ServiceTHE JULY MEETING

After a very aggressive maneuver, which has led to important results, the US central bank is reducing its monetary base and budget size, perhaps to curb the boom in the money supply

by Riccardo Sorrentino

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(AFP)

After a very aggressive maneuver, which has led to important results, the US central bank is reducing its monetary base and budget size, perhaps to curb the boom in the money supply

3 ‘of reading

Mission accomplished? Not yet, of course, but at the July meeting, the Federal reserve can declare victory on several fronts to the point that, silently, it has started a partial reverse. Nothing that can deny the ultra-expansive orientation of this phase – the United States is still struggling with a rather strong epidemic – but not irrelevant.

Financial stability ensured

THE FIC CHICAGO INDEX OF FINANCIAL CONDITIONS

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Financial markets are stable. Beyond their performance – the Wilshire 5000 Total market index, which takes into consideration all the listed US has not yet reached, for example, the February highs, even if it is now very close – the Fed’s national index of financial conditions of Chicago, which takes into account weekly a hundred different trends and measures the stability of the markets, shows not only a rapid return to the “expansive” area, below zero – which corresponds to the long-term average – but also the rapidity of the Fed response, which made the epidemic crisis a minor episode in US financial history.

Yield curve at 6-year lows

THE PERFORMANCE CURVE IN 2020

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The financial conditions relevant for monetary policy meanwhile show a yield curve that is now much lower than the levels of the end of quantitative easing, in 2014. Also the modest increase that had been recorded in June, in the longer maturities of the curve compared to March and April, it was canceled. Meanwhile, the effective exchange rate of the dollar, less important than returns, stabilized around 120, much higher than the post-Great recession average (at 103), after losing 6% between March and June. The Wilshire 5000 index is still 4.3% lower than the March highs, but had lost up to 34.7 percent.