Written by Jasir Jawaid
While financial market liquidity has improved significantly since mid-March, lingering effects of the "extraordinary volatility" during that time and the uncertain financial environment are "limiting improvements" in some liquidity metrics, according to a senior official at the Federal Reserve Bank of New York.
Such uncertainty, tied to the future path of the coronavirus, "makes it prudent to protect against further shocks," said Lorie Logan, executive vice president in the Markets Group at the New York Fed, during a webinar hosted by the Securities Industry and Financial Markets Association.
Logan said liquidity providers have been somewhat more cautious due to many firms implementing work-from-home mandates and the ongoing uncertainty surrounding the virus.
"Purchases over coming months will help mitigate risks of renewed stress and sustain continued smooth market functioning," she said.
Lastly, the New York Fed official noted that the Fed is now announcing a monthly purchase amount and that it has lengthened its purchase schedules to semi-monthly periods for both Treasuries and mortgage-backed securities as it shifts to a program focused on sustaining smooth market functioning.
"We will remain vigilant for signs of deterioration in market functioning and flexible in adjusting our operations as needed," Logan said.
Meanwhile, Philadelphia Fed President Patrick Harker said the U.S. could see negative 20% real GDP growth in the first half of the year followed by 13% growth in the second half. Growth in 2020 would end up at around negative 6%.
"That's a much sharper recession than we experienced during the financial crisis," he said in a speech for the Center City Proprietors Association. However, he acknowledged that such projections are subject to change with the path of the virus.
In an appearance on Bloomberg TV, Harker said he supports the idea of letting inflation top the Fed's 2% target before the central bank takes any action with respect to the federal funds rate. He said he is also "a little skeptical" that the July jobs report will be as strong as the prior two monthly reports due to the resurgence of the virus.
This article was published by S&P Global Market Intelligence on the S&P Capital IQ Pro platform.
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