As a statement from the FOMC meeting on wednesday shows, the Fed decides to leave interest rates at near zero, but reiterated its commitment to withdrawing its pandemic-era easy money policies in the face of rapid price increases.
“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,”
Federal Open Market Committee updated statement.
In its first policy-setting meeting of 2022, the Fed reiterated that economic activity continues to strengthen, however a surge in prices since last year is weighing on the FOMC, and policymakers are starting to take the view that higher interest rates will be needed to prevent runaway inflation, which already stands at 7% (and around 15% if 1980’s style metrics are used to measure it).
The Fed did not opt to raise interest rates Wednesday because policymakers have messaged that they want to end the central bank’s pandemic-era policy of asset purchases first. The committee reaffirmed that it will wrap up that process in early March, meaning the first post-pandemic era rate hike could be coming in six weeks, which obviously will do loads to make investors feel just great about the impending economic outlook. In other words the Fed and the government want you to believe that everything is just great, but almost everyone else knows the truth.
Looking ahead, the FOMC released a document detailing “principles” for how the Fed may actively shrink its asset holdings, noting that such a process would “commence after the process of increasing the target range for the federal funds rate has begun.”
The statement suggests the Fed would allow maturing assets to roll off of its balance sheet, with a bias toward holding “primarily Treasury securities”.
“The Committee is prepared to adjust any of the details of its approach to reducing the size of the balance sheet in light of economic and financial developments,” the Fed statement reads.
Apparently, the FOMC’s voting members unanimously agreed to hold rates at near zero in Wednesday’s meeting.
You can read the full text of the Fed’s statement here.
