Amid U.S. election uncertainty, Fed likely to lay low this week

[November 05, 2020]  By Howard Schneider

WASHINGTON (Reuters) - The Federal Reserve is scheduled to release its latest policy statement on Thursday after two days of debate in which policymakers lacked a critical piece of information: who will run the United States for the next four years.

With the final result of Tuesday's presidential election still uncertain, the U.S. central bank's policy-setting Federal Open Market Committee is expected to stick closely to its last statement and repeat its pledge to do whatever it can to help the economy through the coronavirus-triggered recession.

Until it's clear who the next U.S. president will be, "it is the wrong time to be in the public eye," said William English, a former head of the Fed's monetary affairs division and now a professor at the Yale School of Management.

"They mostly don’t want to be a source of any additional uncertainty at this point. So they’d aim for a pretty quiet meeting," he said in a recent interview with Reuters.

The Fed's latest policy statement, due to be released at 2 p.m. EST (1900 GMT), will update the central bank's view of the economy and likely repeat its prior promise to keep its key overnight interest rate near zero until the U.S. labor market returns to "maximum" employment and inflation is on track to exceed the 2% target "for some time."

Fed Chair Jerome Powell is scheduled to hold a news conference at 2:30 p.m. EST.

Graphic - The risks facing the Fed - Inflation: https://graphics.reuters.com/USA-FED/ELECTION/rlgvdxbnmvo/chart.png

Financial markets, at least, reacted calmly on Wednesday to the unresolved presidential election - relieving the Fed of a possible additional problem. Major U.S. stock indexes rose for a third straight day while U.S. Treasury yields fell. Cornerstone Macro analyst Roberto Perli said the decline in yields provided "no fundamental story to tell" about investor perceptions of election-related risk or the path of the economic recovery.

The policies expected to be embraced by Democratic presidential nominee Joe Biden if he is ultimately declared the winner of Tuesday's election may be starkly different from those that would be pursued by Republican President Donald Trump in a second term and could reshape the outlook among investors for U.S. fiscal and health policy, and expectations about growth and inflation.

As of Thursday afternoon, votes were still being counted in a number of battleground states, with Biden leading in two critical Midwestern states that could tip the election in his favor.

Jerome Powell, chair of the U.S. Federal Reserve, departs a House Select Subcommittee on the Coronavirus Crisis hearing in Washington, D.C., U.S., September 23, 2020. Stefani Reynolds/Pool via REUTERS

'PROLONGED PROCESS'

What may be required of the central bank in coming months hinges on not just the policies the next president pursues, but what is approved by a Congress that is expected to remain divided, with Democrats controlling the House of Representatives and Republicans leading the Senate. In the run-up to the election the two chambers could not agree on further fiscal measures to support the economy as the virus continued to spread.

More than 232,000 people have died in the United States from COVID-19, the disease caused by the virus.

The recession stemming from that health crisis has left millions out of work. As of September, it was estimated that the number of people employed was about 12 million below what it would have been if the pre-pandemic pace of job growth had continued from March onward. The U.S. Labor Department is scheduled to release its closely watched monthly employment report for October on Friday, with many analysts suggesting the job growth pace is slowing to a point where it may require years to fully rebound.

Nonfarm payrolls are expected to have grown by 600,000 last month, according to a Reuters poll of economists. The average monthly gain from May through September was 2.2 million jobs.
 

"A full recovery of jobs ... will be a prolonged process, one that will be primarily dictated by the health crisis," Rubeela Farooqi, chief U.S. economist for High Frequency Economics, wrote this week.

(Reporting by Howard Schneider; Editing by Paul Simao)

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