FOMC tees up a rate hike for march
|Summary
- As was widely expected, the FOMC made no major policy changes at its meeting today. Specifically, the Committee unanimously agreed to keep its target range for the federal funds rate unchanged at 0.00% to 0.25%.
- But the Committee also teed up a rate hike in March when it stated that "it will soon be appropriate to raise the target range for the federal funds rate."
- We look for the FOMC to hike rates by 25 bps per quarter between Q1-22 and Q3-23—a total of 175 bps—but acknowledge that the risks seem skewed toward the FOMC moving at a faster pace and/or by more than we currently forecast if inflation remains uncomfortably high.
- The FOMC also released a document entitled "Principles for Reducing the Size of the Federal Reserve's Balance Sheet." These principles, in conjunction with statements that Chair Powell made in his post-meeting press conference, suggest that the Committee will not rush headlong into shrinking its balance sheet, but that it is moving closer.
- We expect that the FOMC will announce at the September policy meeting that it will begin balance sheet reduction in the fourth quarter, and that the amount of run-off will accelerate over the subsequent few months.
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