Fed might act in December meeting, is fiscal stimulus is delayed

The FOMC meeting held in the shadow of the presidential elections did not create much noise as it did not contain much change in the policy statement. (Tera Yatırım)

The picture of the economy is more uncertain than before and the situation is more likely to deteriorate. In this regard, Powell continues to call for financial support. The increase in Covid cases is alarming, and the delay in financial incentives prevents consumption expenditures from recovering from the bottom. There has not been a revival that will meet the Fed's average inflation target.

We see that both Powell's and Lagarde's recent statements focused on financial incentives during this period, when the economic recovery has lost momentum after the central banks have reached the highest level in monetary incentives. During the quantitative easing period, the Fed will allow inflation to rise somewhat above the ex-target of 2%. However, in this environment of unemployment, reduction in income and Covid-19, if financial incentives are not resolved in the short term, the economy may continue to slow down. Demand will also be far from inflationary. Unless a relationship can be established between QE and inflation, abundant liquidity will not create a money cycle in the real economy.

Biden will become the new President of the United States if there will be no last minute miracle. The Senate will likely remain with the Republicans, and the bipartisan legislature will mean that the size of the fiscal incentives would be below what is predicted by Blue Wave theory. The handover will take place in January, if there is no temporary funding until Biden moves to the office, there may be another 2 months waiting time. If the financial package is delayed, the Fed might make an additional move in asset purchases in December.

 

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