The Fed is expected to stay on course at this week’s Federal Open Market Committee meeting, but investors don’t underestimate what else the bank can do, says Mark Haefele, UBS Wealth Management’s leading investment director, overseeing $1. 4 trillion in assets.
Central banks in the United States, Japan, the United Kingdom, Taiwan and Indonesia are holding political meetings this week on how to stay on track of economic recovery. Many are concerned that traditionally low rates in major economies will leave the financial government with less equipment if additional relief is needed.
Haefele has a contrary opinion and customers on a note Tuesday to the post for years of accommodative politics.
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Fed policymakers have already indicated that rates will remain close to 0 to 2022. Markets expect the low-rate environment to last until 2025 for the economy to recover fully from the collapse of the coronavirus. genuine negative returns for the foreseeable future,” Haefele said.
Investors who own such assets look to higher-yielding stocks and assets to capitalize on other financial easing efforts, he added.
One comes from the Fed’s quantitative easing programs. The central bank’s balance sheet has more than doubled in 2020, and the Fed can still increase its buying speed or move to long-term securities for the economy.
The Fed’s updated policy framework also leaves room for additional relaxation. The central bank announced at the end of August that it would update its inflation target of 2% with a broader goal of achieving an average rate of 2% over time.
This substitution allows for an era of higher inflation than usual to compensate for periods of stagnant value growth. Policy makers can simply input equipment such as the forward and rate curve for higher rates.
Overall, investors deserve to prepare for additional assistance from the central bank, even after their unprecedented efforts, Haefele said. Pressure for additional relaxation intensified during the month, as Congress remains stuck in stimulus negotiations. The Fed would possibly have to take a step back to contain the country’s uptick.
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