Topics shared in this publication are:

  • The Federal Reserve is using both of its major monetary policy tools, the short-term overnight interest rate (federal funds rate) and purchases of long-maturity U.S. Treasuries and mortgage-backed securities, known as Quantitative Easing (QE), to support financial markets and the economy.
  • In December 2021 the Fed accelerated the “taper” of its QE purchases and is expected to be done buying securities in March 2022. We believe they would prefer to finish the taper before hiking rates.
  • Once the Fed is no longer making QE purchases, it is in a position to hike interest rates if needed. As a group, the members of the Federal Open Market Committee broadly raised their expectations for rate hikes at the December meeting, with the median committee member expecting three hikes in 2022 and another three in 2023.
  • There are three criteria for hiking rates, and the Fed wanted to see “substantial progress” toward those criteria before tapering, as it did in November 2021. Hiking rates requires achievement of those criteria.
  • If the economy continues to improve and tapering progresses smoothly, we expect the Fed to commence hiking rates in mid-2022 but would not be surprised if it came earlier in the year.

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