IS THE FED READY FOR YIELD CURVE CONTROL ?

Every glimpse of certainty about the reopening of the US economy ha s been swept away: while several US states are closing back certain parts of the economy , hard data has become increasingly difficult to interpret. For instance , as our US economist Troy Ludtka pointed out, the good employment figures (+4.8M over June) are also marked by an increase in "permanent" job losses. As the government's exceptional unemployment benefits are coming to an end, precarious employment prospects are adding to the health uncertainty. It is therefore unlikely that the Fed will emerge from its wait-and-see stance before September or until it has established a clear diagnosis of the extent of the damage done to the U.S. economic fabric. Especially since we do not have sufficient historical data to judge the effectiveness of the support facilities for the parts of the economy most affected by the pandemic: the Main Street Lending Facilit ies and the Municipal Liquidity Facility. Once the pandemic is finally under control, the Fed will have to implement an enhanced Forward Guidance to shield the fragile economic rebound from dire economic prospects .