Fed Responds as Expected

The Federal Open Market Committee (FOMC) met today for the fifth time this year to assess the state of the U.S. economy and monetary policy.

What We Learned

The FOMC decided to raise the Federal Funds Target Rate (fed funds) by 75 bps. The target band now stands at 2.25-2.5%. This move had been largely anticipated, although following the most recent CPI release some market participants leaned toward a 100-bps increase.

- The market now reflects a high probability of an additional 50 bps increase at the next meeting (September 21) and another 25 bps at each of the following two meetings (November 2 and December 14).

- The market currently anticipates a Fed Funds range of 3.25-3.5% at year end, with the Fed Funds rate peaking at potentially 3.5% in early 2023.

- In June, the Fed began normalizing its balance sheet via Quantitative Tightening (QT). The balance sheet decline increases over a phase-in period, reaching a maximum monthly cap in September of $60 billion of U.S. Treasury securities and $35 billion of agency mortgage-backed securities. QT reduces excess money supply. 

 

 

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