It is fair to say that the relationship between the Fed and the US administration has not been a particularly pleasant one over the course of the current presidency. Following Powell’s appointment as Fed chairman, Trump has consistently criticised both the central bank and Powell personally for now acting to ease monetary policy level as much as he would have liked during the trade war he inflicted on not just the US but the rest of the world. Following last night, it is also fair to say that tensions between Trump and Powell are unlikely to improve much.
Treasury Secretary Steven Mnuchin and Jerome Powell were last night testifying in Congress over the handling of the COVID-19 outbreak and giving their views on what needs to be done in order to help address the situation in the most effective way. At a time of great national need, you would be forgiven for thinking that this would lead to some unity on viewpoints. Instead the two men offered varying diagnoses on what the next steps should be.
Mnuchin was keen to hammer home the message that has been at the heart of the administration’s communications, saying that continued lock-downs (and resultant business closures) risk long-term damage to the economy with high levels of bankruptcy and unemployment.
Powell Calls For More Support
Powell, however, was keen to stress the need for further financial aid from congress for municipalities, corporates and individuals alike in order to avoid an even deeper recession. Commenting on the steps taken so far, Powell said: “What Congress has done to date has been remarkably timely and forceful. But we need to step back and ask, ‘Is it enough?”.
Questioned over when the respective agencies of both men will be distributing more of the emergency aid which Congress provided on the back of a bill passed earlier in the year to offer support during the period, Powell said that he anticipates its small business lending program should be operational by the end of May. Mnuchin, at this point, back-tracked on previous comments made regarding this program and said that the government is now prepared to accept losses through that program, allowing the Fed to extend its work.
Government Accused of Risking Workers’ Lives
However, there were clashes as Mnuchin argued with some of the panel over the government’s backing of a phased re-opening of the economy and reluctance to require companies receiving government help to keep all employees on the payroll. Ohio’s senator Brown accused the administration of carelessly risking the lives of low-income works solely in an effort to boost financial markets, saying: “The administration wants to put more workers at risk to boost the stock market” to which Mnuchin replied saying the assessment was “unfair”.
The panel hearing yesterday was penned as the first of a series of events planned to act as quarterly oversight for the management of the $2 trillion Federal relief package being jointly run by the Fed and the Treasury. Part of this program is the $660 billion in funding for small businesses, referred to as the paycheck protection program (PPP). With unemployment in the US soaring to levels not seen since 1933 last month (NFP registered -20.5 million jobs) the demand for financial aid is growing exponentially. The biggest risk factor now is whether the easing of lock-down measures in the US will lead to a second spike in the virus which could force measures to be re-introduced, leading to further economic woe. In such a case, aid and support from both the Treasury and the Fe would need to be stepped up again.
S&P500 (Bullish above 2884.50)
From a technical viewpoint. The S&P is once again retesting the yearly pivot (2975.75) and the underside of the broken channel. With VWAP turned positive here, a break to the topside is still viewed though, with momentum studies showing strong bearish divergence, a drop lower cannot be ruled out. Bullish bias will remain intact while price holds above the monthly pivot (2884.50).
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