The Fed admits ignorance (no one is surprised)

Posted by: Paul Donovan

30 Jul 2020

Daily update

  • Fed Chair Powell said nothing markets did not already know, but nothing was said with a moderate amount of eloquence.  Powell suggested that the path of the economy depended on the path of the virus, which is obviously incorrect. The path of the economy depends on the path of fear of the virus.
  • US second quarter GDP is due today. The data will be annualized, which in the middle of a pandemic is a process so absurd as to defy any sort of economic logic. Using the ridiculous annualization, the range is from -25% to -40%. Although consumers rushed to spend as lockdowns eased, production will have taken longer to pick up (which is why the bounce-back is a third-quarter story).
  • The Fed did announce an extension of international dollar swap lines. As the dollar is the major global reserve currency, a modest recovery in trade (in the near term) will increase international demand for dollars. Because demand is being matched by supply, this has no inflation implication.
  • Japanese retail sales bounced back as consumers exited lockdown, in line with other countries' experiences. German unemployment and assorted European consumer price inflation numbers are due.

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