Thursday, February 2

The Fed warned that it will soon (March) raise rates

While all three Wall Street indices enjoyed a brief rally after the Federal Open Market Committee decision, the gains quickly evaporated as the Fed statement warned that it would soon start raising the Fed Funds rate to combat persistent inflation. The S&P 500 ended lower, after a sharp drop that reversed earlier gains. The Dow also fell, but the Nasdaq rallied late in the session to close slightly higher.

Fed Chairman Jerome Powell told a news conference after a two-day monetary policy meeting that the US central bank will keep an open mind as it tightens monetary policy to prevent inflation from taking hold.

“At this time, we have not made any decisions on the path of monetary policy,” Powell said. “I insist again that we will be humble and agile.”

The Fed chief said policymakers have “plenty of room to raise interest rates without threatening the labor market” while removing extraordinary support provided during the pandemic. “The economy is quite different this time,” Powell said.

“With inflation well above 2% and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the US central bank’s Federal Open Market Committee said. which fixes the cost of money, in a statement.

Investors generally expect the Fed to raise its overnight interest rate from the current near-zero level at its March 15-16 meeting. Fed funds futures have priced in three more rate hikes in 2022 after the one in March.

Committee members also agreed on a set of principles to “significantly reduce” the size of its asset portfolio, limiting the amount of principal from maturing bonds that it will reinvest each month.

The plan would start after the interest rate hike, the Fed said, without setting a specific date yet.

The Fed cited “solid” recent job gains, even as the outbreak of the omicron variant of the coronavirus pushed the number of daily cases to record levels, and said it continued to expect improvements in global supply chains to temper inflation.

In the weeks since the Fed’s December 14-15 monetary policy meeting, other risks have emerged, including Western fears of a possible Russian invasion of Ukraine and investors selling stocks.

Monetary policymakers did not release new economic and interest rate projections yesterday.

Reuters Agency