The Federal Open Market Committee, to no ones surprise, decided to keep rates unchanged…(FOMC)
- “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent”
With regards to asset purchases, the fed will reduce these purchases in February…
- “Beginning in February, the Committee will 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.”
- This is down from the $80 billion of treasuries and $40 billion in mortgage-backed securities purchases we saw at the peak of the pandemic.
NOTE: The statement did note that the labor market was “strong” and that inflation is “well above 2 percent.”
Federal Reserve Chair Jerome Powell expounded on some of the ideas mentioned in the press release at a presser a half-hour after its release.
- Powell discussed the jump we have seen in wages, “Wages have also risen briskly, and we are attentive to the risks that persistent real wage growth in excess of productivity could put upward pressure on inflation.” Powell also highlighted the impact inflation is having on these wage gains, “High inflation is taking away some of the benefits of these large wage increases we’re seeing now…”
- Powell seemed to verify the conventional wisdom that the first rate hike will happen in March, “I would say that the committee is of a mind to raise the federal funds rate at the March meeting.” However, Powell also made it very clear that they are not tied to any decision, “I don’t think it’s possible say exactly how this is going to go, and we’re going to need to be nimble about this and the economy is quite different this time.”
- Powell also seemed confident that the strong labor maker can withstand the rates hikes when they happen. “There are many millions more job openings than there are unemployed people…I think there’s quite a bit of room to raise interest rates without threatening the labor market.”