December FED Announcements: Highlights & Recap
Shain Vernier • 2 min read
2020 has been an unprecedented year for the FED as managing COVID-19 economic fallout has been job one. To do so, Jerome Powell and the FOMC launched QE Unlimited, cut rates to zero, and shifted inflation methodologies. One thing is for certain ― the USD has been a loser over the past 9 months. In fact, the USD Index is closing in on two-year lows beneath 90.00.
Not much was expected from today’s FED announcements; rates were to be held at 0.0-0.25% and QE was to continue. However, the tone of the FOMC was going to be important. Let’s take a look at the final Federal Reserve engagement for 2020 and see where policy may be headed in 2021.
December FED Meeting: Recap & Highlights
It really doesn’t get much more dovish than this. Earlier, the FED held rates at zero and committed to the continuation of QE Unlimited. Although this comes as no surprise, the long-term implications for the USD are bearish. Perhaps the tides will turn as 2021 gets underway.
Without further ado, here are the key points from today’s announcements:
- The Federal Funds Target Rate was held firm at 0.0-0.25%.
- Bond buying is to proceed as it has throughout 2020. Roughly $80 billion in U.S. Treasuries are to be purchased monthly, as is $40 billion in mortgage-backed securities.
- The committee has reaffirmed its pledge to buying bonds until maximum employment is reached and inflation tops 2%.
- In a slightly hawkish move, the FOMC did not extend the duration of bond holdings. So, at least in theory, there will be an “unwinding” of the FED’s massive balance sheet at some point.
- Annual GDP for 2020 is expected to come in at -2.4%, revised upward from -3.7% in September. The GDP outlooks for 2021 and 2022 are positive, coming in at 4.2% and 3.2% respectively.
Bottom Line: Today, the FED recommitted to its ongoing policies. For the near and intermediate future, it looks like quantitative easing and inflation are the path forward. It will be interesting to see when, or if, the FOMC feels the need to tighten policy.