Economics Weekly: Where Can the Fed Go Next?

Friday, September 18, 2020

Certainly, one of this week's main highlights on the macro front was the FOMC meeting and Fed Chairman Powell's post-meeting press conference. In the end, the Fed did little more than hard code the language of the new average inflation-targeting policy into the FOMC statement and strengthen its forward guidance by stressing that it will not raise rates for many years to come (unless, of course, the situation drastically changes). Regarding the latter point, Powell stated that this is a "very strong, very powerful guidance [that] shows our confidence and our determination." In his press conference, Powell also added that there is plenty more the Fed can still do: "I certainly wouldn't say that we're out of ammo. Not at all, we do have lots of tools. We've got the lending tools. We've got the balance sheet. We've got further forward guidance. There's still plenty more that we can do."

In this Economics Weekly, we take a look at one key gauge that the Fed has increasingly used for its policy stance—the Financial Conditions Index—and assess just how much more room it has to act and what corners of the market are the most likely to be impacted.

For a copy of this report or to subscribe to the Economics Weekly or Economic Indicators reports, please contact your William Blair representative.

Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.

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