The Federal Reserve approved a rare half-point interest rate increase on Wednesday May 4. The half-point hike is the Fed’s first since 2000.
The Fed also released its plans to shrink its $9 trillion asset portfolio starting next month.
Here is the Fed’s Press Release on its announcement.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in conjunction with this statement.
Press Conference
A press conference starts at 2:30 PM ET
https://www.youtube.com/watch?v=ELHQgcFBFpI
Quantitative Tightening Baby Steps
The Fed issues this Statement Regarding Plans for Reducing SOMA Holdings of Treasury Securities, Agency Debt, and Agency Mortgage-Backed Securities
On May 4, 2022, the Federal Open Market Committee (FOMC) decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities (MBS) on June 1, 2022, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet. The FOMC directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to reinvest principal payments from securities held in the System Open Market Account (SOMA) to the extent that they exceed monthly caps.
Doubting the Fed’s Resolve
This is the most aggressive QT schedule yet. I use the term “baby steps” in relation to the $9 trillion start point and where the Fed wants to go.
Also, consider this statement from the plans.
The Committee intends to reduce the Federal Reserve’s securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities held in the System Open Market Account (SOMA). Beginning on June 1, principal payments from securities held in the SOMA will be reinvested to the extent that they exceed monthly caps.
The Fed seeks to avoid outright sales.
Finally, I strongly suggest the Fed will abandon QT as soon as a deep recession or credit market event hits.
I am not the only one highly doubting the Fed’s resolve.
For discussion, please see An Excellent Video Interview to Watch: Dilemma of the Fed’s Own Making
Hoot of the Day
Hoot of the Day
Reporter to Powell: Do you think the Fed has a credibility problem.
Powell: No I don’t …. And I want to keep it that way.
My god, he should play your video from yesterday.https://t.co/KMp7J7Osvu
— Mike “Mish” Shedlock (@MishGEA) May 4, 2022
This post originated on MishTalk.Com.
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Mish
“Everybody’s got a plan until they get punched in the face.”