The U.S. Federal Reserve left its benchmark short-term interest rate unchanged today and expressed a generally positive view of the economy. As always, the Fed's rhetoric leaves open the possibility of having to intervene with rate changes if the economic data justifies it in the future, but for now it seems like there are no rate cuts planned for this year.
It looks like Fed Chairman Jerome Powell may be reverting back to his hawkish persona after his unexpectedly dovish spree in 2019 when he cut interest rates three times. But last year's rate hikes were done to keep the economy and stock market buoyant during the Trump Administration's "trade wars" with China which had a strong negative impact on Wall Street. Interestingly, today's Fed statement made no mention of this year's corona virus epidemic which is also having a negative impact on global economies, but Mr. Powell did mention it as an economic risk in his press conference following the release of the Fed's statement. Jerome Powell has been criticized severely by President Trump for not being more dovish and accommodating with monetary policy, but Powell has also been criticized by others for "caving in" to Trump with last year's rate cuts. Trump is sure to put more pressure on Powell for rate cuts this year as a buoyant stock market will surely help him get reelected. But will Powell "cave" to Trump's wishes this time?
Besides the manipulation of interest rates to stabilize the economy, the Fed since last October has started a temporary program of Treasury bill purchasing which some analysts are calling a "new QE (quantitative easing)" (even though the Fed says it is not). This program is supposed to be temporary, but many analysts see Powell and the Fed extending it to maintain economic stability and a buoyant stock market.
The broad stock market rallied strongly today but then lost most of that gain by the closing bell. Investors were not expecting any rate cut today, but they may have been hoping the Fed's statement would suggest the possibility of some rate cut(s) this year, which it did not. We are still holding our short position in this market.