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Fed minutes for December 2021:


The Federal Reserve at its meeting in December began planning to cut the amount of bonds it holds, with members saying the balance sheet reduction would likely begin after the bank Central banks began raising interest rates, according to minutes released on Wednesday.

While officials have not made any decision on when the Fed will begin rolling out the nearly $8.3 trillion in Treasuries and mortgage-backed securities it holds, the statements The announcement in the meeting suggested that the process could start in 2022, possibly in the next few months.

“Almost all participants agree that balance sheet flows are likely to begin at some point after the first increase in the target range for the federal funds rate,” he said. clearly stated meeting summary.

Current market expectations are that the Fed will start raising its benchmark interest rate in March, meaning balance sheet reduction could begin before the summer.

The minutes also indicate that once the process begins, “the appropriate pace of balance sheet flows will likely be faster than during the previous normalization period.” in October 2017.

The market reacted to the news, with equities falling and government bond yields rising on the prospect of a tighter Fed in 2022.

“They did more than talk about this. Obviously, there was a pretty long discussion. It was a pretty serious conversation,” said Kathy Jones, chief fixed income strategist at Charles Schwab. on the minutes, including a special section titled “Discussion of Considerations on Policy Normalization.”

“The fact that almost all participants agree that it is appropriate to initiate balance sheet flows after the first increase in the target range for lending rates implies that there is no great appetite for ‘let’s wait and see’. “Jones added. “Last time, they wanted two years. This time, it looks like they’re ready to go.”

During that 2017-19 cut, the Fed allowed a cap on the amount of bond proceeds it holds to roll out each month while reinvesting the rest. The Fed started by allowing $10 billion in Treasuries and mortgage-backed securities each quarter to roll out, increasing more each month until the cap hits $50 billion.

The program was intended to help reduce the balance sheet significantly but was hit by the global economic slowdown in 2019, followed by the pandemic crisis in 2020. In total, the numbers cut to only about 600 billion USD.

As expected, the Fed’s policy team after the December meeting kept their benchmark interest rate on hold near zero. However, officials also indicated that they expect a hike of up to three parts. four percentage points in 2022, as well as three more increases in 2023 and two more the following year.

In addition, the committee vowed to accelerate the tapering of its monthly bond-buying program. Under the new plan, the program will end around March, after which it will free the commission to start increasing rates.

According to the CME FedWatch Tool, the current market valuation of nurtured fund futures is showing a 2 to 1 possibility of the first bull run in March, according to the CME FedWatch Instrument. Traders expect the next rally to come in June or July, followed by a third in November or December.

Fed officials pointed out that the rationale behind the moves was in response to higher and more persistent inflation than they had thought. Consumer prices are rising at their fastest rate in nearly 40 years.

This is breaking news. Please check back here for updates.

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