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The U.S. Federal Reserve kept its key interest rate on hold near zero, but raised its 2021 real GDP forecast to 4.2% and expects unemployment to fall to 5%. Anthony Okolie speaks with Scott Colbourne, Managing Director, TD Asset Management about the path to economic growth.
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- As expected, the Fed left rates unchanged. And they predict zero rates through 2023. Scott, what got your attention today?
- It was largely-- the statement was largely as expected. The markets didn't expect anything on the rates as you pointed out. Up until 2023, no change in rates. The market, I think, was looking for some signal perhaps that they would extend the maturities, the weighted average maturity of the quantitative easing program. So a modest disappointment on that side of things. But they introduced the fact that they are going to continue with quantitative easing until there's substantial economic progress towards their objectives of price stability and employment.
- And I also want to talk a little bit about the stimulus package. Of course, this has been ongoing for some time. But there's growing optimism that Congress is close to a stimulus relief deal. How important is that to the US economic recovery?
- Look, there's been so much focus on this of late. I think the importance of it is that we are going through a challenging period over the next few months through more dealing with the COVID virus. So it's very important. And the markets are looking for some progress on that side of things. So the combination of a very accommodative Fed and the continuation of that, and perhaps at the next meeting in January, we'll get some relief on the extension of maturities by the Fed.
Combine that with the fiscal stimulus and a transition to the new Biden administration, and we'll have some clarity perhaps on the Georgia Senate race, I think that will give the Fed and policy makers and investors a lot more clarity as we go into the new year.
- I want to talk a little bit about that transition to the new Biden administration in the new year. Fed Chairman Powell, his term will be coming up. Do you think his term will be extended by President-elect Biden?
- Fed Chair Powell has been a great chair. He's done a great job navigating the economy through this very difficult period of time. Yes, there is speculation that the Biden administration will look for a new chair. And we've got Janet Yellen going to be the new treasury secretary.
So obviously, somebody that is very familiar with the Fed. And the importance of that relationship going forward in 2021 between the fiscal stimulus and that monetary policy be very important. So I wouldn't surprise me to see him move on at the end of his term. But he'd be a solid candidate if he stayed on.
- And given this low rate environment, which will probably persist for some time, where do you see the US dollar going over the next little while?
- I think it's pretty clear that the US dollar is-- a consensus trade right now is a weaker US dollar. We've had a tremendous boost since March. It wouldn't surprise me to see some near-term consolidation on the back of a little bit of disappointment today that there wasn't a little bit more stimulus.
But broadly speaking, the US dollar will continue to weaken through the course of 2021. I pegged in another 5% on a broad depreciation of the US dollar. And that would obviously lean in towards Canadian dollar strength. But I wouldn't be surprised over the next couple weeks if we have a countertrend trade into the end of the year, profit-taking, position squaring, and a modest disappointment on today's news. So that's my take on the FX market.
- Scott, thank you very much for your time.
- My pleasure. Anytime. Thanks, Anthony.
[MUSIC PLAYING]
- As expected, the Fed left rates unchanged. And they predict zero rates through 2023. Scott, what got your attention today?
- It was largely-- the statement was largely as expected. The markets didn't expect anything on the rates as you pointed out. Up until 2023, no change in rates. The market, I think, was looking for some signal perhaps that they would extend the maturities, the weighted average maturity of the quantitative easing program. So a modest disappointment on that side of things. But they introduced the fact that they are going to continue with quantitative easing until there's substantial economic progress towards their objectives of price stability and employment.
- And I also want to talk a little bit about the stimulus package. Of course, this has been ongoing for some time. But there's growing optimism that Congress is close to a stimulus relief deal. How important is that to the US economic recovery?
- Look, there's been so much focus on this of late. I think the importance of it is that we are going through a challenging period over the next few months through more dealing with the COVID virus. So it's very important. And the markets are looking for some progress on that side of things. So the combination of a very accommodative Fed and the continuation of that, and perhaps at the next meeting in January, we'll get some relief on the extension of maturities by the Fed.
Combine that with the fiscal stimulus and a transition to the new Biden administration, and we'll have some clarity perhaps on the Georgia Senate race, I think that will give the Fed and policy makers and investors a lot more clarity as we go into the new year.
- I want to talk a little bit about that transition to the new Biden administration in the new year. Fed Chairman Powell, his term will be coming up. Do you think his term will be extended by President-elect Biden?
- Fed Chair Powell has been a great chair. He's done a great job navigating the economy through this very difficult period of time. Yes, there is speculation that the Biden administration will look for a new chair. And we've got Janet Yellen going to be the new treasury secretary.
So obviously, somebody that is very familiar with the Fed. And the importance of that relationship going forward in 2021 between the fiscal stimulus and that monetary policy be very important. So I wouldn't surprise me to see him move on at the end of his term. But he'd be a solid candidate if he stayed on.
- And given this low rate environment, which will probably persist for some time, where do you see the US dollar going over the next little while?
- I think it's pretty clear that the US dollar is-- a consensus trade right now is a weaker US dollar. We've had a tremendous boost since March. It wouldn't surprise me to see some near-term consolidation on the back of a little bit of disappointment today that there wasn't a little bit more stimulus.
But broadly speaking, the US dollar will continue to weaken through the course of 2021. I pegged in another 5% on a broad depreciation of the US dollar. And that would obviously lean in towards Canadian dollar strength. But I wouldn't be surprised over the next couple weeks if we have a countertrend trade into the end of the year, profit-taking, position squaring, and a modest disappointment on today's news. So that's my take on the FX market.
- Scott, thank you very much for your time.
- My pleasure. Anytime. Thanks, Anthony.
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