Economic Commentary: Vaccine Reactions

No, we are not talking about shortness of breath and swelling. We are talking about how the markets might react to the news that a vaccine (or a few) are available. We have already seen how medical announcements have set off positive reactions. Now that we are further along in the process and we may be weeks away from such an important announcement, we wonder how wild the markets might get.

Keep in mind that even an approval of a vaccine may not mean that one is available for the general public for some time afterwards. Markets don’t move on happenings — they move on the anticipation of happenings. Likewise, any setbacks or reported delays in delivering a vaccine could cause significant negative reactions in the markets. And even positive news will not solve our economic issues overnight. Yet this news is likely to add one important ingredient — public confidence. No recovery happens without confidence.

Last week’s meeting of the Federal Reserve’s Open Market Committee did not contain any major surprises. The Fed had previously released the news that they were going to tolerate a bit more inflation before they take action to raise rates. This makes sense because inflation has not reached the Fed’s target of 2.0% annually for quite some time. What that means is what we have known all along — the Fed is not likely to raise short-term interest rates anytime soon. Even the market’s reaction to good medical news may not make the Fed anxious, because the road to recovery is likely to be bumpy.