The Day at a Glance | August 20 2020

The Top

· FED meeting minutes reveal great concern about risks to the economy and financial stability in the second half of 2020.

· Jobless claims in the US surprise to the upside: 1.1M vs 925k e. (Aug 15).

· FED will reduce weekly SWAP operations of dollars with other central banks around the world starting in September after an improvement in funding.

Economic environment

The United States Federal Reserve showed concern about the risks that could affect the economy and financial stability in the following months, after it published its most recent monetary policy meeting minutes. The economic recovery in recent months has surpassed estimates, particularly in consumption, but uncertainty prevails and the improvement in the economy will highly depend on the virus, its evolution and the response that it’s given. Members of the FED assured that there are still important risks linked with a probable new wave of the coronavirus, some of which are: Pressures on the financial system due to excessive debt, possible restrictions regarding credit provided to households and businesses, and a greater likelihood of insolvency. Additionally, they reiterated the need to extend the fiscal stimulus, assured that other economies in the world are in very vulnerable situations and are concerned about the excessive amount of debt issued by the US Treasury, which could affect markets. In its assessment, the FED considered that the consequences of an extended pandemic would be above all deflationary, which is why it maintained its commitment to keeping interest rates close to zero and purchasing programs at current levels; even though it is still not inclined to carry out more aggressive measures, such as controlling the yield curve. The FED`s version contrasts with market expectations, which in the last few months has discounted a more favorable scenario for the second half of the year. What also surprised markets was the fact that the FED did not discuss decisive actions to avoid the materialization of the risks that it listed.