We expect US economic growth to moderate in 2020 toward trend growth of about 1.8% compared to 2.3% in 2019. We believe the impact of monetary policy on economic growth is somewhat lagged, and the more accommodative monetary policy stance of the Federal Reserve and other global central banks throughout 2019 should provide a tailwind for the economy in 2020. Though slow global growth continues to create a headwind for the US economy, recent domestic economic data has been mostly in line with expectations and consistent with modest growth. Most notably, the US labor market remains firm which should continue to support consumer spending trends as well as the housing market.

The Federal Open Market Committee (FOMC) kept the target fed funds rate unchanged in December in a range of 1.50%-1.75%. The vote to keep policy unchanged was unanimous and the Fed’s quarterly update on their Summary of Economic Projections was little changed from the September 2019 forecast. Notably the Fed’s forecast calls for no change to the fed funds rate in 2020. We believe the hurdle rate to tighten policy remains high, as market-based measures of inflation are still too low. Conversely, if market-based inflation metrics fail to improve, and/or the domestic or global economy experiences an exogenous shock, we believe the Fed has left the door open for additional policy accommodation.

The Treasury yield curve steepened slightly in December. The 2-year Treasury yield decreased about four basis points to 1.57%, the 5-year Treasury yield increased almost seven basis points to 1.69%, and the 10-year Treasury yield increased about 14 basis points to 1.92%. We believe the increase in longer-term yields were driven by more favorable developments with regard to global trade and Brexit.