Fed’s Powell Warns of Second Wave Risks

<h2>Risks To The Outlook</h2>
<p>The chairman of the Federal Reserve, Jerome Powell, last night gave yet another warning over the fragile state of the US economy and his concern over the outlook. In his weekly testimony to Congress, Powell’s message this time around centred on the threat of a second wave of the virus. Powell told lawmakers: “A second outbreak could force government and force people to withdraw again from economic activity.” The Fed chairman went onto explain that a continued resurgence of new infections would destabilise confidence in the recovery which is a critical driver of consumption levels consistent with normal economic activity.</p>
<h2>Recovery Underway</h2>
<p>Along with his warnings over the risks to the economy, Powell sought to reassure lawmakers that the Fed will continue to support the economy with its accommodative policies which he said were already having a strong upside effect on the economy. Pointing to the record jump in jobs seen over May, Powell said: “When the economy reopens – remember, we sort of deliberately closed the economy – that expansion can be vigorous and strong, and it’s just beginning now,”</p>
<p>Powell’s testimony this week marks the first since the Fed went live with its range of liquidity facilities. The Fed’s programs (of which there are eleven) have been designed to cover a wide range of instruments and assets to offer broad support for the economy. Along with the more traditional elements of its QE programs, the Fed is also purchasing corporate debt for the first time, including high-risk “junk bonds”.</p>
<h2>Main Street Lending Begins</h2>
<p>Monday saw the starting point of the Fed’s main street lending program, specifically designed to support smaller businesses with less than 15,000 employees. Commenting on the take-up so far, Powell said that only 300 lenders had so far registered to take part in the program. During the testimony, lawmakers seemed most interested in whether the scope of the program could be extended to which Powell said it seemed likely for the Fed to be “down the road looking at a lower threshold” for the minimum funding size, which currently sits at $250k.</p>
<p>Lawmakers were also keen to discuss the budget gaps across many states in the US with Powell reassuring them that the central bank’s Municipal Liquidity Facility looked to be buffering private financing effectively. As part of the facility, the Fed has enough liquidity to provide $500 billion in funding though as of June 24^th, only $1.2 billion had been taken up.</p>
<h2>Technical Views</h2>
<p><strong>DXY (Bullish above $97.02)</strong></p>
<p>From a technical viewpoint. The recovery rally in the Dollar Index has taken price back above the yearly pivot at $97.02. With momentum studies showing divergence, however, the current bull channel could prove to be a bear flag, with the $95.99 level the next downside support to note. To the topside, $98.25 is the next key resistance level to watch.</p>
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