Powell Warns Over Economic Conditions
Federal Reserve chairman Jerome Powell was in the spotlight yesterday. Testifying to the Senate Banking Committee, the Fed chief struck a cautious and concerned tone, warning senators over the damage to the US economy and the long road ahead despite the recent vaccine news.
Powell said: “Recent news on the vaccine front is very positive for the medium term. For now, significant challenges and uncertainties remain, including timing, production and distribution, and efficacy across different groups.” There has been a great deal of optimism in the markets over recent weeks regarding encouraging vaccine news. However, Powell was keen to stress that the current situation is still very fragile, both domestically and globally. Powell cautioned that: “The rise in new Covid-19 cases, both here and abroad, is concerning and could prove challenging in the next few months.”
While Powell was clear in highlighting his concern over the current situation, he was not quite so forthcoming in offering any insight into how the Fed will manage the situation, giving away no clues of any further Fed action ahead of its upcoming December 17th meeting.
Calls For Further Fiscal Stimulus
However, Powell did say that further fiscal stimulus might be warranted based on how well the Cares act had helped support the economy throughout the first wave of the pandemic. There has been plenty of focus on the issue of fiscal stimulus as well as growing tensions between the Fed and the Treasury after Powell and Treasury Secretary Steven Mnuchin fell out over the government’s decision to allow a portion of the Fed’s loan programs to expire at the end of the year. The Fed has consistently called on the need for greater government support in light of the ongoing economic issues. This marked the first meeting where the two men have appeared together following that disagreement and Powell was keen to reiterate his view, saying: “Although we welcome this progress, we will not lose sight of the millions of Americans who remain out of work.” The Fed will now be hoping that the incoming Biden administration will take a more constructive approach in working with the central bank to help support the economy.
The breakdown in the US Dollar has seen the Dollar index trading down through the prior 2020 lows of 91.74 to trade fresh year to date lows of 91.37. While price remains below that former support, the market is vulnerable to a move lower into the 90.72 level support. To the topside, any recovery above the 91.74 level will put the focus back on the 92.62 level next.
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