Continued Quantitative Easing! The Federal Reserve will continue bond purchases and maintain a 0% interest rate, with the US Dollar Index breaking below 90.

The Federal Reserve concluded its last meeting of 2020, maintaining the target range for the federal funds rate at 0 to 0.25% and the $120 billion monthly bond-buying program until the economy recovers and employment levels improve.

Uncertainty Remains in the Mid-term Outlook

The Federal Reserve concluded its final meeting of 2020 on Wednesday with the Federal Open Market Committee. In its publishedstatement summary, the Fed mentioned that although economic and employment activities are continuing to recover, they are still far below the levels seen at the beginning of the year:

"The pace of the economic recovery continues to be highly dependent on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the short term and poses considerable risks to the economic outlook in the medium term."

Fed Chair Jerome Powell expressed optimism about the COVID-19 vaccine during the meeting, but also emphasized that it may take some time for Americans to fully engage in economic activities again.

Maintaining 0 Rates, $1200 Billion Asset Purchases

Despite improvements in the COVID-19 situation in recent months and the Fed's upward revision of GDP and PCE forecasts for this year, the global economic impact of the pandemic has not yet subsided. Therefore, the Fed will continue to actively stimulate the economy through monetary policy. Specifically, the Fed stated that the target range for the federal funds rate will remain unchanged at 0 to 0.25% in the short term and committed to continue purchasing $1,200 billion in assets monthly ($800 billion in Treasuries and $400 billion in MBS) until substantial progress is made towards the Fed's goals of employment recovery and price stability. The FOMC added:

"These asset purchases help to promote smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses."

Furthermore, as inflation continues to remain below the long-term target, the committee decided to aim for inflation moderately above 2% for some time, although the long-term inflation target will remain at 2%.

US Dollar Index Falls Below 90

However, the continued quantitative easing has rescued the US stock market but made the US dollar a casualty. From mid-year until now, the US Dollar Index (DXY) has fallen below 90, a drop of almost 10%. Many economists and analysts are pessimistic about the future of the US dollar. Gold enthusiast Peter Schiff wrote on Thursday:

"The US Dollar Index has quietly fallen below 90. I suspect that when it falls below 80, the market reaction will be more intense. However, the real fireworks will start after it falls below 70, which will take it into uncharted territory. This failure could happen as early as next year."

The U.S. #Dollar Index has broken below 90 with very little fanfare. I expect a bit more noise when it breaks below 80. However, the real fireworks will start when the index cracks 70, which would take it into uncharted territory. That failure could happen as soon as next year.

— Peter Schiff (@PeterSchiff) December 17, 2020

Meanwhile, the price of the hedge asset gold experienced a three-month decline from August to December but saw some improvement in December, bouncing back by about 6% from the low point on November 30. As for the emerging asset Bitcoin, more and more people are labeling it as "digital gold," "inflation hedge tool," and "store of value." Bitcoin has not disappointed these supporters, breaking the $20,000 mark on December 16, reaching an all-time high and becoming the best-performing asset class among all investment products.