Changes to the Federal Reserve’s interest-rate setting panel will make the US central bank even less likely to tighten monetary policy in the new year, no matter how much of a jolt the economy gets from the rollout of COVID-19 vaccines.
In the annual rotation of voters on the Federal Open Market Committee, the four regional Fed presidents who receive that privilege in 2021 will be marginally more dovish — or inclined to favor easy policy — than the four they replace. The most notable shift comes as Chicago’s Charles Evans, one of the most predictably dovish officials, takes the vote held this year by Cleveland’s Loretta Mester, a relatively hawkish figure on the panel.
In addition, a new permanent vote now belongs to Christopher Waller, the former research director of the St. Louis Fed who was sworn in as a member of the Fed’s Board of Governors on Dec. 18. In one important respect Waller is decidedly dovish: He has long championed the view, more recently embraced by the Fed’s leadership, that low unemployment doesn’t automatically generate higher inflation.
’'If vaccines take hold, the prospect of rate hikes might get a little closer than it feels like today,’' said Stephen Stanley, chief economist at Amherst Pierpont Securities, ’'but they’re still not likely to be moving rates in 2021.’'
It’s hard to overstate how intent the Federal Open Market Committee is on keeping policy easy well into this economic recovery. For reasons that have nothing to do with COVID-19 and everything to do with longer-term trends in inflation and growth, Fed officials — led by chair Jerome Powell — this year adopted a new monetary policy framework that commits them to a more patient approach to raising rates than at any other time since the early 1970s.
Still, the changes on the Federal Open Market Committee could influence the fine-tuning delivered by the Fed’s asset-purchasing program. The bank is currently buying $120 billion a month worth of Treasuries and mortgage-backed bonds in an effort to suppress longer-term borrowing costs for households and businesses. An unexpected negative turn for the economy could lead to calls to ramp up those purchases, but with vaccines being distributed and a new $900 billion stimulus package just passed by Congress and signed into law by President Trump, the economy may be poised for a robust rebound in the second half of 2021.
’'We are in very unusual circumstances in which the Fed, as a group, has taken a turn that is much more dovish than any time prior,’' said Gregory Daco, chief US economist with Oxford Economics. ’'As we shift gears from a delicate phase to one that’s more likely to see an acceleration in the pace of the recovery, the Fed’s attention will also have to shift and pay closer to attention to these financial stability concerns.’’
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It's going to keep growing, too:
"The Federal Reserve has delayed the termination of the Main Street Lending Program to Jan. 8, from Dec. 31, in order to finish processing loans submitted by a Dec. 14 deadline to tap its funds. The extension was approved by the secretary of the Treasury, the Fed said in a statement Tuesday. The Treasury Department provoked controversy in November when it ordered the Fed to close Main Street and some other emergency pandemic lending programs by Dec. 31. Treasury Secretary Steven Mnuchin said the order was driven by lawmakers’ intent when they crafted the Cares Act in March, legislation that provided taxpayer money to support the programs. The Fed had asked that they all be extended into 2021. Main Street has struggled to live up to its initial promise, although borrowing picked up somewhat as the deadline approached and stood at $14.5 billion as of Dec. 23. The program was designed to provide as much as $600 billion in credit to mid-sized US companies damaged by COVID-19."
Also see:
"The Federal Reserve gave Wall Street banks the green light to resume billions of dollars of stock buybacks, noting that the industry has held up well during the coronavirus pandemic. While lenders remain barred from boosting their dividends in the first quarter, the Fed’s decision is a partial but significant win for banks that have been eagerly awaiting permission to boost capital distributions. The central bank revealed the looser restrictions Friday, as it also disclosed that firms performed well in a second round of 2020 stress tests that assessed how the industry has navigated the COVID-19 tumult. “The banking system has been a source of strength during the past year, and today’s stress test results confirm that large banks could continue to lend to households and businesses even during a sharply adverse future turn in the economy,” Fed Vice Chairman for Supervision Randal Quarles said in a statement. The tests showed that none of the largest banks fell beneath their capital minimums under the Fed’s hypothetical stress scenarios. JPMorgan Chase & Co. said Friday it will resume buybacks in the first quarter, and that its board has approved up to $30 billion in repurchases, though the timing of utilizing that full amount will be subject to “various considerations.” Shares of the four biggest US banks all jumped more than 2 percent in late New York trading following the Fed’s announcement. Even as buybacks resume, dividends will remain unchanged through March, capped at whatever each bank returned in the second quarter of 2020. The Fed said banks’ payouts to shareholders in the first quarter of next year can’t exceed their average quarterly income for 2020. Fed officials had said their decision on shareholder payouts would be based on the results of the stress tests, which were run because annual exams conducted earlier in the year didn’t capture COVID-19. For the first time, the agency launched a do-over, using new scenarios based on the current turmoil."
I'm glad they have remained healthy and can goo$e their stock prices.
"The six biggest U.S. banks will be able to buy back as much as $11 billion of their own shares in the first quarter of next year after the Federal Reserve gave lenders the green light to resume purchases. Bank stocks climbed after the central bank’s show of confidence, even as U.S. equity futures pointed to sharp losses for the broader market. JPMorgan and Morgan Stanley said in statements they plan to resume buybacks starting next quarter. Citigroup and Goldman Sachs said they also intend to resume purchases next year, while Bank of America Corp. Chief Executive Officer Brian Moynihan has said the firm plans to buy back stock “as soon as we’re allowed to.”
"Fed to weigh further options for aiding US economy in peril" by Christopher Rugaber Associated Press, December 14, 2020
WASHINGTON — The Federal Reserve’s policy makers face an unusual conundrum as they meet this week: A short-term economic outlook that is worsening even while the longer-term picture is brightening thanks to the emergence of coronavirus vaccines.
When its meeting concludes Wednesday, the Fed could announce steps to try to offset the pandemic’s increasing drag on growth. Or it could choose to mostly watch and wait, for now.
The central bank’s policy meeting coincides with a record-shattering resurgence of the coronavirus, which has caused an increase in business restrictions and made more Americans reluctant to shop, travel, and dine out. Some analysts say the economy could shrink in early 2021 before recovering as vaccines combat the virus.
Economists are divided on whether the Fed will announce any new actions this week. One option the policy makers could take would be to shift the Fed’s bond purchases. The Fed has been buying $80 billion in Treasury bonds and $40 billion in mortgage bonds each month in an effort to keep borrowing rates down.
The idea of a shift would be to buy more longer-term bonds and fewer shorter-term securities, to hold down longer-term interest rates. The Fed has already cut its benchmark short-term rate to a record low near zero, yet the Fed’s tools take time to support the economy, which adds a layer of complexity given the short-term gloom and longer-term optimism.
Another complicating factor is that even as negotiations continue, Congress has yet to agree on another round of urgently needed financial aid for millions of unemployed Americans, thousands of struggling businesses, and cash-short states and cities. Many Fed policy makers, including chair Jerome Powell, have repeatedly urged Congress to provide more support.
“They’re all looking to fiscal stimulus,” Tim Duy, an economics professor at the University of Oregon and author of the “Fed Watch” blog, referring to potential rescue aid from Congress.
Recent data is pointing to an economy that is getting worse. More Americans are seeking unemployment benefits, a sign that layoffs are likely rising, and overall hiring slowed in November to its slowest pace since April. Credit and debit card data suggests that holiday spending is weaker than it was last year.
Still, Fed officials may not yet be ready to take new steps, perhaps believing they have already provided nearly all the help they can for the economy through ultralow rates.
At their meeting in November, Fed policy makers discussed the idea of buying more longer-term bonds, among other options, according to minutes published three weeks later. Doing so could further reduce the yield on 10-year Treasurys, which influence other borrowing costs, such as mortgage and credit card rates.
By contrast, the purchase of, say, two-year Treasurys has less effect on the most common loan rates, though it can help the Treasury market function more smoothly, which was the original goal of the Fed’s bond-buying program this year.
While Fed officials worry that the pandemic will severely harm the economy this winter, not all are sold on more stimulus.
“We expect very strong growth next year,’' Robert Kaplan, president of the Federal Reserve Bank of Dallas, told CNBC this month, ’'but I think the next three to six months are going to be challenging. And it appears to us that growth is decelerating, and if this resurgence keeps heading the wrong way, which it is, that slowing and deceleration could get worse,” but Kaplan, a voting member of the Fed’s policy making committee, said, “I would not want” to alter the bond-buying program “at this point.”
He added: “I don’t know that increasing the size or extending maturities of our bond purchases would help address this situation that I’m concerned about over the next three to six months. As always,” though, Kaplan said, ’'I will go into the meeting with an open mind.”
Even if it doesn’t announce a policy shift this week, the Fed will likely provide additional guidance about its bond purchases. After its November meeting, it said it would keep buying bonds “over coming months.’' The minutes from that meeting said that most policymakers wanted to provide more specific guidance “fairly soon.” Analysts have interpreted that to likely mean this week’s meeting.
The Fed isn’t expected to tie its bond purchases to any specific level of inflation or unemployment but instead suggest a more general goal. Alexander said it could be as simple as stating that bond purchases will continue “until the recovery is well-advanced.”
The minutes of the November meeting also showed that the policy makers expect to start slowing their bond purchases before they begin raising interest rates, and economists foresee no Fed rate hikes until as late as 2024 or 2025.....
That's when the Great Re$et is scheduled for completion as they give you "free" money until then so they can construct it, all while you are locked down further over a damnable lie.
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