Bridging to '21


July 2020


Key Points:

  • As expected, the Federal Open Market Committee held the federal funds target-rate range at 0.00-0.25%.
  • Fed officials made minor language changes to their June statement, noting that economic activity and jobs “have picked up somewhat in recent months” while pledging again to use its full range of tools to support further improvement.
  • The Fed extended the expiration date of seven lending facilities to year-end. The committee also extended dollar-liquidity swap and temporary repo operations to March 31, 2021. The swap lines were established during the liquidity crisis earlier in the year to mitigate U.S. dollars funding strains.


Federal Reserve (Fed) officials reaffirmed their stance to support the economy and financial markets, continuing to signal that monetary policy will remain accommodative, perhaps for years to come. Regarding pre-Covid-19 economic levels, “It would take continued support from both monetary and fiscal policy to achieve that,” stated Chair Jerome Powell. Fed officials repeated that the policies set in place are “lending powers and not spending powers” to solvent entities with the expectation of repayment. While Powell said in his June press conference that the economy would likely begin to recover in the second half of 2020, the Fed now appears less certain, as a full return to normal for businesses and consumers may be stalled with the recent rise in Covid-19 cases. Below are the language changes made in the Fed’s statement from June:


June 10, 2020 Statement July 29, 2020 Statement
“The virus and the measures taken to protect public health have induced sharp declines in economic activityand a surge in jobs losses.”  “Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginningof the year.” 
“Financial conditions have improved, in part reflecting policy measures to support the economy and the flowof credit to U.S. households and businesses.”  Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.” 
“The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”  The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.” 


Investors had expressed little prior concern regarding a change in the Fed’s monetary policy stance. Second quarter gross domestic product is expected to be the worst in recorded U.S. history, near-term focus will be on second quarter’s earnings and news of the next stimulus package. Investors’ duel focus seemed to take some of the spotlight away from Powell and the Fed’s comments. Investors did have their ear to the ground when it came to the Fed’s prior announcement about extending PMCCF and SMCCF programs until the end of 2020, though without increasing the size of the facilities. The facilities that saw their expiration dates extended include:

  • Primary Market Corporate Credit Facility (PMCCF)
  • Secondary Market Corporate Credit Facility (SMCCF)
  • Primary Dealer Credit Facility
  • Money Market Mutual Fund Liquidity Facility
  • Term Asset-Backed Securities Loan Facility
  • Paycheck Protection Program Liquidity Facility
  • The Main Street Lending Program

U.S. Treasury yields moved marginally on the day and have been mostly range bound since March:

10-Year Treasury


Markets reaction was marginal post-Fed announcement as the Dow Jones Industrial Average and S&P 500® indices moved higher by 40 points and 10 points, respectively. Government bond yields were mixed: the 10-year Treasury finished the day one basis point lower with the curve steepening slightly. Powell reaffirmed the committee’s stance to remain supportive until they were confident the economy is recovering. He stated that “the pace of recovery looks like it has slowed” as “recent labor market indicators point to a slowing in job growth, particularly among small businesses” and “consumer surveys look like they may be softening again now.” The Fed’s continued dovish stance should hopefully maintain investor confidence that the Fed will continue to backstop the economy until a meaningful recovery begins.



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 Funds. Pacific Funds refers to Pacific Funds Series Trust. This commentary reflects the views of Pacific Global Asset Management LLC, the asset management division of Pacific Life Insurance Company that sponsors Pacific Funds, as of July 30, 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.

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