE): “Root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but history of fiat currencies is full of breaches of that trust”..enter #Bitcoin pic.twitter.com/PMFcfB3b5F
— PlanB 🔴 (@100trillionUSD) June 11, 2020
Despite the COVID-19 crisis, the S&P 500 is almost at the level it reached the beginning of the year. The US stocks initially pushed up by the announcement and so did the US dollar and Bitcoin but the bullish move didn’t last.
Meanwhile, gold has managed to keep the gains and is trading at $1,732 an ounce.
“The Fed met expectations, but at the same time it’s brought the focus back on the economy,” said Moh Siong Sim, FX analyst at the Bank of Singapore.
The 10-year Treasury note plunged to 0.6984% and on 30-year bond, the yield fell to 1.4634% after Fed policymakers voted unanimously to hold the federal funds’ target rate at 0%-0.25% for next two years.
On this note, crypto enthusiasts suggested buying bitcoin. “Buy everything. Seriously. Everything but Ripple,” said trader and economist Alex Kruger.
The Fed is holding interest rates at 0% through 2022.
— Joe McCann (@joemccann) June 10, 2020
More Stimulus Coming
The Fed’s dovish tone is suggesting the stimulus will keep on coming. Given the way the market is performing lately, this will only further widen the gap between Main Street and Wall Street.
POWELL: “If there were more fiscal support, you’d see better results sooner.”
— Sonali Basak (@sonalibasak) June 10, 2020
“The takeaway is the Fed remains fully committed to its ultra easy monetary polices,” said NAB’s Catril which “should be supportive for risk assets.”
POWELL: POPPING ASSET BUBBLE WOULD HURT JOB-SEEKERS
— Trading News (@4xInsight) June 10, 2020
Policymakers stepping in to support COVID-19 ravaged market through trillions of dollars in stimulus was “unlike any response that we’ve ever seen before, and so this is not your garden-variety recession,” said legendary hedge fund manager Paul Tudor Jones who recently put a small percentage of his firm’s assets in Bitcoin. He said, as such,
“Our citizenry has more cash now than they had going into what will be the shortest recession in the history of the United States.”
According to him, inflation will be impossible to check because the economy is already heavy with debt. The US national debt has already hit $26 trillion, adding $2 trillion in just the last two months.