8 Million More People In Poverty

The Fed kept rates at zero at its December meeting to no one’s surprise. Furthermore, it will continue buying bonds at a rate of $120 billion per month. As we have mentioned, financial markets and actual people are in dramatically different positions. We have the loosest financial conditions ever and the Nasdaq 100 is up 45.06% year to date. On the other hand, small businesses are struggling to make it and almost 8 million people have entered poverty since June.

The fiscal stimulus will be a bridge to get us to the spring when the economy can reopen. It won’t suddenly get these people out of poverty. More can be done to help those who are the worst off. The good news is the vaccine will help those people get back to work. The main problem is it is expensive to be poor. It’s expensive to go without health insurance and pay high interest on credit card loans. Sadly, it’s tough to be healthy when you’re poor which means you will need healthcare more. The Fed did all it could and more to save the stock market, but the federal government didn’t do enough to prevent this onslaught of poverty.

QE Keeps Going

As a reminder, the Fed isn’t going to unwind this version of QE like it did the last cycle. It is just going to keep the balance sheet the same which will eventually shrink as a percentage of the economy. It’s highly unlikely to shrink as much as it went up in the past few quarters. The Fed stated it will continue at this run rate of QE “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” We have open-ended QE which the market loves.

The FOMC also stated, “These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.” Let’s just say the Fed’s QE is a very ineffective policy tool if the goal is to help small businesses and help the median person. Surely, it’s better to have loose financial conditions, but it’s not going to directly help people who don’t own stocks.

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