“We are not thinking about thinking about raising rates”.

Comments from Fed Chair Powell today reiterating the Fed’s commitment to accommodative policy for as long as it takes. The Fed policy statement held few surprises, extending commitments on swap lines (through March 2021), bond buying ($120 billion a month in Treasuries and Fannie/Freddie), corporate bond buying, emergency lending programs (extended to Dec 31). Unprecedented programs to purchase municipal and corporate bonds also will continue. Powell noted the recent “leveling off” in the economy after May/June job gains were “sooner and stronger” than expected. But subsequent surges in COVID cases around the country have partially derailed that recovery. He noted debit and credit card spending, hotel occupancy and other consumer metrics are slowing, and future trends are unknown due to the unpredictability of the virus.

Interesting comment: “The two things are not in conflict. Social distancing measures and a fast reopening of the economy actually go together. They’re not in competition.” Spoken like a true analytic banker. He sees no danger of inflation and actually seemed to warn of deflation as he indicated that the pandemic is lowering prices (except for the notable exception of food prices). Watch the data: tomorrow’s 2nd quarter GDP announcement will be unprecedented, predicted to be minus 35% (!) Remember this is annualized, so it will show about a 10% drop in the 2nd quarter, still very significant. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners