The U.S. Federal Reserve keeps its key interest rate on hold near zero, but called for more fiscal stimulus to cushion the economy from the impact of the pandemic. Anthony Okolie speaks with Scott Colbourne, Managing Director, TD Asset Management about the implications for U.S. economic growth.
- As expected, the Federal Reserve left interest rates unchanged. Scott, was-- did anything stand out for you today?
- Hi, Anthony. Yeah, it was a pretty unexpected-- you know, as expected event, today. A non-event, if you will. So it's a quiet day, one of those rare moments where the Fed is really just a bit of a slide show today. So they left everything unchanged, minor modifications to their statement, really reflecting a continued recovery in the economy. But really trying not to be much of an event on-- well, otherwise a pretty interesting time.
- And certainly, you mentioned it's a bit of a non-event with the uncertainty around the US elections. But could there be any implications if we don't see, what some are expecting, a Biden presidency?
- Yeah. I mean, I think going into the election there was an expectation of the blue wave, right? And so we saw a steeper yield curve, the long end selling off. And the reversal of that, on what is expected to be essentially a Biden presidency with a Senate Republican majority. So, you know, there's always another chance of something else.
We could-- Trump could win the presidency, or we could have a blue wave with the runoffs in January, potentially, in Georgia for the Senate. So there are implications that that would filter through into the bond market. But from a monetary policy point of view, the Fed is really keeping things in check, wanting to monitor how the economy will evolve, particularly as it relates to the uptick in COVID and the economic activity associated with that.
- And you mentioned things like the uptick in COVID. Do you think that the Fed has any more levers to pull to support the economy, or are they looking more towards, potentially, a fiscal stimulus package instead?
- I mean, I think every central bank says, over to you, politicians. A bit of fiscal stimulus is what we want, and so with a bit of gridlock potentially and a smaller fiscal stimulus package potentially out of the US. Then the Fed may have to do a little bit of heavy lifting later on.
So-- and the potential for the delay and any enactment of the fiscal stimulus package in the US is going to weigh on the markets, as well. So central banks have lots of creativity, lots of tools left in the toolkit, and the ability to buy more QE. So they'll stand by as ready. But for the time being, I think everywhere around the globe, every central banker wants more out of politicians.
- What else will you be watching over the next few months for signs of-- that the US economy is on the road to recovery?
- Well, I think it's-- everybody is watching how the economy develops as we go into winter in the Northern Hemisphere and the development of more COVID cases and the potential impact and lockdowns that it will have on economic activity. And so that's the key focus right now of the markets. But I-- at this point, the expectation is policy support will be there to underpin the markets from any deterioration. And certainly, we'll all watch the development of any therapeutics, particularly the vaccine developments. And so that has a real chance of underpinning the economic activity through 2021.
- And I want to ask you about the US dollar. Given this low rate environment, which of course, we think will persist for some time, where do you see the US dollar going over the next little while?
- US dollar's been weakening for a while now. And there was a bit of a pause as we went into the election, a little bit of a pop, a rally in the US dollar. The trends are reasserting itself, not a lot of support from a real yield on a global basis in the US rates market anymore, continued expectation of fiscal deficits, and a growth on the debt side.
And so it's an expectation, a continuation of that trend. And to the extent that we see a continued global recovery, particularly led by China and emerging markets, that you'll see a recovery in those currencies. And certainly, that'll support the Canadian dollar as well versus the US dollar.
- Scott, Thank you very much for your time.
- My pleasure. Always good to talk. Thanks, Anthony.