Analysts believe that the stock markets may have seen the "peak of Fed stimulus" in the U.S. and that more action is needed to avoid an economic crash. Experts spoke to reporters from Market Watch, identifying two key steps needed to avoid a serious fallout in the market. Economist Lena Komileva suggested that the U.S. economy either needs a "shock" from the outside or another major stimulus package to sidestep disaster.
Komileva's comments came last Wednesday after the Federal Reserve failed yet again to promise any further economic stimulus. It did, however, outline a plan to hold interest rates at nearly zero until at least the end of 2023. Komileva, chief economist at G-Plus Economics, said that the market either needs a major shock or an influx of stimulus. She suggested that the best hope for this might come from a government error.
"The Fed's new inflation framework has not led to a new policy regime, or fresh action, but to a flatter policy cycle that still provides greater reflationary stimulus against the economy's adjustment to a new with-Covid normal," she said. "This reinforces our view that, barring a new exogenous shock to the economy, or a fiscal policy error failing to bring fresh support to the recovery beyond the November elections, markets have seen the peak of Fed stimulus."
Since the Fed appears resigned to inaction, AxiCorp market analyst Milan Cutkovic said that economists will now be watching the U.S. Congress for any hope of another stimulus check bill. Cutkovic admitted that economists are just as impatient for another stimulus package as struggling Americans are.
"The focus will now shift back to the U.S. Congress, where Democrats and Republicans are still struggling to agree on a stimulus package. Investors are becoming increasingly impatient with the lack of progress, and market sentiment could turn sour if there is no deal soon," Cutkovic said.
Economist David Mericle of Goldman Sachs added that many are looking ahead to the 2020 presidential election, which could shake up the power balance in the House of Representatives, the Senate and the White House to allow negotiations to move more freely. He said that a Democratic sweep would likely mean "substantial further stimulus," while a failure to pass such a bill would "raise the risk of a slower recovery."
Hopes for another stimulus check are further away than ever, as Congress is focused on debating whether President Donald Trump can appoint a new Supreme Court justice to replace Ruth Bader Ginsburg. Trump intends to announce his appointee at the end of this week.