OPINION
Market Rating Before FOMC MeetingJan 31
FOMC: Balance Sheet started to be reduced as of June 1
The members of the Federal Open Market Committee (FOMC) announced the decision yesterday at 20:00 (GMT+2). The Committee decided a rate hike by 50 bps, which is the strongest hike since 2000. Consequently, the Fed’s current rate range reached 0.75 – 1.00 percent.
The text published on the decision taken by a 10-0 vote of the members stated that the balance sheet will be reduced by $ 47.5 billion starting from June, including $ 30 billion per month in treasury papers and $ 17.5 billion in mortgage–backed securities, while after the first 3 months, it will be reduced by $ 95 billion per month.
It was noted that the invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions, according to the Committee. FOMC seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run and they expect inflation to return to its 2 percent objective and the labor market to remain strong. The Committee reiterated that in assessing the appropriate attitude of monetary policy, it will continue to monitor the impact of incoming information on the economic outlook and that they are ready to adjust the stance of monetary policy appropriately in the event of risks that may prevent the achievement of the Committee's goals.
After the meeting, Fed Chair Jerome Powell stated that they think that both the Russia-Ukraine crisis and the coronavirus restrictions in China will increase the headline inflation, that the inflation is well above the targets and that it would be appropriate to continue the increase in interest rates. He further indicated following the decision that 50 bps rate hikes might be expected in future meetings.
Expressing that the short-term inflation expectations are quite high and the strict policy process is not a pleasant process, the Chair said that they have a good chance of achieving stability without causing a recession. It was important to that Powell said a 75 basis point interest rate increase was not something that the FOMC was actively evaluating, adding that they would not hesitate to raise interest rates beyond the neutral level if needed.
The fact that the Committee has officially announced an exit from the period of abundant liquidity, as well as raising the borrowing costs, is the strongest macroeconomic sign that the dollar's pressure on the currencies of developed countries will increase. As a result of yesterday's decision, 10-year US treasury yields on the debt market hit 3.1 percent, the highest level of the last 3.5 years.
The text published on the decision taken by a 10-0 vote of the members stated that the balance sheet will be reduced by $ 47.5 billion starting from June, including $ 30 billion per month in treasury papers and $ 17.5 billion in mortgage–backed securities, while after the first 3 months, it will be reduced by $ 95 billion per month.
It was noted that the invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions, according to the Committee. FOMC seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run and they expect inflation to return to its 2 percent objective and the labor market to remain strong. The Committee reiterated that in assessing the appropriate attitude of monetary policy, it will continue to monitor the impact of incoming information on the economic outlook and that they are ready to adjust the stance of monetary policy appropriately in the event of risks that may prevent the achievement of the Committee's goals.
After the meeting, Fed Chair Jerome Powell stated that they think that both the Russia-Ukraine crisis and the coronavirus restrictions in China will increase the headline inflation, that the inflation is well above the targets and that it would be appropriate to continue the increase in interest rates. He further indicated following the decision that 50 bps rate hikes might be expected in future meetings.
Expressing that the short-term inflation expectations are quite high and the strict policy process is not a pleasant process, the Chair said that they have a good chance of achieving stability without causing a recession. It was important to that Powell said a 75 basis point interest rate increase was not something that the FOMC was actively evaluating, adding that they would not hesitate to raise interest rates beyond the neutral level if needed.
The fact that the Committee has officially announced an exit from the period of abundant liquidity, as well as raising the borrowing costs, is the strongest macroeconomic sign that the dollar's pressure on the currencies of developed countries will increase. As a result of yesterday's decision, 10-year US treasury yields on the debt market hit 3.1 percent, the highest level of the last 3.5 years.
