Quarterly Economic Report, Q1 2021
Key takeaways
01
The Fed continues to support the market by keeping interest rates low.
Fed is leaving the fed funds rate at the zero bound, targeting over 2% inflation before rate hikes.
02
2020 was a record year for US IG corporate bond issues.
As economy was recovering, liquidity became less of a concern; companies continued to issue bonds.
03
Monetary policy can only help so much.
A sustained and robust recovery for the American consumer will require more fiscal stimulus.
GDP: Strong rebound
After a massive contraction in early 2020, economic growth rebounded sharply in Q3, at an annualized rate of 33.4%.
Inflation: Benign for now…
The current pace of inflation is fairly benign, but some sectors are just beginning to experience higher price pressures.
Fiscal Policy: Governments expand programs to spur demand
Government support programs expanding aid amid a protracted recovery.
Historical Interest Rates
Fed asset purchases remain tied to reaching inflation and employment goals, with no rate hikes expected before Q4 2023.
2020: Record year for US IG corporate new issues
2020 was a record year for new issues as US companies ramped up borrowing to bolster liquidity in the face of the pandemic.
Relative Value: 1- to 3-Year Credit vs. Treasury yields
Short-term Treasury and government money market funds are expected to continue trading in a very tight range through 2023.
Written and researched by SVB experts
