Federal Reserve Holds Steady

Gary Pzegeo, CFA

December 16, 2020

A summary of the Federal Reserve's final scheduled meeting of 2020.

The Federal Reserve’s meeting concluded without a major change to policy.  Markets were not anticipating anything as significant as a rate change, but some have been expecting the Fed to extend the maturity profile or the size of its Treasury holdings as a bridge to eventual broad vaccination.  The Fed did give the market guidance on the length of time over which the current asset purchase program could be in place in a statement that was otherwise unchanged when compared to its previous release.

Current conditions

The economy remains highly dependent on the course of the virus.  The Fed revised its outlook for GDP and employment higher through the end of 2022, but Powell highlighted concern until vaccines have been widely distributed and continues to call for additional fiscal stimulus.  Despite the combination of low rates and gradual recovery, the Fed’s median expectations for core inflation never rise above 2% over its projection horizon.

Forward Guidance

The Fed stated that the current pace of asset purchases would continue “until substantial further progress has been made toward the Committee’s maximum employment and price” targets.  The Fed remains as vague as ever, but markets consider this to be objective based guidance and an improvement on previous statements.  This in combination with low inflation projections suggest an extended period of accommodation.  The median Committee member expects the current zero rate policy to remain in place through 2023, although there were small changes in the composition of the individual projections for 2022 and 2023.


There was no change in either rates or in the size or duration of its asset purchase program.  The Treasury recently removed its capital from several emergency lending facilities.  The Fed did, however, extend  dollar liquidity swap lines through September 2021.  There were no dissenting votes.

View the full FOMC statement.

Gary Pzegeo joined the firm in 2007 as head of fixed income, focusing on portfolio management, trading, policy formulation and client service.