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The Fed To Use A Pandemic-Era Tool To Fight Back The Adversity Of Coronavirus

The Fed To Use A Pandemic-Era Tool To Fight Back The Adversity Of Coronavirus

Federalreserve / Public domain

Even before the coronavirus pandemic affected the world, the Fed was concerned about the declining rate of inflation and the world economy. This made the Fed work on multiple approaches that can result in avoiding long-term sluggish traps which weakens the pricing power to an extent. 

Regarding the same, Chairman Jerome Powell is about to give a speech on Thursday and is expected to discuss the nitty-gritty of the Fed’s work policies and protocol in detail. The Fed predicted and targeted an inflation rate of 2%, but now seeing the present financial crises, it has become more obvious to come up with new ideas and approaches to deal with the inflation rate going down beyond the predictions. 

On this, the Senior Fixed Income Strategist at BMO, Jon Hill said- “This is longer running than just Covid. If they had wrapped this up last year, Powell would have to signal this policy shift with rates above zero, ” Source: CNBC. 

Hill continued and said- “Since we’re already at zero, it means we’ll be at zero even longer and the central bank is going to be even more aggressive about trying to meet its inflation mandate. In the past, they pre-emptively hiked to get ahead of inflation pressures. What they’ve shifted to is actually waiting until they get sustained inflation.” Source: CNBC. 

According to Hill, the bond market was pricing in a higher inflation rate as compared to the market-based metric for the next 5-years of inflation. 

Chief Economist at Grant Thornton, Diane Swonk said- “This is the prelude to September, and you have a whole lot of Fed speakers next week who are going to explain how having an objective that they’re going to overshoot on inflation is important and what it means,” Source: CNBC. 

For more updates, stay tuned here!