Well, the day came and everything happened as expected. Federal Reserve Chairman Jerome Powell announced a 50 basis point hike to the federal funds rate…(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 raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate.”
A rate hike was not all. The Fed also announced a plan to reduce its $9 trillion balance sheet. The Committee intends to reduce its holdings in a predictable manner primarily by adjusting the principal payments received from securities held in the System Open Market Account…(FOMC)
- “For Treasury securities, the cap will initially be set at $30 billion per month and after three months will increase to $60 billion per month…For agency debt and agency mortgage-backed securities, the cap will initially be set at $17.5 billion per month and after three months will increase to $35 billion per month.”
In a subsequent press conference, the Chairman threw cold water on the idea that a 75 basis point hike was even on the table. “A 75 basis point increase is not something the committee is actively considering,” Powell also noted that inflation pressures being supply-related handicapped the Fed because their tools were less than surgical…(WSJ)
- Powell noted, “We don’t have precision surgical tools. We have essentially interest rates, the balance sheet and forward guidance…They are famously blunt tools, they are not capable of surgical precision.”
- And The Wall Street Journal summarized Powell’s concerns that “a major driver of inflation is due to worsening supply problems but the central bank’s tools only target demand…The war in Ukraine and factory lockdowns in China risks making supply-chain disruptions worse, he said, and there’s little the Fed can do about it.”