Time is running out on 2020.
It is a point that some Wall Street investors might find some comfort in ahead of a what could be a crucial meeting of the Federal Reserve next week, even if no fundamental changes to policy are expected.
“This week’s Fed meeting holds great consequence not only for the typical monetary policy implications associated with an [Federal Open Market Committee], but also as arguably the final ‘tradable’ event of 2020,” write Ian Lyngen and Ben Jeffery, fixed-income analysts at BMO Capital Markets in a Friday note.
The Fed holds its final policy meeting of the year on Dec. 15-16.
“There is, perhaps, a little bit more uncertainty than normal as to where the Fed will land,” on a number of key points, heading into the end of the year, Krishna Guha, vice chairman of Evercore ISI, told MarketWatch in a Friday afternoon interview.
Guha, a former Fed communications official, ex-member of the New York Fed’s Executive Committee on Financial Stability and Regulatory Policy, as well as an economics journalist in a former life, knows well the task that lays before Fed chair Jerome Powell as the central banker sets the table for the year ahead that will likely still be dominated by the COVID-19 pandemic, the central bank’s response to it, and a hoped-for economic recovery in full bloom.
Stock markets have leaked oil in the first full week of December, ending lower and halting a multiweek win streak , after an otherwise solid start to the past month of the virus-stricken year.
Investors have grown more optimistic amid the promise of the Food and Drug Administration’s authorization of the Pfizer /zigman2/quotes/202877789/composite PFE +0.93% and BioNTech /zigman2/quotes/214419716/composite BNTX -1.36% experimental vaccine for the coronavirus that is already being deployed in the U.K.
But a number of factors are worrying market participants, including a lack of firm progress on another round of fiscal relief from lawmakers in Washington, a potential no-deal Brexit , and fears that stocks are scaling new heights even as the virus is infecting more people across the globe .
Against that scenario, Guha said that the two-day meeting that ends Wednesday could prove pivotal.
“This is an important meeting at which the Fed may very well clarify its [quantitative easing] plan and adjust some of its QE settings and this is particularly important for markets,” the Evercore researcher said.
A number of economists believe that the Fed should tamp down on any further steepening of the U.S. Treasury yield curve by shifting the focus of its purchases to longer-dated bonds from shorter-dated instruments.
The Fed has been buying $120 billion a month in Treasury and mortgage debt to hold down long-term yields.
“In our judgment, the simplest, and most direct, way for the [Federal Open Market Committee] to provide more support for the economy right now would be to buy more duration, writes Lewis Alexander, US Chief Economist at Nomura, in emailed comments.
“ That is what we expect the FOMC to do next week if it decides to provide more accommodation,” writes Alexander.
Guha isn’t certain that the Fed will commit to indicating that it will buy longer-dated bonds at this meeting but thinks that it should.
The 10-year Treasury yield note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.39% was at 0.889%, down nearly 11 basis points from 0.968% last Friday, as Brexit concerns and a muted inflation report helped to support appetite for bonds, pushing prices higher and yields lower.