Fed meeting in the shadow of uncertainties

The Fed will announce the decisions of the November FOMC meeting tomorrow. It is unlikely that the Fed will take any steps or change its orientation at this meeting, as the process of the US elections is ongoing, where the political structure is not clear, and will probably not be clear by the end of the week.

The latest economic activity data are neither at a level that will upset the Fed, nor can it change the Fed's expansion stance. The economy may enter a slowdown cycle due to Covid cases and possible containment measures. High unemployment at this stage will cause demand shortages in the economy in the absence of financial incentives. So it was important for the Presidential elections to come to an end, but we can see that the race between Trump and Biden is going on for a few more days. While Biden + Blue Wave means more financial incentives in the future, Trump's presidency will highlight the expectation that January 2021 will not be waited for financial incentives. However, when the packages of Biden and Trump are compared in size; While Biden's package covers areas such as the real economy, technological progress, infrastructure spending and green economy, problematic sectors will be more weighted in the Trump package. The introduction of unemployment benefits is important in terms of sustaining the recovery effect in the economy and not affecting the company activities from low demand. While going out due to the virus is a problem, the Fed's monetary moves alone cannot create inflation.

 

While the Fed will not even consider to hike interest rates in the Trump administration, in the Biden administration, the Fed will not be in a position to evaluate the rate hike due to economic conditions. If we see that financial expansion brings the recovery in the economy to the fore and it feeds some inflation expectations, a new guidance update would be expected from the Fed. However, while the epidemic continues to be a threat, recovery in employment, demand, and firm activity without the impact of government spending seems difficult.

 

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