We at KResearch assess that the US Federal Reserve (Fed) will likely keep its policy rate steady at 0.0-0.25 percent during its FOMC meeting slated for November 4-5, 2020 because the US economy has begun to rebound, thus lessening its pressure to cut the Fed Funds rate further. In addition, the Fed changed its longer-run goals and monetary policy strategy in August 2020 while also sending signals to maintain the Fed Funds rate at near zero until at least 2023. Given this, the Fed may keep its policy rate steady at 0.0-0.25 percent and may not introduce any new policies at the upcoming FOMC meeting. Additionally, as the US presidential election is set to be held one day ahead of the FOMC meeting on November 3, 2020, the Fed may not change its monetary policy because it would be politically sensitive at this time.
Nevertheless, close attention must be paid to the results of the US presidential election as they may affect the US fiscal and monetary policy direction going forward. If Joe Biden wins the election and the Democrats can secure the majority in both the House of Representatives and Senate, the Democrats will likely be able to implement economic stimulus measures more easily. The likelihood that the US fiscal deficit will increase along with the recovery in the US economy may cause the US inflation and Treasury yield rates to accelerate, presenting a challenge for the Fed to maintain its policy rate at near zero. However, KResearch expects that the Fed will not shift the policy direction with the Fed Funds rate increase if the US economy has not fully recovered.
Moreover, there are several risks that warrant close monitoring in early 2021, as well. These include: 1) The COVID-19 pandemic in the US and Europe where the number of infection cases is rising over that seen in March and April 2020; 2) The number of new confirmed cases is set to soar during this winter; 3) Petitions will likely be filed regarding the US presidential results, and this may cause the endorsement of election results to be delayed. As a result, the implementation of new US economic stimulus measures will be postponed. In the worst-case scenario where the three risks above emerge concurrently, pressure may shift to the Fed in rolling out additional measures to build confidence in the US economy and ensure that the US economy survives the current crisis.