As Countries Get Ready To Reopen, This Is What To Anticipate
As Countries Get Ready To Reopen, This Is What To Anticipate by King World News
As countries get ready to reopen, this is what to anticipate.
If Words Don’t Work
May 21 (King World News) – Peter Boockvar: If the (Fed’s) words don’t work in keeping rates low, “A few participants also noted that the balance sheet could be used to reinforce the committee’s forward guidance regarding the path of the federal funds rate through Federal Reserve purchases of Treasury securities on a scale necessary to keep Treasury yields at short to medium maturities capped at specified levels for a period of time.” This is otherwise known as yield curve control. It was done in the US in the early 1940’s and currently is being conducted in Japan.
I’ve said this before but will again now that these discussions are taking place again. Forward guidance doesn’t encourage quicker economic growth, it inhibits it. The whole purpose of stimulus, whether monetary or fiscal, is to encourage economic behavior to happen now instead of later. Telling us all that rates will stay low for a while just has us waiting until later because there is no rush. Those that believe in this policy seem to be intent on repeating the monetary mistakes of the BoJ and ECB where the evidence is available to us all.
The bottom line is as we know. Things are improving as we reopen but there is still a long road ahead with the recovery. “Encouragement comes from the survey indicating that the rate of economic collapse seems to have peaked in April. In the absense of a 2nd wave of COVID-19 infections, the decline should moderate further in coming months as measures taken to contain the virus are steadily lifted.”
The caveat: “However, the sheer scale of the current downturn and associated job losses, and the fact that some restrictions will need to stay in place until an effective treatment or vaccine are found, highlights how a full recovery is unlikely to be swift.” We also know that even after a vaccine, consumers are likely to save more and spend less and companies will likely try to do more with less in terms of hiring plans and balance sheet will be front of mind.