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Senior Economist at UOB Group Alvin Liew reviewed the latest release of the FOMC minutes.

Key Quotes

“The latest minutes from the Federal Open Market Committee (FOMC) meeting on 28/29 April revealed that US central bankers were concerned about the economic threat and the risks to financial stability due to the coronavirus disease (COVID-19) pandemic and the measures taken to protect public health.”

“The FOMC participants and staff provided a sobering assessment about the consumer spending, the jobs market, business activity, investment spending, manufacturing, small businesses, and the energy sector.” Meanwhile, the overall effect of COVID-19 is seen as disinflationary and the FOMC expects the return of 2% inflation objective to be further delayed.”

“The FOMC participants were supportive of the fiscal policies that were seen as “crucial for limiting the severity of the economic downturn” but acknowledged that even greater fiscal support may be necessary if the economic downturn persists.”

“Participants noted “the economic effects of the pandemic created an extraordinary amount of uncertainty and considerable risks to economic activity in the medium term”. Great uncertainty is encapsulated in their discussion of “several alternative scenarios with regard to the behavior of economic activity in the medium term that all seemed about equally likely.” A number of participants judged that there was a substantial likelihood of additional waves of outbreak in the near or medium term which will cause further economic disruption.”

“Going forward, the Fed will do more especially when the expectations of a “unprecedented” 2Q comes to pass. To date, the Fed has launched 5 lending programs and it is expected to launch another four more, including the US$600bn Main Street Lending program by end of May. That said, we continue to believe the Fed is willing to do more but negative policy rate remains low on their hierarchy of options.”