The Centers for Disease Control and Prevention (CDC) confirmed the first United States COVID-19 case on January 20, 2020. By March 13, 2020, President Trump had declared a national emergency and the Federal Reserve (Fed) stepped in with a broad array of accommodative policies, including lowering their policy interest rate to near zero and expanding their balance sheet by purchasing Treasury and Mortgage-Backed Securities. These actions were consistent with their dual mandate to promote maximum employment and stable prices. Facing a crisis and global pandemic, the Fed took forceful action to minimize harm and set the stage for economic recovery.

Concluding the 2021 year, the economic picture looks significantly different for the Fed’s dual mandate. Substantial progress has been made towards employment. During the height of the pandemic – April 2020 – the unemployment rate rose steeply to 14.8%, the highest rate observed since data collection began in 1948. As of November 2021, the unemployment rate stood at 4.2%. However, price stability or inflation has been running persistently higher than the Fed’s expectations. The Consumer Price Index (CPI) surged 6.8% from a year ago in November 2021, its fastest pace since 1982.

These economic data points put the Fed back in the spotlight as they meet in December for their last committee meeting of 2021. It is widely expected the Fed will begin to withdraw its accommodation as the economy continues its recovery and progress. The Fed’s first step will be reducing their bond purchases and balance sheet, followed by a lift-off and gradual rise in their policy interest rate.

The Fed’s willingness to adapt and change policy based on economic data does have portfolio implications. Investors should be positioning portfolios for a Fed policy change and a gradual rise in interest rates. As the present value of a company’s future cash flow, dividend, and earnings will be impacted by a change in interest rate policy, an active approach to stock and bond portfolio management is prudent.


Past performance is no guarantee of future results.  Investing involves risk, including possible loss of principal.  Diversification may not protect against market risk or loss of principal.  The opinions expressed above should be construed as neither investment advice nor a solicitation to buy or sell securities.  Actual investor results may vary.