Fed Keeps The Pedal To The Metal

Stimulus Is Almost Here

The stimulus is almost here. The latest details are the $900 billion stimulus will include checks between $600 and $700. It will also include $300 in weekly unemployment insurance for 16 weeks. This new bill is a revision of the $748 billion bill that excluded the politically divisive choices. 

This new bill won’t include help to state and local governments. We will likely only see help given to them if the Dems tie the Senate by winning the two races in Georgia. The latest polls have the Republicans up by 1 point each. This puts Perdue (GOP) in the lead by 0.7% in the average of polls and Warnock (Dem) in the lead by 0.5%. It will come down to the wire on January 5th.

This stimulus will be great for consumers. November retail sales report was disappointing. It seems like holiday shopping won’t be great after all. This stimulus will boost spending early next year, bridging the gap from now until the full vaccine rollout. 

It's unlikely that the stimulus will help consumers in time to boost holiday shopping unless some people go into debt in anticipation of the checks going out. Someone barely surviving on unemployment insurance won’t be spending a lot on Christmas even with this benefit extension.

Fed Keeps Rates At Zero Again

The Fed decided to keep rates at zero and maintain its $120 billion in bond purchases per month. In fact, Powell even said stocks aren’t overvalued because the 10-year yield is low. You would have thought this would have sent stocks spiking, but the Fed has been so dovish, this just maintained the modest rally on Wednesday. Could traders be so greedy that 14.56% returns in 2020 aren’t enough even with a pandemic? Markets will always welcome more stimulus.

The Fed stated it will continue its $120 billion per month in bond purchases “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” Fed will lower its purchases per month in 1H 2022 and end the program later that year. 

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