STATE OF THE MARKET Written By Mark Martiak n December 15, 2021, the Federal Open Market Committee (FOMC) of the Federal Reserve System made a significant shift in monetary policy in response to rising inflation. The Committee accelerated the reduction of its bond-buying program in order to tighten the money supply and projected three increases in the benchmark federal funds rate in 2022, followed by three more increases in 2023. Both steps were more aggressive than previous FOMC actions or projections.
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it is still discussing the details of the process and Powell said he expects that to take at least two more meetings. This makes a May announcement of the start of runoff less likely, and we continue to expect the announcement at the July meeting instead. We expect runoff caps of $60bn per month for Treasury securities and $40bn per month for mortgagebacked securities, which we project would shrink the balance sheet from $8.8tn to $6.1-6.6tn over 2-2.5 years. (2)
Comments from Chair Jerome Powell on January
Nevertheless, several of the worlds’ largest economies enjoyed notable recoveries in 2021. In the United States, two additional rounds of stimulus payments in the first quarter helped line consumers’ pocketbooks, which led to rapidly increasing demand for goods and services. Historically low lending rates and a rise in remote work increased the opportunity for consumers to spend. However, the rapid economic turnaround brought with it a historic surge in consumer and producer prices, labor shortages, and global supply-chain bottlenecks. Low interest rates and stimulus measures adopted by the Federal Reserve gave people more access to money and buying power.
26, 2022 reinforced my view that high inflation could push the Federal Open Market Committee (FOMC) to consider hiking the Fed Funds rate at consecutive meetings this year, and that the risks around my baseline forecast of three-four hikes in 2022 are therefore slanted to the upside. The market also took Powell’s comments as hawkish, and 2-year yields rose 13 basis points during and after his press conference. While Powell did not directly address hiking at consecutive meetings, he hinted at the possibility of a faster pace in three ways. First, he emphasized that the economy is in a very different place than when the FOMC hiked last cycle. Second, he acknowledged the uncertainty about the inflation outlook and said that monetary policy needs to be in a position to address different outcomes, including one in which inflation runs higher. Third, he said that the FOMC would move “steadily” away from its current policy stance, avoiding the term “gradual” used last cycle. (1) The FOMC also released high-level principles for reducing the size of its balance sheet today, but
Personal income increased as did personal consumption expenditures. Corporate earnings were strong, despite labor and supply shortages and lingering economic uncertainty caused by the pandemic. U.S. inflation reached a nearly 40-year high late in the year, as growing consumer demand was stunted by pandemic-related supply constraints. Historically low mortgage rates helped propel the housing market, as both the number of residential
