Federal Reserve News 12.16.2020

---

Key takeaways

• The U.S. Federal Reserve (Fed) reaffirmed its plan to maintain low-interest rates and continue asset purchases for an extended period.
• The Fed reminded investors it retains the flexibility to buy longer-term assets or increase asset purchase volume if it sees fit.
• Today’s announcement is consistent with our constructive outlook on the economy and stock markets.

As was widely expected, the Fed held interest rates unchanged, near-zero, today following its regularly scheduled two-day meeting. The Fed reinforced plans to maintain its accommodative policies by stating substantial economic progress is necessary before reducing or eliminating asset purchases. Our positive outlook for diversified portfolio returns remains intact based on low-interest rates, continued bond purchases by the Fed, the COVID-19 vaccination rollout, and our expectation for incremental fiscal stimulus. Near-term uncertainty remains in the form of COVID-19 infection growth and associated lockdowns, the Georgia Senate elections, and the risk of no fiscal package in the coming days.

The most notable update to the Fed’s formal statement highlighted its plan to continue buying bonds “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” The Fed has been purchasing Treasury and mortgage bonds to support the recovery by keeping borrowing costs low. This widely expected update solidifies the Fed’s ongoing bond-buying plans for the foreseeable future. Some investors had speculated the Fed would announce immediate changes to the bond-buying program, either extending average maturities of the Treasury purchases or announcing an increase in monthly purchases. Chairman Jerome Powell acknowledged the Fed retains the option to do so if it perceives incremental stimulus is necessary. Updated economic projections indicate 12 of the 17 members do not anticipate lifting policy rates until 2024 or later.

Stock prices were mixed to modestly higher yesterday. Minimal price changes after the Fed’s announcement suggest investors largely anticipated today’s announcement. Bond yields continued their gradual rise, though they remain low by historical standards.