- The FOMC unanimously voted to keep the federal funds target rate unchanged within the 0.00% to 0.25% range. This outcome was widely expected by market observers.
- The Committee gave support to investors expecting a March liftoff in rates, noting that “it will soon be appropriate to raise the target range for the federal funds rate.”
- In trading after the announcement, markets were pricing in a greater than 50% chance of four or more 25 bp rate hikes by the end of the year.
Fed Balance Sheet
- Asset purchases will continue to be reduced at the accelerated pace that was first announced in December. The Fed will purchase at least $20 billion in Treasury securities and $10 billion of agency mortgage-backed securities per month in February. This will bring Fed balance sheet expansion to a close in early March.
- The FOMC additionally published a separate statement, “Principles for Reducing the Size of the Federal Reserve’s Balance Sheet”. This reiterated the view that the fed funds target rate is the “primary means of adjusting the stance of monetary policy.”
- Reductions in the size of the Fed’s balance sheet “will commence after the process of increasing the target range for the federal funds rate has begun.”
- The Committee noted a preference for holding primarily Treasury securities in the longer run, in order to minimize the impact of balance sheet holdings on credit markets.
- The FOMC updated the language in its statement around inflation and the labor market. The new language described inflation as now “well above” the 2 percent target and noted the labor market is “strong”.
- Chairman Powell indicated in the press conference that the rise in Covid cases caused by the Omicron variant will likely have a negative impact on economic growth in Q1.
The FOMC is next scheduled to meet March 15-16, 2022.
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