Monday Morning Quarterback (03/22/2021)

March 22, 2021


FOMC Statement & Economic Projections

On Wednesday, the FOMC announced its intention to keep monetary policy accommodative until the U.S. economy fully recovers. Under its new 2020 mandate, the central bank will allow inflation to rise above 2.0% for a short but undefined period before pulling monetary stimulus. Currently, the Fed’s easy money policy includes $120 billion in monthly asset purchases and a federal funds rate near zero. The majority of Fed officials anticipate holding short-term interest rates between 0-25 bps until 2024. However, seven central bankers now expect to begin lifting rates in 2022 or 2023, whereas only five expected rate increases in December.

Compared to its December estimates for 2021, the central bank now projects lower unemployment, more robust gross domestic product (GDP) growth, and higher inflation. The Fed’s median 2021 GDP forecast was revised +230 bps higher to 6.5%, partly driven by lower unemployment expectations of 4.5% by the end of the year. The Fed’s latest 2021 inflation projections accelerated considerably to 2.4% from its 1.8% December predictions. Despite the anticipated gain this year, central bankers expect inflation will slow down again to 2% next year and 2.1% in 2023, reflecting the assumption that 2021’s jump in prices will be temporary. Thus, the short-term acceleration is unlikely to trigger a change in monetary policy. To learn more about the Fed’s new approach to inflation and its implications for CRE, please see our blog post on the matter.

Projected End of Year PCE Inflation for 2021, 2022, and 2023

Unemployment Forecasts

In addition to the Federal Reserve, Goldman Sachs and the Wall Street Journal (WSJ) reported economic estimates last week. The Fed projected that by the end of 2021, unemployment will fall to 4.5% and continue to fall in 2022 (3.9%) and 2023 (3.5). Before the FOMC projections, Goldman Sachs released its revised forecasts for unemployment. The investment bank projected a 4.0% jobless rate by year-end and fall further to 3.5% in 2022 and 3.2% in 2023. Additionally, The WSJ economist survey’s median unemployment estimates showed the jobless rate falling to 5.0% this year, 4.3% in 2022, and 4.0% by the end of 2023.

Projected End of Year Unemployment Rate for 2021, 2022, and 2023

In line with its forecasted jobless rates, the WSJ economist survey’s median estimates showed a 6% GDP growth in 2021 and 3.2% in 2022. Compared to the FOMC projections of 2021 GDP growth of 6.5% and 2022 of 3.3%, the WSJ estimates are more conservative. However, in 2023, WSJ estimates GDP growth of 2.4%, +20 bps above the Fed’s 2.2% projection.

February Retail Sales

U.S. retail sales fell 3.0% from January to February, representing a minor, temporary setback in consumer demand that could accelerate in the months ahead, which is a byproduct of inclement winter weather. Despite missing Bloomberg’s -50 bps month-over-month (m/m) median estimate, last month’s retail sales were 6.3% higher than in February 2020, while January retail sales were upwardly revised +230 bps to 7.6% m/m. Furthermore, over the past three months, retail sales have grown +6.0% y/y.

Chart of Cutting Back

Retail “Control Group Sales”

“Control group sales,” which exclude car dealers, gas stations, building-material retailers, and food services, declined 3.5% last month following an upwardly revised 8.7% surge in January’s retail sales control group. Over the prior three months, annualized control group sales – a measure that economists consider to be more reflective of underlying retail demand versus monthly sales and/or overall retail sales – increased by an annualized 3.5%.

Retail Sales Segments

85% of retail sales segments reported declining top-line growth in February. Grocery stores (+10 bps), a subcategory of food and beverage retailers (+0 bps), and gas stations (+3.6%) were the only segments to see a month-over-month gain in revenues. From January to February, 11 of 13 retail sales segments dropped. The most significant declines were found in motor vehicle dealers (-4.2%), general merchandise stores (-5.4%), which were driven by an 8.4% contraction in the subcategory: department store sales, nonstore retailers (-5.4%), and the segment of sporting goods, musical instrument, book, and hobby retailers (-7.5%). Looking ahead, retail revenues are set to strengthen into the second quarter (2Q21) as Americans receive the third round of stimulus checks from Biden’s $1.9 trillion COVID-aid package.

Economic Calendar

On Monday and Tuesday, Federal Reserve Chairman Jerome Powell will testify before Congress to provide a broad overview of monetary and fiscal policy in response to the COVID pandemic. SkyView anticipates that this event will not affect the market. On Wednesday, the U.S. Census Bureau will release February’s durable goods orders. On Thursday and Friday, the Bureau of Economic Analysis will release the Personal Consumption Expenditures reports. While weather likely impacted the data – the underlying trends should support an improved consumer outlook.


As of Sunday, March 21, U.S. coronavirus cases and casualties rose to 29.8 million and 543 thousand, respectively. During the first half of March 2021, new COVID cases hit 844 thousand, dropping 44% from the same period a month before. Moreover, during the same periods, new COVID deaths contracted even further than cases, shrinking by nearly half.

Chart of New Coronavirus Cases Reported per Day

Chart of New Reported Coronavirus Deaths per Day