2021 was a remarkable year and proved kind to global stocks. In the US, the combination of government fiscal and monetary support, coupled with a recovering economy, was a potent mixture supportive of markets.
The continued monetary assistance of the Federal Reserve (Fed) demonstrated how institutional support has been a significant backdrop to the economic picture. The Fed has held the Fed Funds Rate to very low levels over the past decade-plus. Nine of the last fourteen years have seen the rate range bound from 0.00 – 0.25%, which is unprecedented.
Additionally, the Fed has undertaken various episodes of quantitative easing, where it prints money and buys bonds issued by the United States Treasury to keep longer-term interest rates lower.
Fiscal policy has also been extremely accommodative in the last couple of years. Since the beginning of 2020, the US Government has spent almost $6 trillion directly related to COVID relief, much of that in the form of direct transfer payments to businesses and individuals.
