Amid U.S. election uncertainty, Fed expected to lay low

WASHINGTON (Reuters) – The Federal Reserve is scheduled to release its latest policy statement on Thursday after two days of debate in which officials lacked a critical piece of information: who will run the United States for the next four years.

FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis

With the final result of Tuesday’s presidential election still uncertain, the U.S. central bank’s policy-setting Federal Open Market Committee is expected to stick closely to its last statement and repeat its pledge to do whatever it can to help the economy through the coronavirus-triggered recession.

Until it’s clear who the next U.S. president will be, “it is the wrong time to be in the public eye,” said William English, a former head of the Fed’s monetary affairs division and now a professor at the Yale School of Management.

“They mostly don’t want to be a source of any additional uncertainty at this point. So they’d aim for a pretty quiet meeting,” he said in a recent interview with Reuters.

The Fed’s latest policy statement, due to be released at 2 p.m. EST (1900 GMT), will update the central bank’s view of the economy and likely repeat a promise to keep its key overnight interest rate near zero until the U.S. labor market returns to “maximum” employment and inflation is on track to exceed the 2% target “for some time.”

Fed Chair Jerome Powell is scheduled to hold a news conference at 2:30 p.m. EST.

Graphic: The risks facing the Fed: Inflation –

Financial markets, at least, reacted calmly to the unresolved presidential election – relieving the Fed of a possible additional problem. Major U.S. stock indexes rose Thursday for a fourth straight day. U.S. Treasury yields have been falling, but Cornerstone Macro analyst Roberto Perli said the decline provided “no fundamental story to tell” about investor perceptions of election-related risk or the path of the economic recovery.

That’s despite a developing scenario that had been deemed a potentially disruptive one, with Democratic nominee Joe Biden now leading the race for the White House but Republicans expected to keep control of the U.S. Senate, a seeming recipe for gridlock over efforts to craft more emergency spending measures to help the economy.

While that may curb some of Biden’s more ambitious fiscal plans – a possible negative for the recovery – investors felt it might also temper any drive to tighten regulations, and so boost business profits.

As counting continued two days after Election Day, slowed by large numbers of mail-in ballots this year, Biden edged closer to winning the presidency. He was projected by Edison Research to be the winner of the key battleground state of Michigan, was leading in Wisconsin, Nevada and Arizona, and closing in on Trump in Georgia and Pennsylvania. Multiple Trump lawsuits and a recount request would have to succeed and find in some cases tens of thousands of invalid ballots to reverse those results.

‘PROLONGED PROCESS’

What may be required of the central bank in coming months hinges on not just the policies the next president pursues, but what is approved by a Congress that is expected to remain divided as it is now, with Democrats controlling the House of Representatives and Republicans the Senate. In the run-up to the election, the two chambers could not agree on further fiscal measures to support the economy as the virus continued to spread.

More than 233,000 people have died in the United States from COVID-19, the disease caused by the virus.

The recession stemming from that health crisis has left millions out of work. As of September, it was estimated that the number of people employed was about 12 million below what it would have been if the pre-pandemic pace of job growth had continued from March onward. The U.S. Labor Department is scheduled to release its closely watched monthly employment report for October on Friday, with many analysts suggesting the job growth pace is slowing to a point where it may require years to fully rebound.

Graphic: The risks facing the Fed: Jobs –

Nonfarm payrolls are expected to have grown by 600,000 last month, according to a Reuters poll of economists. The average monthly gain from May through September was 2.2 million jobs.

“A full recovery of jobs … will be a prolonged process, one that will be primarily dictated by the health crisis,” Rubeela Farooqi, chief U.S. economist for High Frequency Economics, wrote this week.

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