The Fed is expected to take a very big step towards raising interest rates for the first time

Read Time:4 Minute, 25 Second

Federal Reserve Chairman Jerome Powell attends the House of Representatives Financial Services Committee hearing on September 30, 2021, on Capitol Hill in Washington, USA.

Aldrago | Reuters

The Fed is expected to announce a major policy change on Wednesday, clearing the way for the first interest rate hike next year.

The market expects the Fed to speed up the end time of its bond purchase program, changing the end date from June to March.

This will enable the central bank to raise interest rates from scratch, and Fed officials are expected to issue new forecasts showing that interest rates will be raised two to three times in 2022 and another three to four times in 2023. Raise interest rates in 2022, although half of Fed officials expect to raise interest rates at least once.

At the end of the two-day meeting on Wednesday afternoon, the central bank should also acknowledge that inflation is no longer a “temporary” or temporary problem that officials considered, and that rising prices may pose a greater threat to the economy. The consumer price index rose by 6.8% in November, and December may be hot again.

Rick Rieder, BlackRock’s global fixed income chief investment officer, said: “I think it’s too late to exit the easing policy.”

The Federal Reserve implemented a quantitative easing program in early 2020 in response to the impact of the pandemic and lowered its target federal funds interest rate to zero.

Prepare the market

Fed officials began discussing the idea of ​​a more rapid reduction in mid-November. They successfully changed market expectations in order to seek a faster end to the $120 billion monthly one-off bond purchase program. The market’s expectations for the timing of interest rate hikes from the end of next year to June have also advanced.

Reid said that by ending bond purchases early, the Fed gave itself the option to raise interest rates. “I think they can raise interest rates in 2022. I don’t think they will rush for success,” Reid said.

He stated that the Fed may raise interest rates twice in 2022 and three to four times in 2023.

“I think the data will determine when they start. I don’t think the Fed has any idea that they must start in any particular quarter,” he said. Reid said that by then the Fed will be able to better deal with the persistence of inflation and whether the virus will continue to be a risk to the global economy in the new year.

Although the Fed is expected to sound tough or in tightening mode, Fed Chairman Jerome Powell sounded like he might want to speak to the media at 2:30 pm Eastern Time on Wednesday, 30 minutes after the central bank’s statement and forecast. Much less.

Vince Reinhart, chief economist at Dreyfus & Mellon, said: “In order for them to justify accelerating downsizing, the Federal Open Market Committee’s statement must be very sudden.” Powell may discuss rising inflation, And why the Fed will remain cautious.

Reinhardt said: “We withdrew from the’short-lived’, but the transition seems to be important because he made a rapid transition.” “He can spend some time talking about virus mutations, prospective risks, and things that might go wrong.”

Wildcard balance sheet

For the market, the biggest uncertainty is the Fed’s view of its balance sheet, which was $4.1 trillion in January 2020 before the pandemic, but has now swelled to $8.7 trillion. As the securities on the balance sheet mature, the Fed will replace them, thereby individually buying billions of dollars in US Treasury bonds each month.

Reid said: “If he stands up and says we don’t need to keep the scale at these levels, it will surprise the market.” He said that the Fed is more likely to shrink its balance sheet after raising interest rates.

But he said that the Fed’s final reduction of its balance sheet may sometimes have a greater impact on the market than raising interest rates.

Goldman Sachs economists developed a scenario for this runoff. They said that the scenario may be less conservative than the last cycle after the financial crisis. If the Fed allows securities to mature simply and does not replace them, the balance sheet will begin to shrink and runoff will begin.

“We predict that the fourth rate hike will come in the first half of 2023, so our best guess right now is that runoff will begin at that time. Research on balance sheet policies shows that runoff has an impact on interest rates and broader financial conditions. , Growth, and inflation should be moderate, well below our expected rate hike,” they wrote in a report. “However, the market sometimes reacts strongly to the reduction in past balance sheets.”

Grant Thornton chief economist Diane Swonk (Diane Swonk) expects the Fed to discuss the balance sheet at this meeting, but will not take action.

“I think he will be questioned about the balance sheet,” Swank said. “They did try to drain their balance sheet before. This is what we should expect to happen sooner this time. I don’t think they have made that decision yet…I won’t be surprised. [meeting] minute. “

If you want to know more about business please go to

0 %
0 %
0 %
0 %
0 %
0 %
We use cookies to personalise content and ads, to provide social media features and to analyse our traffic. We also share information about your use of our site with our social media, advertising and analytics partners. View more
Cookies settings
Privacy & Cookie policy
Privacy & Cookies policy
Cookie name Active

Who we are

Suggested text: Our website address is:


Suggested text: When visitors leave comments on the site we collect the data shown in the comments form, and also the visitor’s IP address and browser user agent string to help spam detection. An anonymized string created from your email address (also called a hash) may be provided to the Gravatar service to see if you are using it. The Gravatar service privacy policy is available here: After approval of your comment, your profile picture is visible to the public in the context of your comment.


Suggested text: If you upload images to the website, you should avoid uploading images with embedded location data (EXIF GPS) included. Visitors to the website can download and extract any location data from images on the website.


Suggested text: If you leave a comment on our site you may opt-in to saving your name, email address and website in cookies. These are for your convenience so that you do not have to fill in your details again when you leave another comment. These cookies will last for one year. If you visit our login page, we will set a temporary cookie to determine if your browser accepts cookies. This cookie contains no personal data and is discarded when you close your browser. When you log in, we will also set up several cookies to save your login information and your screen display choices. Login cookies last for two days, and screen options cookies last for a year. If you select "Remember Me", your login will persist for two weeks. If you log out of your account, the login cookies will be removed. If you edit or publish an article, an additional cookie will be saved in your browser. This cookie includes no personal data and simply indicates the post ID of the article you just edited. It expires after 1 day.

Embedded content from other websites

Suggested text: Articles on this site may include embedded content (e.g. videos, images, articles, etc.). Embedded content from other websites behaves in the exact same way as if the visitor has visited the other website. These websites may collect data about you, use cookies, embed additional third-party tracking, and monitor your interaction with that embedded content, including tracking your interaction with the embedded content if you have an account and are logged in to that website.

Who we share your data with

Suggested text: If you request a password reset, your IP address will be included in the reset email.

How long we retain your data

Suggested text: If you leave a comment, the comment and its metadata are retained indefinitely. This is so we can recognize and approve any follow-up comments automatically instead of holding them in a moderation queue. For users that register on our website (if any), we also store the personal information they provide in their user profile. All users can see, edit, or delete their personal information at any time (except they cannot change their username). Website administrators can also see and edit that information.

What rights you have over your data

Suggested text: If you have an account on this site, or have left comments, you can request to receive an exported file of the personal data we hold about you, including any data you have provided to us. You can also request that we erase any personal data we hold about you. This does not include any data we are obliged to keep for administrative, legal, or security purposes.

Where we send your data

Suggested text: Visitor comments may be checked through an automated spam detection service.
Save settings
Cookies settings