No Surprises

As expected the Fed kept interest rates low and underscored the importance of a second stimulus package.


Key Takeaways

  • As expected, the Federal Open Market Committee held the federal funds target rate range at 0.00-0.25%, though two members dissented.
  • Federal Reserve (Fed) officials made minor language changes to their September statement, noting that economic activity and jobs “have continued to recover” and “earlier declines in oil prices” have held down consumer price inflation.
  • Fed officials acknowledged the current challenge facing the economy was the spike of COVID-19 cases; accordingly, they adjusted their view of financial conditions from “have improved” to “remain accommodative.”

At the November Federal Open Market Committee (FOMC) meeting, Fed officials—as expected—reaffirmed their stance to support the economy and financial markets by keeping interest rates near zero. The committee reaffirmed its commitment to achieving maximum employment and price stability, acknowledging the economic downturn has not affected everyone equally and the dislocation in the economy continues to make the future uncertain for many. Chair Jerome Powell stated again that more “fiscal support is needed,” a nod to the urgency of a second stimulus package, which has stalled in Congress. Below are the language changes the Fed made to its September statement:

At the start of the week, the 10-year and 2-year Treasury spread was 71 basis points and closed the day at 65 basis points as investors looked to offset equity risk with U.S. Treasuries. The 10-year Treasury was higher by 7 basis points to 0.79%, while short and long rates were unchanged or lower on the day:

10-Year Treasury

Source: FRED® as of 11/5/20

In Conclusion

Markets lost some traction during the Fed’s press conference as Chair Powell reminded investors that the growth trajectory for the U.S. is largely dependent on the path of COVID-19. The dollar fell during the day, while U.S. stocks erased some of the gains from earlier in the session. The Dow Jones Industrial Average and S&P 500® Indexes finished the day up 1.95% and 1.94%, respectively. While U.S. gross domestic product grew in the third quarter by an annualized rate of 33.1% and 11.4 million jobs have been recovered, Fed officials acknowledged that they must continue to monitor the current economic environment, which could deteriorate if the pandemic continues to rage and Congress fails to pass an adequate second stimulus package.

One basis point is equal to 0.01%.

The Dow Jones Industrial Average index (DJIA) tracks the share price of the top 30 large, publicly-owned U.S. companies which is often used as an indicator of the overall condition of the U.S. stock market.

The S&P 500 index is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the U.S. stock market.

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This publication is provided by Pacific FundsSM. Pacific Funds refers to Pacific Funds Series Trust. The views in this commentary are as of November 9, 2020, are based on current market conditions, and are subject to change without notice. These views are presented for informational purposes only, should not be construed as investment advice, an endorsement of any security, mutual fund, sector, or index, the offer or sale of any investment, or to predict performance of any investment. Any forward-looking statements are not guaranteed. All materials are compiled from sources believed to be reliable, but accuracy cannot be guaranteed.

All investing involves risk, including the possible loss of the principal amount invested.

Pacific Life Insurance Company is the administrator for Pacific Funds. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.

Pacific Funds is a registered service mark of Pacific Life Insurance Company ("Pacific Life"). S&P is a registered trademark of Standard & Poor’s Financial Services LLC. All third-party trademarks referenced by Pacific Life, such as S&P, belong to their respective owners. References of third-party trademarks do not indicate or signify any relationship, sponsorship or endorsement between Pacific Life and the owners of referenced trademarks.

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