04 Aug June 12, 2020
The Fed
As expected, the Federal Reserve Open Market Committee (FOMC) left its federal funds rate unchanged at the current range of 0.0%-0.25% and affirmed its commitment to continue asset purchases at current levels. In its statement, the Fed recognized the negative impact the coronavirus pandemic inflicted on the U.S. economy, particularly the “surge in job losses” in the U.S. labor market. Further, it noted the considerable risks the health crisis poses over the medium term. These concerns are reflected in the new Summary of Economic Projections and a “dot-plot” which shows the member’s near unanimous expectation of maintaining short-term rates near zero into 2022.
Our Take: The Fed remains committed to its support of the U.S. economy. With the lingering impact of the economic shutdown restraining labor market conditions, inflation, and growth, the Fed is unlikely to raise rates for the foreseeable future.
Inflation
Consumer prices fell 0.1% in May while producer prices rose 0.1%. Year-over year, consumer prices have risen 0.1% while producer prices have fallen 0.8%.
Our Take: Due to the amount of government stimulus recently pumped into the economy, there is considerable fear of rising inflation. In the current environment, however, persistent low inflation is more likely, as economic activity is likely to be constrained by reduced income due to job losses.
Municipals
Colleges and universities have issued almost $23 billion of debt this year according to Bloomberg. This amount is nearly seven times larger than the amount issued over the same time period last year. Some colleges and universities are using the funds to finance construction and infrastructure projects, while others are refinancing existing debt.
Our Take: Uncertainty about students returning to campus continues to surround colleges and universities. It is not surprising that college and university borrowing is increasing. Many higher education institutions, like many state and local governments, have experienced a decline in revenue this spring.
All expressions of opinions are subject to change without notice in reaction to shifting market conditions. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities and should not be relied on as financial advice.