First US Post-Pandemic Rate Hike In March Is Likely

The US Federal Reserve announced on Wednesday that the FOMC had agreed to leave the Federal Funds target range unchanged at 0.0-0.25%, in line with expectations. The central bank said that it would soon be appropriate to raise the Federal Funds rate, the strong hint that many market participants would have been looking for that a first post-pandemic rate hike in March is likely.

Main Quotes:

“The Fed will bring bond-buying to an end in early March.”

“The Fed is prepared to adjust the stance of monetary policy as appropriate if risks emerge that impede its goals.”

“In assessing monetary policy, the Fed will continue to monitor incoming information for the economic outlook.”

“Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation.”

“The sectors most adversely affected by the pandemic have improved in recent months but are being affected by the recent sharp rise in Covid-19 cases.”

“To increase treasuries by $20B, MBS by $10B starting in February.”

“The Fed expects that reducing balance sheet size will commence after the process of increasing the target range for the federal funds rate has begun.”

The Fed reaffirms in an identical statement the longer-run goals and monetary policy strategy adopted in August 2020.

“Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation.”

“The policy vote was unanimous.”

“Indicators of economic activity and employment have continued to strengthen.”

“The Fed agreed principles for reducing the balance sheet.”

“Job gains have been solid in recent months, and the unemployment rate has declined substantially.”

“In the longer run, the Fed intends to hold primarily Treasury securities.”

“The Fed is prepared to adjust any details on reducing balance sheet in light of economic and financial developments.”

The Dollar Index saw a mixed, two-way initial reaction as traders digest what appears to have been a very much in line with expectations Fed monetary policy statement and decision. Attention now turns to Fed Chair Jerome Powell’s appearance at the press conference from 1930GMT.