Wrapping up a rough year with optimism Wrapping up a rough year with optimism http://www.federatedinvestors.com/mmdt/static/images/mmdt/mmdt-logo-amp.png http://www.federatedinvestors.com/mmdt/daf\images\insights\article\mmdt-weekly-Small.jpg December 20 2020 December 21 2020

Wrapping up a rough year with optimism

Weekly Bond Commentary

Published December 21 2020

Despite everything, optimism seemed to rule on Wall Street last week. Another virus vaccine approval helped usher in the Santa Claus rally, as stock indexes hit record highs and bond yields crept higher.

Economic data softened a bit, led by higher weekly jobless claims, and the Federal Reserve held its last scheduled meeting of the year. The Fed made no changes to its rate posture but indicated it stood ready to assist the economy, if needed. Fed Chair Powell made it clear that he thought it more appropriate that Congress step in with fiscal stimulus. Monetary policy and the various Fed and Treasury programs have been successful in stabilizing financial markets and getting assistance to many parts of the economy, but with stimulus programs set to expire soon, Congress needs to act.

The Fed also released its summary of economic projections. The Fed sees no increase in the federal funds rate until 2023, though it now forecasts the economy will perform better in 2020-22 than it had projected only three months ago. Unemployment is projected to fall to 5% by year-end 2021 and to 3.7% by year-end 2023, nearly the same level it entered 2020. Gross domestic product would grow 4.2% next year and 3.2% in 2022, before returning to its longer run 1.8% level after 2023. On the positive side, this has been a very strong recovery from a massive shock, but on the negative side, it reveals just how bad the shock was.

Markets are clearly ready for a break, but in some ways will miss 2020, a year of strong financial performance.

 

Tags Markets/Economy . Fixed Income .
DISCLOSURES

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

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