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Fed holds rates at near-zero level

Yahoo Finance’s Alexis Christoforous and Brian Cheung discuss the latest Federal Reserve decision to hold rates steady.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, that Fed decision is out. Brian Cheung is here to break it down for us. Brian, what can you tell us?

BRIAN CHEUNG: Hi, Alexis. Well, a little bit of a snoozer, but the Federal Reserve keeping interest rates at near zero. The statement that was released again for this November FOMC meeting. Only a few changes in the policy statement relative to the statement in September.

So, again, holding rates steady near zero, but they did describe economic activity and employment as, quote, "continued to recover." That's a change from them describing it as having picked up in recent months in the September meeting. They did note that weaker demand and also earlier declines in oil prices from a few months ago have continued to hold down consumer price inflation. So no real inflation at least from the Fed's view.

And then one final very small change in the statement was then describing overall financial conditions in the US economy as remaining accommodative, as opposed to the September language of having improved in recent months.

But Alexis, other than that, the whole rest of the statement is exactly the same. One notable difference here is that this was a unanimous decision, whereas if you recall in that September FOMC, there were two dissents, one from Robert Kaplan at the Dallas Fed, in addition to the Minneapolis Fed president Neel Kashkari.

Not the case for this November meeting. It was a unanimous decision, although I should note that Neel Kashkari, who is a voting member this year, was not available for this meeting. He tapped out because of the birth of his child on Tuesday. So San Francisco Fed president Mary Daly stepped in and, again, sided with everyone else on the voting committee in approving this particular statement.

So nothing new particularly there. All eyes were specifically on whether or not there would be any announcements on ramping up of quantitative easing, but nothing specifically in this statement, although, as we know, in about 29 minutes, Fed Chairman Jay Powell will have that press conference where he could provide some color and possibly tee up that policy action as soon as the December meeting. But again, we need to wait for a few minutes before we hear from the Fed chairman.

But from the policy statement, big headlines. No real changes there. Economy having continued to recover, but them still holding interest rates at near zero. Alexis.

ALEXIS CHRISTOFOROUS: Brian, when he does hold that presser, do you think he's going to make another big push for a stimulus package for more support coming from the fiscal side? Of course, this all coming as we still don't know who the next administration will be in the White House. But do you think that he's going to continue to toot that horn?

BRIAN CHEUNG: Well, this is a very challenging timing for the Federal Reserve to have a policy statement in the middle of a contested election, if you will. Of course, if there were to be any sort of questions coming from the press about whether or not Chairman Powell has any thoughts on the market implications or the political implications of what's transpiring in the electoral vote counting right now, he would probably deflect. The Fed chairman has been very adamant on not wanting to comment on things that political in nature.

But of course, we have heard over the past few months that, broadly, the Federal Reserve has been extremely disappointed in the lack of a second CARES Act, if you will, coming from Congress or the White House. They've been arguing that they have the ability to really target support to households and businesses that could really use that money to bridge the gap because the Federal Reserve can only lend through its facilities and lender of last resort powers, not offer grants or essentially money drops like the PPP program, if you will.

So the Federal Reserve is likely to hammer on that through the Fed chairman's remarks in that press conference today. And worth noting that, as is the case with previous statements, the Fed has said that policy measures have broadly supported the US economy up until this point. That's not just monetary policy. That's fiscal policy as well. I think the Fed chairman will likely hammer on that point yet again in his press conference this afternoon.

ADAM SHAPIRO: Hey, Brian, Adam here. Good to see you. Do you [AUDIO OUT] have questions to Jay Powell about the different kind of [AUDIO OUT] they were offering and also the Treasury in conjunction programs, you know, the Muni Bond Program. There was a question as to whether that would be renewed or not.

BRIAN CHEUNG: Yeah, absolutely. Well, when you consider that the Federal Reserve has opened up 13 liquidity facilities to backstop everything from municipal bond markets to corporate debt markets, it's important to note that they launched a lot of those earlier in the spring with the intention of closing them down as of December 31st. In fact, if you look at 12 of those 13 liquidity facilities, they all have an expiry date of December 31st. That's coming up very closely.

So there was some chatter before this meeting about whether or not the Federal Reserve could extend those. There was no announcement of that in the press statement that was released about four minutes ago. So, as is the case, at least for right now, those 12 liquidity facilities, which cover the municipal lending facility that you just referenced, Adam, are set to close on December 31st.

Now, one thing I want to highlight is that doesn't mean that any sort of holdings that the Fed has as of December 31st have to get chucked to the wayside or sold off in the open market. The Fed could continue to hold onto those holdings as long as it needed to. But it could not accept any sort of new applications for new loans to, say, the state of Illinois or to the Metropolitan Transit Authority, as it has right now, past that December 31st date.

So, again, as we see the virus cases continuing to go up, it could definitely be the case that the Federal Reserve would see some argument for extending those facilities. But again, no announcement right now. It could be possible that the Fed chairman provides a little bit more light into that in the press conference taking place in about 25 minutes.