December 15th FOMC Follow-Up

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  • As expected, the FOMC unanimously voted to keep the Fed Funds target rate unchanged within the 0.00% to 0.25% range.
  • The Fed shifted forward guidance significantly more hawkish in its updated dot plot, with three rate hikes now expected in 2022 (vs. a 9-9 committee split for just one hike projected in September’s plot), three more hikes expected in 2023, and another two in 2024.
  • The Committee’s rate liftoff guidance now states that “with inflation having exceeded 2 percent for some time,” rates will remain at the current target range until labor market conditions reach “the Committee’s assessments of maximum employment.”

Monetary Policy Implementation

  • The FOMC announced that “In light of inflation developments and improvements in the labor market,“ the pace of tapering asset purchases would be doubled from what was announced at the November meeting. Treasury purchases will be reduced by $20 billion/month and MBS purchases by $10 billion/month.
  • The statement indicated that similar reductions in the pace of net asset purchases will likely be appropriate each month, but the committee is “prepared to adjust the pace of purchases if warranted by changes in the economic outlook.”
  • Assuming no further changes to the pace of tapering, quantitative easing will now end by March 2022.

Economic Conditions

  • The FOMC statement retired the word “transitory” when discussing the current inflationary environment, instead noting that supply and demand imbalances “contribute to elevated levels of inflation.” The committee increased the outlook for 2021 Core PCE from 3.7% to 4.4%, with inflation projected to moderate in 2022 and 2023.
  • The statement describes recent job gains as “solid” with unemployment declining ”substantially.” 2021’s projected unemployment rate was revised down 0.5 ppt to 4.3%.
  • The statement added language to acknowledge risks posed by new variants of the virus, but Chairman Powell said Omicron would not impact accelerated taper plans for now. “There’s a lot of uncertainty,” Powell said, noting that “…people are learning to live with this more and more.”
  • The Fed’s latest projections reduced 2021’s real GDP from 5.9% to 5.5% but pointed to stronger growth in 2022, with GDP growth revised up 0.2 ppt to 4.0% and unemployment revised down 0.3 ppt to 3.5%.

The FOMC is next scheduled to meet January 28 – 29, 2022.


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