FOMC: Anything but Convivial

BOSTON, MA, November 2, 2022 — The Federal Open Market Committee (FOMC) met today to assess the state of the U.S. economy and monetary policy.

What We Learned

The FOMC raised the Federal Funds Target Rate (fed funds) by 75 basis points (bps), its sixth straight hike and fourth consecutive 75 bps hike, with the target band now at 3.75-4.00%. Like the September FOMC meeting, this move had been largely anticipated. With the most recent releases of inflation data remaining stubbornly firm, some market participants leaned toward a 100 bps increase.

– The market now reflects a high probability of a 50 bps increase at the final FOMC meeting of 2022 (December 14).

– The market currently anticipates a fed funds range of 4.25-4.50% at year end, with the peak fed funds rate around 5.00% in early 2023.

– The Fed continues to normalize its balance sheet via Quantitative Tightening (QT) at the previously stated maximum monthly cap of $60 billion of U.S. Treasury securities and $35 billion of agency mortgage-backed securities. QT reduces excess money supply and excess market liquidity.

While the Committee continues to anticipate that “ongoing increases” in the funds rate will be appropriate, in a hint at a possible slower pace of future moves, the statement noted that the Committee “will consider the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” Asked to further elaborate during the press conference on the timing and pace of future moves, Chair Powell said there’s “still ground to cover” but the time is coming to slow the pace, although it’s very premature to think about pausing. Overall, the Fed is looking to maintain its optionality and flexibility given the uncertainties facing the global economy.

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