Watching How U.S. Fiscal and Monetary Policy Impacts the Municipal Bond Market

  • Fiscal policy steps already approved by Congress in response to the COVID-19 pandemic total over $3.5 trillion;

  • U.S. monetary policy specific to the municipal bond market that was enacted in response to COVID-19 highlighted by the creation of the Municipal Liquidity Fund. So far only Illinois and NYMTA have used the MLF. New Jersey is said to be considering the MLF;

  • It still does not seem that Washington lawmakers are close to a fifth phase of COVID-19 relief. Conversations seemed to have been jump-started last week by White House COS Meadows, but a compromise is still not imminent.

  • Senate majority leader Mitch McConnell said this morning the Senate will vote on a slimmed down version of targeted COVID-19 relief this week. This abbreviated version amounts to only about $500 billion and is not guaranteed to pass in the Senate. This illustrates the extent of the rift and why it has been so difficult to get another round of aid completed. This smaller version does not include state and local government aid;

  • Without aid, state and local governments will likely enact a combination of deep budget cuts impacting personnel and service delivery. We are also expecting to see more tax and fee increases incorporated this time around, compared to past economic downturns.

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