FOMC: Rates will likely go up in March – UOB
|Senior Economist at UOB Group Alvin Liew comments on the last FOMC event (January 26).
Key Takeaways
“The Jan 2022 FOMC was seen as visibly hawkish as the Fed signaled clearly that the first policy rate hike will take place in the upcoming 15/16 March FOMC. Adding to the hawkish bias was the Fed’s opaqueness about the policy rate trajectory.”
“The FOMC statement also confirmed that the asset purchase program (QE) tapering will be further reduced in Feb 2022 (increase its holdings of Treasury securities by at least $20 billion per month and of agency mortgage-backed securities by at least $10 billion per month) and be completed by early Mar 2022, before the 15/16 March FOMC.”
“The FOMC also released a document titled the “Principles for Reducing the Size of the Federal Reserve's Balance Sheet” of which the FOMC members affirmed that the Federal funds rate remains the primary tool for the Fed’s monetary policy… Powell during the press conference said no decision was taken at the Jan FOMC meeting on the pace of the balance sheet runoff or when it would start, adding that the Fed will discuss balance sheet at next two meetings.”
“FOMC Outlook: We now expect the first Fed funds target rate (FFTR) hike will be in Mar 2022 FOMC by 25bps to 0.25-0.50%, followed by 3 more 25bps hikes in Jun 2022, Sep 2022 and Dec 2022, bringing the FFTR to the range of 1.0-1.25% by end of 2022. Risks are evidently skewed toward more aggressive and frequent Fed hikes in 2022, and will largely depend on the inflation path, especially if price increase accelerates significantly in 1Q due to Omicron-related factors, wage increases and inflation expectations. That said, Powell did note that Omicron will surely weigh on 1Q 2022 GDP growth and that makes us hesitate to call for a more aggressive opening hike.”
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