Boring can be good
The Federal Open Market Committee (FOMC) met today, with few surprises. One could argue that the bigger news from the Federal Reserve actually came yesterday, when it announced an extension of the special purpose vehicles it created at the height of the market turmoil in March. The change means the following expire at the end of Dec. 31, rather than the original expiration date of September 30: the Primary Dealer Credit Facility, Money Market Mutual Fund Liquidity Facility, Primary Market Corporate Credit Facility, Secondary Market Corporate Credit Facility, Term Asset-Backed Securities Loan Facility, Paycheck Protection Program Liquidity Facility and the Main Street Lending Program. These programs join the Municipal Liquidity Facility, which was already set to expire on December 31. The Commercial Paper Funding Facility will expire on March 17, 2021.
While many of these programs—particularly those for the liquidity sector—have been underutilized, their presence as a backstop has proven crucial to market confidence and we support the Fed’s action. Today, the Fed also announced an extension of its temporary U.S. dollar liquidity swap lines and the temporary repurchase agreement facility for foreign and international monetary authorities through March 31, 2021. These facilities have also been a source of underlying support for the front end.
Otherwise, though, there is little concrete to report. The Fed left rates unchanged at the current range of 0 to 25 basis points, and continued to maintain that it will do so as long as necessary, with the path of the economy continuing to depend significantly on the course of the virus. Chairman Jerome Powell’s comments during the press conference were dovish in nature, and reflected the concern about a slowdown in the economy that has become more evident in the high-frequency data of recent weeks. Despite of the lack of official actions today, we suspect that the Fed had a great deal of discussion about the next steps to take, to perhaps include new forward guidance or additional quantitative easing, and that the September FOMC meeting may very well bring some fireworks.