- FOMC minutes could provide hints on when Fed will announce enhanced guidance
- Chances improve for new pandemic stimulus bill as Pelosi hints Democrats may be willing to accept a smaller bill
- President Trump says he called off the review of phase-one trade deal
- 20-year T-bond auction to yield near 1.17%
FOMC minutes could provide hints on when Fed will announce enhanced guidance — The FOMC today will release the minutes from its last meeting on July 28-29. The FOMC’s next meeting will be on Sep 15-16, where the FOMC will provide updated macroeconomic forecasts and a new set of Fed-dot forecasts for the funds rate.
The outcome of the July 28-29 FOMC meeting was in line with dovish market expectations. Fed Chair Powell said he sees signs that the recent rise in Covid cases is weighing on the economy and that continued monetary and fiscal support is needed for a recovery. The FOMC’s post-meeting statement said the pandemic “poses considerable risks to the economic outlook over the medium term” and the fed funds rate would remain near zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
The Fed did not change its guidance and there was little change in the language of the post-meeting FOMC statement. However, Fed Chair Powell raised expectations for the FOMC at its next meeting to issue new interest rate guidance when he said that FOMC members at the July meeting focused on “possible enhancements to our statement on longer-run goals and monetary-policy strategy.” He said he expects the FOMC to “wrap up our deliberations in the near future.”
That raised the possibility for the FOMC at its next meeting on Sep 15-16 to announce more specific interest rate guidance as well as the outcome of the Fed’s review of its longer-run goals and monetary-policy strategy. The markets are expecting the FOMC to promise to keep rates low until the unemployment rate falls below a specific level and inflation nears or matches its 2% target.
Chances improve for new pandemic stimulus bill as Pelosi hints Democrats may be willing to accept a smaller bill — The chances seem to have improved a bit for a new pandemic relief bill. House Speaker Pelosi yesterday hinted that Democrats might be willing to pass a narrower bill and leave some items aside until after the election. In any case, she said that an agreement is necessary now and can’t wait until September.
Meanwhile, Republicans are working on a so-called “skinny” bill that would include items that the two sides mostly agree upon, except for a Covid liability shield for businesses and the size of some of the funding. Bloomberg reported that the GOP’s “skinny” bill includes (1) a $300 per week unemployment bonus, (2) a second round of PPP funds for small business, (3) $105 billion in education funds, (4) $45 billion for pandemic testing and vaccines, (5) $10 billion for the Post Office, and (6) Covid liability protection. The plan doesn’t include a $1200 stimulus payment to individuals or any aid to state and local governments.
Speaker Pelosi for weeks has insisted that she would not split the pandemic bill into pieces. However, she has already split off Post Office funding and has called House members back to Washington on Saturday to vote on that bill. Senate Majority Leader McConnell on Tuesday said that the Senate is unlikely to take up the House’s Post Office bill by itself.
Treasury Secretary Mnuchin seemed open to new talks with House Democrats, saying Tuesday on CNBC, “Since Speaker Pelosi is coming back to look at Postal, hopefully she will be more interested in sitting down.”
President Trump says he called off the review of phase-one trade deal — President Trump on Tuesday said that he was the one who called off Saturday’s 6-month review of the U.S./China phase-one trade deal because, “I don’t want to talk to China right now.” Mr. Trump apparently didn’t want to be seen talking with China while he launches a near-daily barrage of measures against China.
Last Friday, the Trump administration finalized the sale of fighter jets to Taiwan and formally ordered the sale of TikTok’s U.S. assets. On Saturday, Mr. Trump canceled the 6-month review of the trade deal. On Monday, the Trump administration announced the broadening of the ban on dealing with Huawei. On Tuesday, the Trump administration sent a letter to university endowments warning them to divest their Chinese stock holdings because of the risk that the administration might force a delisting of those stocks.
The good news is that even though Mr. Trump didn’t want to be seen talking to China, he apparently doesn’t want to cancel the phase-one trade deal. His aides have been out in force since last week insisting that the phase-one trade deal is fine. More importantly, Mr. Trump himself has said several times in recent days that China is buying lots of U.S. goods. Mr. Trump apparently wants to keep the phase-one trade deal going for the time being to keep the stock market steady and to ensure that China is buying U.S. farm products ahead of the November election.
20-year T-bond auction to yield near 1.17% — The Treasury today will sell $25 billion of 20-year T-bonds, which is up by $5 billion from May’s auction size of $20 billion. The Treasury in May just started selling the 20-year T-bond again for the first time since 1986. Today’s 20-year T-bond issue was trading at 1.17% in when-issued trading late yesterday.
The 3-auction averages for the 20-year T-bond auctions are: 2.53 bid cover ratio, $2 mln in non-competitive bids, 5.8 bp tail to the median yield, 31.8 bp tail to the low yield, and 32% taken at the high yield. The 20-year T-bond is above average in popularity among foreign investors and central banks. Indirect bidders took an average of 63.1% of the last three 20-year T-bond auctions, which is mildly above the median of 62.5% for all recent Treasury coupon auctions.
