The outlook for the 2021 U.S. economy remains a bit hazy and many questions remain about the further reopening of the economy. Many are projecting growth, particularly in the second half of 2021. Additionally, most economists agree there is pent-up demand from 2020 which could spur economic growth as our economy gradually opens back up.
Consistent with their message from the fourth quarter of 2020, the Federal Reserve’s Open Market Committee announced in late January 2021 it is “committed to using its full range of tools to support the U.S. economy in this challenging time.” They want to keep the federal funds overnight borrowing rate unchanged in the 0.00% to 0.25% range and will continue to inject additional money into the economy by purchasing at least $80 billion of U.S. Treasury securities and at least $40 billion of mortgage-backed securities per month. Federal Reserve Chairman Jerome Powell reiterated the current monetary policies will most likely stay the same for the foreseeable future until we reach maximum employment levels or inflation greater than 2%. Many on the Federal Reserve’s committee don’t expect much tapering of this policy until late 2022 or 2023.
Although the United States Congress enacted a $900 billion rescue aid package in December for individuals, many economists fear a potential recession if Congress cannot agree on another stimulus package by the end of the first quarter of 2021. The new administration is pushing for lawmakers to approve a $1.9 trillion package to support the economy. However, with the nation’s current debt approaching $28 trillion, many are concerned that too much spending could spur unwanted inflation. Average consumers are already feeling some of these effects with the increase in essential goods prices and overall, decreased purchasing power of the dollar. In the municipal sector, construction costs in multiple areas of the country have nearly doubled in just the past four to five years. Essential equipment which municipalities purchase every year has also been increasing well above the Fed’s stated inflation rate. 
In 2020, municipal debt issuances reached an all-time high with over $475 billion of issuances which represents a 9% increase from 2019. Of these municipal issuances, almost $200 billion were refundings as municipalities across the country took advantage of historically low rates to help combat budget pressures caused by the pandemic. This was the highest amount of refundings since 2017. Many municipal bond surveys are projecting another high-volume year of municipal issuances as the Federal Reserve continues their quantitative easing and keeps interest rates low.
So, it appears our economy as a whole and U.S. citizens individually will be further tested again in 2021. Despite all the challenges we’ve endured, we know Americans will again prevail in the face of any adversity. Moody’s Investor Services continues to affirm the United States’ Aaa rating as evidence of our economic strength, even though our fiscal strength has weakened during the pandemic.
