Good day. Lower rates held down the Fed's interest expense, resulting in the central bank sending $88.5 billion in profits to the U.S. Treasury Department last year. Meanwhile, Atlanta Fed President Raphael Bostic, who is about to take a voting slot on the interest-rate-setting Federal Open Market Committee, said he is open to slowing the central bank's bond buying if the economy performs well. 

 Now on to today’s news and analysis.

The Federal Reserve sent $88.5 billion in profits to the U.S. Treasury Department in 2020, a nearly two-thirds increase from the previous year as lower rates held down the central bank’s interest expense. The Fed’s payments to the Treasury had fallen over the previous four years as interest rates rose, boosting the interest it paid on reserves, or money that private banks keep at the Fed’s regional reserve banks. The Fed also began shrinking its portfolio of assets, reducing its overall net income.

Federal Reserve officials wear their nonpolitical status as a badge of honor, but that doesn’t mean that they haven’t been watching the chaos that has unfolded since the presidential election with some amount of consternation. Read more.

The Bank of England may need to expand stimulus to support the economy and bring inflation back to target and negative interest rates would be an option, BOE policymaker Silvana Tenreyro said on Monday. "Having negative rates in our toolbox will, in my view, be important," Ms. Tenreyro said. Quantitative easing is important in the event of "market dysfunction" but its power mainly "mainly lies in helping offset the disruption" rather than providing additional stimulus, she said. It is crucial the BOE has other policies at its disposal to boost spending and inflation when needed, she said. (Dow Jones Newswires) 

Consumers are expecting higher levels of inflation over the longer run, according to the New York Fed's December consumer expectations survey. While expectations for price pressures for a year ahead held steady at a forecast 3% rise, households see 3% inflation in three years, up from 2.8% in the November survey. The report also found expectations for changes in home prices surged to 3.6% from 3% in November, the highest reading since July 2018. Overall perceptions of households’ current financial situations were largely unchanged from a year ago, but one-year-ahead expectations improved slightly. (DJN) 

9:35 a.m.: Fed's Brainard discusses artificial Intelligence and financial services at the Virtual Federal Reserve Artificial Intelligence Symposium
10 a.m.: U.S. Labor Department releases November Job Openings and Labor Turnover Survey
11 a.m.: Boston Fed's Rosengren joins Greater Boston Chamber of Commerce: 2021 Economic Overview virtual event; Boston Fed's Rosengren, Dallas Fed's Kaplan and Minneapolis Fed's Kashkari in virtual Racism and the Economy event series
12 p.m.: Cleveland Fed's Mester joins European Economics and Financial Centre virtual event
1 p.m.: Kansas City Fed's George discusses economic and monetary policy outlook at virtual event hosted by The Central Exchange; St. Louis Fed’s Bullard speaks in Wall Street Journal virtual discussion

4 a.m.: European Central Bank’s Lagarde speaks in online Q&A at Reuters event
8:30 a.m.: U.S. Labor Department releases December CPI
9:30 a.m.: St. Louis Fed’s Bullard speaks on economy and monetary policy at Reuters virtual forum
1 p.m.: Fed’s Brainard gives speech on economic outlook and full employment at Canadian Association for Business Economics virtual meeting
2 p.m.: Federal Reserve releases beige book report on U.S. economic conditions; Philadelphia Fed’s Harker speaks on economic outlook at virtual Chamber of Commerce for Greater Philadelphia event
3 p.m.: Fed’s Clarida speaks on Fed’s new framework at virtual Hoover Institution monetary policy conference

• The Conference Board Employment Trends Index tracking the U.S. labor market came in at 99.01 in December, edging down from a revised 99.05 for November. (Dow Jones Newswires)
• Some banks want to consign credit-card history to history. 
• Business sentiment in Canada strengthened in the late fall as domestic and foreign demand increased and optimism grew about the effectiveness of vaccines against Covid-19, a Bank of Canada survey found. (DJN)
• Mexican industrial production rose in November by a seasonally adjusted 1.1% from October, extending its recovery to six consecutive months following sharp declines in April and May caused by factory closures to slow the spread of the coronavirus, the National Statistics Institute said. (DJN)
• Chinese car sales declined 6.8% last year as the world’s largest market for automobiles shrank for a third straight year with auto makers there selling 19.29 million passenger vehicles, the China Passenger Car Association said, down roughly a fifth on 2017, the market’s peak. (DJN)
• New York Gov. Andrew Cuomo said New York would expand broadband internet access, create public health training for citizens and support converting vacant commercial space into housing as it strives to overcome the coronavirus crisis. 

This newsletter is compiled by James Christie in San Francisco and Ed Ballard in London. 

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