The Federal Reserve kept interest rates pinned near zero on Wednesday and promised to keep them there until inflation is on track to “moderately exceed” the US central bank’s 2 percent inflation target “for some time.”
The change in guidance is part of a monetary policy shift announced by the Fed last month that is aimed to offset years of weak inflation and allow the economy to keep adding jobs for as long as possible. But it came at the cost of two dissents, one from a policymaker who thought it went too far, and the other from one who thought it didn’t go far enough.
In its policy statement, the Fed also began to pivot from stabilizing financial markets to stimulating the economy: the Fed said it would keep its current government bond-buying at least at the current pace of $120 billion per month, but described the goal as in part to ensure “accommodative” financial conditions in the future.
US stocks added to earlier gains after the release of the Fed statement, while yields on longer-dated Treasury securities edged higher. The dollar firmed slightly against a basket of major trading partner currencies.
The coronavirus epidemic continued to weigh on the economy, the Fed said in the statement, released after the end of its latest two-day policy meeting, even as officials upgraded their immediate outlook for the economy.
The virus “is causing tremendous human and economic hardship,” the rate-setting Federal Open Market Committee said. “The Federal Reserve is committed to using its full range of tools to support the US economy in this challenging time.”
New economic projections released with the policy statement showed interest rates on hold through at least 2023, with inflation never breaching 2 percent over that time. Policymakers saw the economy shrinking 3.7 percent this year, far less than the 6.5 percent decline forecast in June, and unemployment, which registered 8.4 percent in August, was seen falling to 7.6 percent by the end of the year.
All Fed policymakers saw rates staying where they are through 2022, with four eyeing the need for an increase in 2023.
But in pledging to keep rates low until inflation was moving above the 2 percent target, to make up for years spent below it, the Fed reflected its new tilt toward stronger job growth, announced late last month after a nearly two-year review.
Both dissenters to the statement, Dallas Fed President Robert Kaplan and Minneapolis Fed President Neel Kashkari, took specific issue with the central bank’s guidance that it would keep interest rates where they are “until labor market conditions have reached levels consistent with … maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”
Kaplan said he would have preferred to have “greater flexibility” once inflation and maximum employment were on track to reaching the Fed’s goals, an easier hurdle to reach. Kashkari’s dissent suggests he wanted a higher hurdle: for rates to stay where they are until core inflation – which often runs cooler than overall inflation – has reached 2 percent “on a sustained basis.”
Fed Chair Jerome Powell began a virtual news conference shortly after the release of the policy statement and economic projections.
Stocks end higher on stimulus hopes even as Wall Street slams debate
Stocks ended the day higher on Wednesday, no thanks to Tuesday night’s chaotic and widely-criticized presidential debate.
Stock indices soared in early morning trading with the Dow Jones industrial average rising more than 550 points at the session’s high on renewed hopes for a stimulus package.
Speaking at CNBC’s “Delivering Alpha” conference, Treasury Secretary Steven Mnuchin said he is “hopeful” about coming to an “understanding” with House Speaker Nancy Pelosi on a stimulus package as soon as this week.
“I say we’re going to give it one more serious try to get this done and I think we’re hopeful that we can get something done,” Mnuchin said at the conference, which is co-hosted by Institutional Investor magazine. “I think there is a reasonable compromise here.”
Investor’s pared back their enthusiasm somewhat after Senate Majority Leader Mitch McConnell poured cold water on hopes that a new bill is imminent or even feasible. Mnuchin and Pelosi were still in negotiations as the markets closed.
The Dow ended the day up 329.04 points, or 1.2 percent, to 27,781.70, while the S&P 500 gained 0.8 percent, or 27.53 points, to 3,363.00. The Nasdaq climbed 82.26 points, or 0.7 percent, to finish at 11,167.51. All three indices are down 4 percent or more for the month, however, marking the end of a welcome nine-month streak.
Wednesday’s gains came despite blistering criticism from high-profile corners of Wall Street over President Trump’s handling of Tuesday night’s debate.
“So far the stock market doesn’t seem too upset at the prospect of Biden winning, despite Trump’s more market friendly policies,” tweeted former Goldman Sachs CEO Lloyd Blankfein. “Perhaps folks think their stocks and 401(k)s will do better with higher taxes and increased regulation than with nastiness and scorched earth.”
Referring to Trump’s debate comment that noted hate group Proud Boys should “stand down and stand by,” billionaire investor Barry Sternlicht told the Delivering Alpha conference on Wednesday morning that he no longer backs Trump to win in November.
“That was it for me,” pronounced Sternlicht, who has been supportive of the president on numerous issues. “I have no room in my life for that.”
The stock market didn’t reflect the criticism largely because investors don’t care at this point who wins, even a tax-raising Democrat, so long as there’s not a contested election, experts said.
“Wall Street isn’t worried about a Biden win as much as it is of a a contested result,” said Jason Ware, chief investment officer at Albion Financial Group. “Whether it’s Biden or Trump is not going to have a major impact on equities.”
That sentiment was echoed Wednesday by a hedge fund manager who called the debate a “nightmare” and noted that each candidate has his pros and cons.
“I like what Trump has done for me on taxes and regulation, but it’s gotten too crazy. I’m okay if Biden raises taxes, and I can sleep at night.”
Google eliminates face scanner from its new Pixel 5 smartphone
Google has abandoned the face scanner on its flagship Pixel smartphone — just a year after introducing it with fanfare.
The search giant announced two new 5G Pixel phones at its annual hardware event, a bite-sized keynote that lasted just 30 minutes, both of which featured fingerprint sensors in lieu of the sensors it introduced last year.
The Pixel 4 had what Google last year bragged was the fastest face-unlock technology in the business, as well as a radar chip that allowed users to do such things as skipping songs by gesturing with their hands above the screen.
For the Pixel 5’s unveiling, however, Google didn’t spend any time talking about the phone’s bells and whistles, instead opting to focus on the device’s bread-and-butter features
The search giant spent only a few minutes on the latest version of its flagship phone, touting its edge-to-edge display and top-of-the-line camera array, which now includes an ultra-wide angle lens.
The reaction to the omission of facial recognition was generally positive, with Twitter users celebrating the return to the biometric sensor.
“I kind of want to get the Pixel 5 just for the fingerprint reader,” one person tweeted. “In the era of masks, face unlock isn’t ideal.”
Google’s newest phone will also feature an “Extreme Battery Saver” mode, which the company says will help stretch the device’s battery life as long as 48 hours by allowing users to pick and choose which apps are working at any given time.
The $699 phone will likely be significantly cheaper than rival devices from Samsung and Apple — which has yet to reveal its upcoming iPhone 12 — and will be released on Oct. 15.
Google also confirmed the Pixel 4A, a cheaper Pixel model that can also access 5G networks. The $499 phone will be released in November.
The Mountain View, Calif.-based tech giant also announced a new, $99 Nest smart speaker to take over as the main device in its Google Home product line, as well as a the first Chromecast device with a remote control.
The Chromecast includes Google TV, the company’s answer to Amazon Fire TV and other streaming platforms. Customers will be able to use the remote to browse different streaming apps through the entertainment hub.
Facebook to begin merger between Instagram, Messenger chat functions
Facebook said Wednesday it would start replacing the direct messaging service within Instagram with a version of its Messenger app, the first major step in its plan to tie together messaging across its suite of apps.
The move enables users of each service to find, message and hold video calls with contacts on the other without needing to download both apps.
It also introduces features like custom emojis and themes that have been mainstays on Messenger but were not previously available in Instagram’s minimalist messaging product, along with new features like disappearing messages.
If users accept the update, the messaging icon in Instagram will change to the Messenger logo. As on Messenger, Instagram users – who have not been able to forward messages – will be able to do so to a maximum of five people at a time.
“The goal of this exercise is to get to the point where we build something once and then it works across [apps], so we don’t have to repeat the same thing multiple times,” said Messenger chief Stan Chudnovsky.
An initial launch will begin on Wednesday in a few unspecified countries and then be rolled out globally soon.
Chief Executive Mark Zuckerberg first announced a vision for cross-app messaging early last year. The company eventually aims to integrate WhatsApp and extend end-to-end encryption across all three services.
The move is likely to figure in antitrust deliberations over Facebook’s acquisitions of Instagram and WhatsApp, which are the subject of several probes.
Antitrust experts have raised concerns that weaving the services together could make it more difficult for regulators to break up the company.
Chudnovsky said no new categories of user data would be swapped between Instagram and Messenger beyond what was already shared, as both messaging services have relied on the same back-end infrastructure for years.
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