The Fed’s last meeting of 2020 concludes today, and while there will be no rate change there is still plenty that the Fed watchers and investors will be mulling over in the statement, press conference, and updated economic and rate forecasts. We discuss more of what we expect from the Fed in the next section. Also, the other issue on investors minds is whether a Stimulus 2.0 bill will make it through Congress this week. Yesterday, a bicameral, bipartisan group of legislators offered up a $748 billion package with the two contentious pieces: liability protection for businesses and funding for state local governments separated into a standalone package that can be voted on separately from the less controversial provisions. Senate Majority Leader McConnell said his caucus would stay in DC until a deal is done while Speaker Pelosi was meeting with Treasury Secretary Mnuchin on the deal. Finally, in this week’s podcast we sit down with Daniel Grissom, The Deal Closer. Daniel is an internationally renowned speaker, trainer, and consultant. Daniel will discuss The Deal Closer mentality as a sales process that can help win more key deals faster—by creating value for your clients and prospects.  He explains his sales philosophy in a high-energy, entertaining style so you won’t want to miss this episode. The itunes link can be found here and the Spotify link here.


newspaper icon  Economic News

The Fed concludes two days of meetings this week, and while they won’t be adjusting the fed funds rate they will have one eye on the stimulus negotiations, or lack thereof, as that may weigh on their decision regarding adding longer-maturity purchases in the quantitative easing program. If it looks like no stimulus will happen, at least not before year-end, the Fed may feel compelled to initiate those purchases sooner in an effort to drive down longer-term rates and whatever benefit that bestows on the rate sensitive sectors of the market. If a stimulus deal appears within reach, which it does now, they may well keep that tool in the tool box into next year and see how the economy and markets react to the coming fiscal stimulus.

 

They could also begin longer-dated purchases even if stimulus looks likely just because the Powell-led Fed has a history of being more dovish than market expectations. Will that happen this time? It could also be they don’t initiate longer-dated purchases but lay out the criteria when those purchases would begin. This discreet forward guidance was displayed in September when they laid out the three factors necessary to begin lifting rates.

Federal Reserve SOMA

 

This meeting also comes with new economic and rate projections from the Fed, and investors will chew on the dot plots looking for any shift from the September forecasts which called for the fed funds rate remaining unchanged through  2023. We expect no change.

 

 


line graph icon  November Retail Sales Widely Miss Mediocre Expectations

 

With the increasing virus case counts, and a return to lockdown conditions in some parts of the country, we have been interested to see the impact this has on the consumer and their inclination to get out and shop, or at least continue to shop online even with an uncertain Stimulus 2.0 bill. Well, the November Retail Sales Report was expected to be down, owing to soft car sales, but it was much worse than the mediocre expectations.  The headline sales figure was down –1.1% missing the –0.3% pre-release expectation and the 0.3% prior month gain was revised down –0.1%. Sales ex-autos and gas faired just as bad down -0.8% versus 0.1% expected and off the downwardly revised -0.1% loss in October. The Retail Sales Control Group—a direct feed into GDP fell -0.5%, missing the 0.2% expected gain and the –0.1% print in October. Thus, there has obviously been a slowdown in sales, but with the Pfizer vaccine starting to get into peoples arms perhaps a pop in December can be expected?

Monthly Retail Sales

The poor back-to-back showing in the Control Group may have analysts starting to dial back the fourth quarter GDP expectations. With consumer consumption comprising two-thirds of GDP it is a big factor. Currently, the Bloomberg consensus forecast for GDP is 4.5% (QoQ) annualized rate.

 


bar graph iconAgency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 0.18 0.21 0.37 0.58 1.42 1.91
0.50 0.15 0.20 0.37 0.55 1.35 1.85
1.00 0.10 0.19 0.36 0.52 1.25 1.79
2.00 0.18 0.32 0.47 1.18 NA
3.00 1.12 NA
4.00 1.06 NA
5.00 1.02 NA
10.00 NA

 

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Published: 12/16/20 Author: Thomas R. Fitzgerald