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COVID-19 BUSINESS UPDATES

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Smoke on Cars

No Surprise: Fed Leaves Rate Policy Unchanged, Pledges Continued Support for U.S. Economy

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Article Highlights

  1. The Fed's decision to leave rate policy — already at the zero lower bound — unchanged was no surprise.
  2. In a unanimous statement, the Fed affirmed that they would “…use its tools and act as appropriate to support the economy.”
  3. The financial markets did not respond much to the announcement, which is a clear reflection that the Fed is doing what the market expected them to do.

The Fed made no surprises today when they left rate policy — already at the zero lower bound — unchanged. The Fed’s statement and press conference affirmed the gravity of the economic situation created by the COVID-19 pandemic and in essence pledged to continue to do whatever it takes to get the U.S. economy through this. In a unanimous statement, the Fed affirmed that they would “…use its tools and act as appropriate to support the economy.” Rates will remain low as long as necessary or “until [the Fed] is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price objectives.”

Also of note, the Fed remains committed to asset purchase programs “in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.” Providing liquidity is necessary to keep financial markets functioning to ensure credit remains available for both businesses and consumers.

The financial markets did not respond much to the announcement, which is a clear reflection that the Fed is doing what the market expected them to do. The 10-year moved up slightly by 2 basis points today and remains slightly higher than how it started April. Mortgage rates and auto rates have trended lower in April. Mortgage rates have been stable this week and remain better than February’s average. Average new auto rates have also been stable so far this week, but we continue to see a high share (20.2% month to date) of zero APR offers that provide much lower rates on average to higher credit tier consumers.

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