The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, making no change to the Fed funds rate, as was widely expected. However, it hinted at the possibility of its first rate hike since 2018 being around the corner, saying, "With inflation well above 2% and a strong labor market, the committee expects it will soon be appropriate to raise the target range for the federal funds."
As well, in its statement of "Decisions Regarding Monetary Policy Implementation," the Committee said it expects its balance sheet reduction "will commence after the process of increasing the target range for the federal funds rate has begun." Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her latest article, The Fed's Policy Tightening Plan: A One-Two Punch, how beginning quantitative tightening soon after rate hikes is a big departure from the Federal Reserve's past policy.
The FOMC also said it will continue to taper its asset purchases at a rate of $30 billion per month—$20 billion in Treasuries and $10 billion in mortgage-backed securities. Regarding the economy, the Fed stated that activity and employment have continued to strengthen, and that while the sectors most adversely affected by the pandemic have improved in recent months, they continue to be affected by the recent sharp rise in COVID-19 cases.
The FOMC also said it will continue to taper its asset purchases at a rate of $30 billion per month—$20 billion in Treasuries and $10 billion in mortgage-backed securities. Regarding the economy, the Fed stated that activity and employment have continued to strengthen, and that while the sectors most adversely affected by the pandemic have improved in recent months, they continue to be affected by the recent sharp rise in COVID-19 cases.
Additionally, it said job gains have been solid and the unemployment rate has declined substantially, while the "supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation." No updated economic projections were given at this meeting.
Shortly after the announcement in his customary press conference, Chairman Jerome Powell noted that while he expects inflation to decrease during the year, the risks remain to the upside and that he sees "progress" in the supply-chain issues in the second half of 2022. Additionally, Powell indicated that asset purchases are likely to end in March.
Shortly after the announcement in his customary press conference, Chairman Jerome Powell noted that while he expects inflation to decrease during the year, the risks remain to the upside and that he sees "progress" in the supply-chain issues in the second half of 2022. Additionally, Powell indicated that asset purchases are likely to end in March.
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