With the economy in recovery mode but a lot of uncertainty in the wind, the Fed Chairman Jerome Powell is a player in what will happen in the 2021 economy. And, what happens with interest rate will be a factor in the 2021 economy. In 2020, he has already dropped rates to 0% to stabilize the markets. The rates are up a bit now, but still at historic lows. With these low rates, what ‘rate’ power does Powell have left to stabilize markets and control inflation (either more or less)?
More 0% Interest Rates?
If history repeats, we have an outlook on what may happen with interest rates in 2021. Check out The Wall Street Journal article by Nick Timiraos from August 30, 2020 for the full story. One telling piece of the Fed’s current position is captured in a warning from officials that “these tools could pack less punch today, because long-term interest rates are already low.”
New or Experimental Tools?
The traditional tools used by the Fed may be limited. Does that mean they will experiment with different policies or become more political? Maybe the Fed’s action or lack of action to interest rates will influence tax policy changes. What may happen to interest rates in early 2021 should be watched closely.
The Restaurant Industry
Many industries have been impacted with COVID and government mandates in 2020. They are teetering on the brink and need consumer spending to increase and costs to stabilize. In short, they need a strong economic recovery to get in the black and and away from the ‘brink’. An increase in interest rates will be a big factor in success or failure of these businesses on the edge. See this related article on the outlook on the restaurant industry. If you like drama in the economy, buckle up for the post-election economy in 2021, it promises to be full of plenty of ups and downs.