Interest rates

Here’s where Fed voters stand on raising interest rates and cutting the $8.8 trillion stock of assets

The powerful Federal Reserve body that controls U.S. interest rates looks set to raise the cost of borrowing in March for the first time in four years, ending an extraordinary period of economic stimulus.

Still, voters on the Federal Open Market Committee seem less sure when they’ll start chipping away at the Fed’s mammoth $8.8 trillion balance sheet. Or how fast.

Several regional Fed bank presidents, such as Esther George of Kansas City and James Bullard of St. Louis, want the process to begin soon after the central bank raises interest rates.

Most others, including Fed Chairman Jerome Powell, have adopted a wait-and-see attitude. They support the idea of ​​reducing the balance sheet this year but are unsure of the timing or extent of asset reductions.


DJIA of Wall Street,

expects Powell to shed some light on the Fed’s strategy after next week’s two-day FOMC meeting. He will hold a press conference on Wednesday.

“The January FOMC meeting should continue the Fed’s hawkish policy fulcrum by signaling that it will soon be appropriate to begin removing accommodative measures,” Deutsche Bank economists said in a note to clients. .

The bank expects Powell to confirm that the “lift-off” – or the first rate hike – will take place in March.

How did we get there ?

A quick look back and how we got here:

In 2020, the Fed quickly cut a key short-term interest rate to near zero at the start of the pandemic.

The central bank also bought more than $4.5 trillion in Treasury bills and mortgage-backed securities to drive down long-term rates. Shopping ends now but won’t end until March.

These measures pushed mortgage and other interest rates to historic lows and helped the economy survive the early onslaught of the coronavirus.

All of the stimulus from the Fed and Washington lawmakers, which also pumped billions into the economy, also contributed to the worst US inflation spike in nearly 40 years. The cost of living jumped 7% in 2021.

The Fed’s impending decision to hike rates and shrink its balance sheet is aimed at bringing inflation under control. The economy has also largely recovered and Fed officials say it no longer needs to stay on life support.

FOMC news

The FOMC’s current roster includes nine voters, leaving it three members short after a recent pair of resignations.

The Biden White House has proposed three new nominees for the Fed’s seven-member Board of Governors, but it’s unclear whether they can gain Senate confirmation by the March meeting.

Even if they do, Fed watchers expect them to accept an interest rate hike in March given the high level of inflation and concerns emanating from both sides in Washington.

The partly rotating composition of the FOMC this year includes a trio of regional Fed bank presidents who are considered more hawkish on inflation: George, Bullard and Loretta Mester of the Cleveland Fed. The rest of the FOMC is considered more intermediate or “dovish”.