COVID | Monetary Policy & Inflation | US
A May pause in new policy initiatives against a backdrop of slow support to the real economy creates downside market risks. Over the longer run though, continued improvements in COVID news, a robust Fed put, and the US electoral cycle suggest more market upside from current levels.
The SPX has retraced 60pct of its February-March decline but this speedy recovery could get tested over the next few weeks for three reasons. First, new policy initiatives are unlikely. The Fed has been slowing its purchases of securities and at the April 28th FOMC meeting chair Powell stated that the policy stance was appropriate (chart 1). On the fiscal side, Republicans are increasingly divided over the need for further large relief bills while Republicans and Democrats are arguing over federal support to the states. In addition, Congress is in recess for a week starting on May 23rd, which suggests new policy measures won’t get finalized until well into June.
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.