FOMC Meeting and the Initial Look at 1st Quarter GDP

Apr 27, 2020
Federal Reserve Building

FOMC Meeting and a First Look at 1st Quarter GDP

This week’s FOMC meeting won’t involve any change in monetary policy, what with rates already at 0%-0.25% and unlimited QE, but it may involve some formalizing of desired tweaks to a few of the programs stood up over the past couple weeks. Expansion of the Municipal Liquidity Facility beyond the states and approximately 24 cities initially eligible is expected, as are more lenient terms to the Main Street Lending Program that kicks off in just a few days. It will be interesting as well to hear if the Fed is considering additional programs or actions and, of course, the economic outlook will garner plenty of attention. With the fourth stimulus bill signed into law last Friday, attention turns to the one sector that hasn’t been addressed yet in the previous four bills and that is funding for states and municipalities. Senate Majority Leader McConnell’s comment that states should just file for bankruptcy and not expect the federal government to bail out their pensions certainly signals that all aspects of a state and local government stimulus bill will be hard fought. The first estimate of first quarter GDP is due Wednesday and expectations have it falling by 4.0% annualized. Early estimates for the second quarter are even more severe at –26.0%.


Treasuries
Treasury Curve Today Week Change
3 Month 0.09% -0.01%
6 Month 0.14% +0.01%
1 Year 0.16% +0.01%
2 Year 0.23% +0.03%
3 Year 0.28% +0.03%
5 Year 0.38% +0.03%
10 Year 0.62% -0.01%
30 Year 1.20% -0.05%
Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.89%
6 Mo LIBOR 0.92%
12 Mo LIBOR 0.94%
Swap Rates
3 Year 0.371%
5 Year 0.446%
10 Year 0.645%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Apr 28 Advance Goods Trade Balance Mar -$54.3b -$55.0b -%59.9b
Apr 28 S&P CoreLogic CS 20-City Home Prices Feb 3.15% 3.10% 3.08%
Apr 28 Conf. Board Consumer Confidence Apr 87.2 87.9 120.0
Apr 29 GDP Annualized QoQ 1Q A -3.8% -4.0% 2.1%
Apr 29 FOMC Rate Decision Apr 29 0.00%-0.25% 0.00%-0.25% 0.00%-0.25%
Apr 30 Personal Income and Spending Mar -5.0% Spending -5.0% Spending 0.2% Spending
Apr 30 Initial Jobless Claims Apr 25 3.500m 3.500m 4.427m
May 1 Construction Spending MoM Mar -3.6% -3.5 -1.3%
May 1 ISM Manufacturing Apr 36.7 36.3 36.9

calendar icon Top 5 Events for the Week

April 27 — May 1, 2020

1. FOMC Meeting — Wednesday
2. Coronavirus Developments — All Week    
3. Congressional/Fed Actions — All Week
4. First Quarter GDP — Wednesday
5. Weekly Jobless Claims — Thursday

 

1.  FOMC Meeting — Wednesday

This week’s FOMC meeting won’t involve any change in monetary policy, what with rates already at 0%-0.25% and unlimited QE, but it may involve some formalizing of desired tweaks to some of the programs stood up over the past couple weeks. Rumors are circulating that expansion of the Municipal Liquidity Facility beyond the states and approximately 24 cities initially eligible is expected, as are more lenient terms to the Main Street Lending Program that kicks off in just a few days.  It will be interesting as well to hear if the Fed is considering additional programs or actions and, of course, the economic outlook will garner plenty of attention.

 

2.  Coronavirus Developments — All Week

The market will start to get a look this week at some of the states that have begun to reopen parts of their economies. Living here in Atlanta we have a birds-eye view of the controversial reopening of very contact-intensive businesses in Georgia. Anecdotal information has most of the eligible business in Atlanta remaining closed until “it is safe reopen.” How it is being received outside the metro area is another matter but with national polls indicating greater than 70% approval for the shutdowns there are probably more shops electing to remain shuttered than ones that have reopened. We think a more extensive reopening will happen tentatively in May with more robust reopenings in June, with eyes fixed on the daily case counts. In any event, it does seem we are moving from the beginning of the pandemic to the next phase. We all wish it were not a long, multi-step process but that’s what it is certainly looking like, and that means no V-shaped recovery but more a U or W-shape, what with a likely second wave in the fall.

 

3.  Congressional Actions — All Week

With the fourth stimulus bill signed into law last Friday, attention turns to the one sector that hasn’t been addressed yet in the previous four bills and that is funding for states and municipalities that have endured plenty of expenses in dealing with the pandemic and even more so  significant revenue declines from shelter -in-place orders. Leaving the state and city funding out of the previous bills was a tactical decision by the Democrats to speed the previous bills, but now that states and cities are some of the few remaining sectors to be addressed, it will be the most contentious bill yet, and that was a given even before Senate Majority Leader McConnell’s comment that states should just file for bankruptcy and not expect the federal government to bail out their pensions. That comment certainly signals that all aspects of a state and local government stimulus bill will be hard fought.

 

4.  First Quarter GDP — Wednesday

First quarter GDP will give us  a look at the beginnings of the economic calamity as the pandemic started to be felt across the country in March. Recall that in January and February, economic results were generally positive if not looking more robust than the fourth quarter. The collapse in March colored the entire quarter which is expected to print –4.0% versus 2.1% in the prior quarter. Personal consumption is expected to decline –3.5% versus 1.8% in the fourth quarter. Meanwhile, expectations for the second quarter are for the full extent of the shutdowns to be felt with a –26.0% annualized print, the largest quarterly decline dating back to 1947.

 

Quarterly Change in GDP

 

5.  Weekly Jobless Claims — Thursday

Weekly jobless claims continue to provide the market with the most immediate read on the impact of the economic shutdown. The expectation for this week is for 3.50 million jobless claims. Five weeks ago claims rose to 3.3 million after years of being under 300 thousand for years. The 3.3 million bounce for the week ending March 20 was followed by a 6.6 million spike on March 27 and 6.9 million on April 4. That seems to be the high for this recession as last week the number settled for a third week in a row but still historically lofty at  4.427 million. That puts claims over 26 million for the last five weeks. With 150 million people in the labor force, the claims numbers buttress forecasts of unemployment approaching 20%.

 

 


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Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

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