Interest Rate Outlook: Biden to Nominate Janet Yellen as Treasury Secretary
Federal Reserve Lending Facilities
Outgoing Treasury Secretary Mnuchin announced in late November that he would allow certain Federal Reserve relief programs to expire at the end of the year. Federal Reserve officials had publicly urged Mnuchin to extend all emergency programs but ultimately conceded and will close several of the facilities this month. The Fed also announced on Monday that a crucial subset of its emergency lending facilities will be extended through at least the first quarter:
By backstopping critical short-term funding markets, these facilities are supporting market functioning and enhancing the flow of credit to the economy. The extension, which has also been approved by the Treasury Department, will facilitate planning by potential facility participants and provide certainty that the facilities will continue to be available through the first quarter of 2021 to help the economy recover from the COVID-19 pandemic.
The facilities that will remain in place through Q1 2021 include the Commercial Paper Funding Facility (CPFF) and the Primary Dealer Credit Facility (PDCF), among others.
The PDCF allows primary dealers to borrow directly from the Fed at the discount window rate for up to 90 days, using a wide variety of collateral including investment-grade corporates, commercial paper, mortgage-backed securities, asset-backed securities, and equities. The facility aims to allow dealers to make efficient markets even if significant economic disruptions arise.
The CPFF serves “as a funding backstop to facilitate the issuance of term commercial paper by eligible issuers”, allowing issuers that had high credit ratings as of March 17, 2020 to issue paper directly to the Fed (https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20201130a1.pdf).
Biden to Nominate Janet Yellen as Treasury Secretary
Janet Yellen enjoyed bipartisan support for her leadership at the Federal Reserve and is likely to face a straightforward Senate confirmation to head the Treasury Department. Former Fed Chair Yellen’s monetary policy record and her recent comments suggest that she will support additional fiscal stimulus measures once nominated and confirmed in 2021.
Fed Funds Futures Contracts
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