NEW YORK (Reuters), Wednesday’s Federal Reserve indicated that they are likely to increase U.S. interest rate in March. They also reaffirmed their plans to cease bond purchases for the month and to reduce its assets holdings before launching a major reduction.
They will move away from the loose monetary policy that was the hallmark of the pandemic period and instead focus on a stronger fight against inflation.
STOCKS – The sawsawed. The increase was 1.3%, slightly lower than the one just prior to the announcement.
BONDS: They rose to 1.816% and 2.year yields rose to 1.0392%. The 2s/10s yield curve sharpened to 77.44 base points.
FOREX: Forex is the added gain of a gain. 0.19% Firmer
LEE FERRIDGE, MACRO STRATEGY HEAD NORTH AMERICA, STATE STREET GLOBAL MARKETS, BOSTON
“The market got way ahead of itself. “The Fed won’t hike 50 basis point in March. It gently refuted that statement. This statement brought us back to what they’ve been saying. Equities felt a little relief that they hadn’t confirmed their more hawkish views about the market pricing.
“The second thing to take away from this is that quantitative tightening will happen. The idea of the balance sheet reduction as now mentioned in the statement puts us on the table for June.”
BRIAN INVESTMENT STRATEGIST SENIOR, ALLSPRING GLOBAL Investments, MENOMONEE FELS, WISCONSIN
“If the Fed thinks the current bout of inflation is due to supply-demand imbalances, I’m not sure how they think what they do will help fix that. The Fed buys time to ensure that supply chains heal slowly. Inflation will then be drifting lower and the Fed can then take the credit.”
MICHAEL PEARCE, SENIOR US ECONOMIST, CAPITAL ECONOMICS, NEW YORK
“The Fed’s announcement that it will “soon be appropriate” to raise interest rates is a clear sign that a March rate hike is coming. The Fed’s plans to begin running down its balance sheet once rates begin to rise suggests an announcement on that could also come as soon as the next meeting, which would be slightly more hawkish than we expected.”
BETH ANN BOVINO, U.S. CHIEF ECONOMIST, S&P GLOBAL RATINGS
“Today the Fed interest rate rocket left the hangar and is headed to the launchpad with what we believe is a March liftoff scheduled – the first of at least three hikes this year. The only question is how high the rocket flies and how fast it launches. We see 3 one-quarter hikes, but another could hit this year with 3 next and 2 in 2024.“
ELLEN Hazen, PORTFOLIO MANAGER F.L.PUTNAM MANAGEMENT. WELLESLEY MASSACHUSETTS
“There are no surprises here, they are keeping rates where they are but clearly setting the stage to increase rates in March, that is what has been widely expected. As we look at the implied forecast the market is expecting four hikes this year, I don’t think that is going to change. It is important to ask when they will actually talk about shrinking the balance sheets. It looks as through the taper is going to finish a couple of weeks ahead of schedule, that is not really big news either way but what Powell says in the press conference with respect to how quickly they might actually start to reduce the balance sheet will be very critical.”
“They really didn’t talk much about inflation, clearly Powell pivoted on inflation back in December when he said it was time to retire the word transitory and they did not address inflation directly in the statement so that will be key to watch in the press conference as well. If they had something specific to say on inflation they would have said it, and the fact they danced around it a little bit in that first paragraph means they are keeping their options open, perhaps because they still are not convinced that it will end up being sustained.”
TOM DI GALOMA, MANAGING DIRECTIOR, SEAPORT GLOBAL HOLDINGS, NEW YORK
“I think it really was everything that the market was looking for. They will stop their purchasing program by mid-March, so I think it’s really everything that I was expecting. It should be interesting to see what the press conference will say, but it seems to me the Fed is recognizing that inflation’s a problem, it’s not transitory, and they’ve got to start the process of a liftoff here in rates…they are saying it will soon be appropriate to raise rates, so I don’t think there’s any mystery here.”
BRENT SCHUTTE CHIEF INVESTMENT STRATEGIST NORTHWESTERN MUTUAL Wealth Management Company, MILWAUKEE (WISCONSIN).
“Anyone looking for a hawkish message or pivot didn’t get it. So that is giving the market some comfort that the plan that the market has adapted to and priced in is still in place.”
“I do believe the market was worried at least that there would be some sort of a more hawkish message that was delivered and so far that has not been the case, we will see what the press conference holds. Certainly it is kind of along the plans of what they had outlined in the past and what the market has priced in already. So the market is taking, I think, some solace in that and actually pushing just a bit higher.”
ALAN LANCZ, PRESIDENT, ALAN B. LANCZ & ASSOCIATES, TOLEDO, OHIO
“It was nothing as draconian as what some investors were worried about when (the Fed) last spoke. It was obvious that the market has taken a plunge, which is why you’re probably feeling a sense of relief. As you dig deeper, however, you’ll see that the market is still open to all.
RUSSELL PRICE CHIEF ECONOMIST, AMERIPRISE FINANCIAL SERVICE, TROY. MICHIGAN
“The statement still leaves a lot of questions to be answered particularly when it comes to the balance sheet roll off. The information provided was not very detailed.”
“The Fed provided some clarity on the prospect of rate hikes but not all the clarity markets were looking for. The balance sheet roll-off is still uncertain. Markets are glad for some clarity in light of the uncertainty surrounding transition periods such as this.
“More details will come in the press meeting.”
JUAN PEREZ SENIOR FX TRADER MONEX USA WASHINGTON DC
“This decision by the Fed sounds like they are not convinced the time to hike will be in March necessarily as they are leaving open room for consideration of policy stance to adjust as needed.”
“Keeping the balance sheet the same until hikes begin means that they are indeed not taking all easing measures away quite yet. This was something we expected to occur and could spell doom for the dollar long-term.