Powell Warns of Uncertainty
Fed Chairman Powell was back in the limelight this week, speaking at the Senate banking committee on Tuesday.
In his testimony to senators, Powell warned that there is “significant uncertainty” in the bank’s outlook for the US economic recovery. He explained:
“Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that the disease is contained, a full recovery is unlikely.”
COVID-19 Numbers Rising Again
Powell’s comments were particularly pertinent given that some US states have been reporting a steady uptick in new infections. This has come over recent weeks following the lifting of lockdown measures.
Among those reporting new infections, Florida recently reported its largest weekly number since the pandemic began. Elsewhere, Texas also reported its largest daily spike since the pandemic began.
These reports have sparked fears that a fresh outbreak is imminent. However, Trump has sought to downplay the news, attributing it simply to a dramatic increase in testing numbers.
Powell went on to lament the toll the lockdown has taken on employment, specifically for those who are low-income workers, minorities and women, saying:
“If not contained and reversed, the downturn could further widen gaps in economic wellbeing that the long expansion had made some progress in closing.”
There are signs that the worst of the economic damage has passed, however. The May jobs report which was forecast to see -7.5 million jobs, shocked everyone by bouncing back to a record 2.5 million jobs.
Meanwhile, retail sales for last month (released yesterday) also came in much stronger than expected at 17.7% vs the 7.9% forecast.
However, Powell has been very clear in his warnings that despite some recent encouraging data, there is still a very long way to go.
Trump Weighing Up Further Relief
Following the approval in Congress of the $3 trillion Cares Act (coronavirus relief funds), there have been reports this week that the president is considering further relief by way of a $1 trillion infrastructure proposal.
Congress has been discussing adding further relief to help the Fed in its battle to support the economy. Trump’s reported proposal could come into effect as soon as September 30th. That is when an existing infrastructure funding law is up for review.
Powell Warns of Long-Lasting Damage
Continuing with his testimony, Powell said:
“The longer the downturn lasts, the greater the potential for longer-term damage from permanent job loss and business closures… The Cares Act and other legislation provide direct help to people, businesses, and communities. This direct support can make a critical difference not just in helping families and businesses in a time of need, but also in limiting long-lasting damage to our economy.”
DOW Rallies Off Support
US stock markets have rallied on the back of reports of Trump’s proposal. The DOW recently retested the bullish trend line and structural support at the 24624 level. This level is holding for now.
While price holds above here, focus is on continued upside. A fresh challenge of the 27435 level is next, ahead of the bigger resistance level at 28186.