Monetary Policy & Inflation | Politics & Geopolitics | US
2021: A Banner Year for Risk Assets?
- By Dominique Dwor-Frecaut
- 3 min read
With all the furore over the fiscal stimulus and the Fed 13(3) facilities, it is easy to forget that, even without additional easing, monetary and fiscal policies will remain exceptionally supportive next year (Striking a Minor Discord? The Treasury Wants Its Money Back…, 20 November 2020). Fed ownership of Treasury coupons is the highest ever, and unsurprisingly financial conditions are the loosest ever (Chart 1).
The Fed has made it clear that normalization is not coming anytime soon. Chair Powell sees too much uncertainty around immunization to upgrade his economic outlook. This suggests the Fed’s $120bn monthly security purchases are likely to continue well into H2.
Similarly, even without new fiscal stimulus next year, fiscal policies in the US and globally will remain among the most stimulative on record. And, of course, should Congress pass the proposed $0.9tn stimulus, this would increase the 2021 deficit by a further 4% of GDP.
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