Finance Committee Agenda and Packet 2020 06 23

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Economic Update ■ Economic data remains weak but is showing early signs of improvement. We believe financial market participants are looking through the data and expect conditions to recover further in the second half of the year. First quarter GDP declined 5.0% and the decline in second quarter GDP is expected to be more severe. More than 42.6 million people have filed for unemployment since mid -March, though many of those jobs are expected to return as the economy reopens, and we saw some evidence of this in the May employment report. Financial market turbulence has eased, which we believe is a result of the massive fiscal and monetary relief programs that were announced in late March and early April to support the economy and overall market liquidity. We believe additional fiscal stimulus, beyond the $2.7trillion that has already been announced, may be necessary to foster a strong recovery. At the end of May, the S&P 500 index was up roughly 36%from the March 23rd low, and down just 5.8% on a year-to-date basis. Meanwhile, ongoing global demand for high quality assets continues to keep downward pressure on Treasury rates. E The Federal Open Market Committee (FOMC) kept monetary policy on hold at its April 28-29 meeting, as expected, with the fed funds target rate in the range of 0%-0.25%. The FOMC expects to keep that range unchanged until they are confident the economy has weathered the pandemic and is back on track to achieving their dual mandate of maximum employment and price stability. The FOMC pledged to use "its full range of tools to support the U.S. economy in this challenging time." The Fed continues to purchase Treasury and agency mortgage -backed securities as needed to support smooth market functioning. They have also announced a range of lending programs in the last few months to help build confidence in the financial markets and support the flow of credit to households, businesses, and municipalities. The Fed indicated the pandemic will weigh heavily on the economy in the near -term and poses considerable risks to the outlook over the next year or so. Treasury yields were little changed in May. The yield on 2-year Treasuries declined four basis points to 0.16% and the yield on 10-year Treasuries increased about one basis point to 0.65%. Global economic weakness continues to put downward pressure on inflation expectations. An ongoing global demand for safe -haven assets has also kept a lid on Treasury rates. 3 QtJ 13