Todays post will be about what the US FOMC (Federal Open Market Committee) meeting means and their rate hike to 1%.
Please Remember that the Conclusion at the end serves as a TL:DR for those of you just looking for the high points.
Please Refer to these previous posts about Federal Reserve Interest Policy if you need more context.
As a note, I managed to get some form of stomach/respiratory bug and am recovering from that now.
Table of Contents
Previous Narrative
Outcome
Macro Trading Impacts
Conclusion
1. Previous Narrative
If you refer to the December 2021 FOMC Meeting post that is in the intro, you’ll note that the Federal Reserve made 3 promises in December.
The factual promises that were made, are as follows
Doubling the rate of taper in mid-january
Concluding the net purchase of assets with printed money by March instead of in June
Three rate hikes in 2022 so that the overnight rate is 0.9% by the end of 2022
It’s been 6 months now, and you’ll note that my tone back in December was one of disbelief. I did not believe that Powell would actually follow through, and had believed that he was just presenting narrative to get the markets to move. This is essentially when a Central Bank makes promises about doing something in the future without actually having any intent of following through. This has been the mode of operations for the Federal Reserve for over a decade, and is one of the methods central banks have for moving markets. As you can see, Powell has now followed through on all 3 of the promises made in December, yet the markets are still telling him that it’s not enough.
The rate of taper was indeed doubled in January. Net asset purchases concluded (in April). The overnight lending rate is now 1%.
So, they’ve completed all aspects of their promises after today’s rate hike of 0.5%. Of note, this rate hike received a unanimous vote from the entire board. They have released plans push back their plans to sell off the assets in their balance sheet one month to June 1st, instead of the previous plan for sometime in May. The initial balance sheet sell off will be for $47.5 billion in assets per month, escalating to $95 billion a month in September. $30 billion of those will be treasuries for the first few months, and $60 billion in treasuries per month after September.
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