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Data: Federal Reserve via FRED, projection from Deutsche Bank; Chart: Andrew Witherspoon/Axios

The Fed's outlook is relatively pessimistic about the future, based on recent speeches and communications from top policymakers and likely augurs a massive expansion of the central bank's balance sheet in coming years, Deutsche Bank chief U.S. economist Matthew Luzzetti says in a new research note.

What's happening: "We find that the Fed will need to provide significant accommodation — roughly equal to a fed funds rate of -5% — and that [quantitative easing] and forward guidance could be insufficient."

What it means: Given the Fed's reluctance to introduce negative nominal interest rates and the deteriorating state of the economy, Luzzetti argues the Fed will need to expand its balance sheet by up to an additional $12 trillion in short order.

  • "[T]he more optimistic scenario would take nearly four years to achieve, while the more pessimistic view would take more than eight years."

Watch this space: The analysis relies on "optimistic" assumptions, including "that the Fed’s unconventional tools are as potent today, with yields at record low levels and the market pricing a negative fed funds rate in the coming quarters, as they were several years ago when yields and risk premia were much higher and the market actually anticipated future rate hikes."

  • So, the balance sheet could rise by much more.

Go deeper

Federal Reserve expands lending program for small businesses

Federal Reserve Chairman Jerome Powell at a news conference in 2019. Photo: Eric Baradat/AFP via Getty Images

The Federal Reserve said on Friday it would again lower the minimum loan size for its pandemic-era small business program.

Details: Businesses and nonprofits will be able to borrow a minimum of $100,000 from the facility, down from $250,000 — a move that might attract smaller businesses that don't need as hefty of a loan. Since the program launched earlier this year, the minimum loan size has been reduced twice.

1 hour ago - World

Hong Kong media tycoon Jimmy Lai detained on fraud charge

An activist holds a placard highlighting China's Tiananmen Square massacre as pro-democracy media tycoon Jimmy Lai arrives at West Kowloon Magistrates' Court in Hong Kong in November. Photo: Isaac Wong/SOPA Images/LightRocket via Getty Images

Hong Kong media tycoon Jimmy Lai is being detained until an April court hearing after the pro-democracy supporter was charged Thursday with fraud, per his Apple Daily news outlet.

Why it matters: The 72-year-old's arrest and denial of bail is another blow for the pro-democracy movement in the former British colony amid concerns about a fresh crackdown on activists.

5 hours ago - Politics & Policy

Inhofe loudly sets Trump straight on defense bill

Sen. Jim Inhofe speaks with reporters in the Capitol last month. Photo: Samuel Corum/Getty Images

Senator Jim Inhofe told President Trump today he'll likely fail to get two big wishes in pending defense spending legislation, bellowing into his cellphone: "This is the only chance to get our bill passed," a source who overheard part of their conversation tells Axios.

Why it matters: Republicans are ready to test whether Trump's threats of vetoing the bill, which has passed every year for more than half a century, are empty.