By Tom Burnett CFA
On December 16, 2020, the Federal Reserve Open Market Committee released its December Policy Statement. Following a two-day meeting, the Fed made a clear announcement that it intends to maintain its “accommodating” policies until the economy recovers from the Covid-19 outbreak and the measures taken to control it. The Fed will continue to use a Fed funds target range of zero to one-quarter percent. It will also make monthly purchases at least $80 billion of Treasury securities and $40 billion of mortgage-backed securities. The Policy Statement noted that more aggressive actions might be taken if the economy remains under pressure.
The Fed has certainly done its part to help the U.S. economy recover. The Fed balance sheet now carries total assets of $7.2 trillion, up from $4.1 trillion one year ago. The assets include $4.6 trillion of Treasury securities and $2.0 trillion of mortgage-related instruments. In addition, the Fed has made loans of $53.0 billion to support the PPP payment mechanism, $46.4 billion to corporate borrowers, and $16.8 billion for municipal borrowers.
The Fed also released a set of updated economic projections for 2020 and 2021. The Fed now expects GDP to shrink by 2.4% this year, before recovering with growth of 4.2% in 2021. Earlier projections had the 2020 GDP shrinking by 3.7%. Unemployment is now thought to average 6.7% this year, with an improved rate of 5.0% targeted for 2021.
The Policy Statement noted that the vote accompanying the Statement was unanimous.
Tom Burnett CFA is Director of Research