OPINION
Market Rating Before FOMC MeetingJan 31
FOMC Officials Concerned About Inflation
At the meeting, Committee members made the largest-scale rate hike since 2000, at the level of 50 basis points, by 10 votes to 0, and lowered the federal funds target to the range of 0.75-1.00 percent. At the meeting, it was 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, and by $ 95 billion per month to be 2 times after the first 3 months.
Looking at the meeting minutes published the day we left behind, it was noted that production, especially supply chains, was suppressed as a result of the war between Russia and Ukraine and the closures due to the coronavirus cases in China, which led to an increase in inflation. It was stated that they agreed on the necessity of more increases.
It was noted that the authorities were extremely cautious about the rising inflation risks. In the minutes, where it was stated that these risks were on the upside and became a significant threat to economic performance, it was underlined that the monetary policy should be tightened appropriately.
In the minutes, it was noted that all participants agreed that the US economy is quite strong and the labor market is extremely tight. However, while the increase in the long-term inflation outlook during the period brought inflation to 2 percent, the risk that the “Committee may need to tighten more than expected at the moment” was pointed out.
In the minutes of the members regarding the balance sheet contraction, it was reflected that the members agreed the monetary policy stance should be shifted to a neutral stance quickly and they supported the proposed plans to reduce the size of the balance sheet.
Assessing the risks to the overall economic outlook, FED officials said they think the bank will be in a good position after tightening this year, saying that the contraction in the economy for the first quarter of this year is a signal and that they expect the economy to grow robustly in the second quarter.
Once and for all, it was reiterated that the authorities agreed they will continue to observe the effects of incoming information on the economic outlook and will be ready to adjust the stance of monetary policy appropriately when risks arise that may hinder the achievement of the Committee's objectives.
The minutes show that the authorities have not put an interest rate hike of 75 basis points on their agenda for the time being. However, they agreed to increase the interest rates by 50 basis points in the next 2 meetings, in June and July and pointed out that the balance sheet reduction process would not be aggressive.
