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Fed Lays Groundwork For “Great Balance Sheet Runoff Of 2022”

During the last meeting of the Federal Reserve, interest rates were raised, balance sheets were canceled, and trailing points were discussed. Here’s what it means for you …


It’s time again. It’s time for the Fed minutes report. As always, I read the minutes from the last meeting of the Federal Open Market Commission so you will not have to!

You are welcome, America!

On Wednesday, the Fed released the minutes of the FOMC meeting on March 15-16 … and the boy read it like a mystery novel by Dan Brown or Daniel Silva.

Well, not exactly, but what happens in the pad affects our lives more than the text of those bland minutes might suggest. You just have to know how to decipher what’s in front of you … like a less interesting fringe da Vinci code.

Jerome Powell and the rest of his bunch of hilarious economic warriors gathered in the inner lair of the Fed headquarters in Washington, D.C. and began working on raising interest rates, exchanging economic data stories and having super fun.

Spoiler alert: They raised the Fed fund interest rate to 0.25%.

I know, I know, it’s not really a spoiler because they have already announced it, but how they came to this conclusion was not so well known, hence the publication of the Fed protocol.

And now it all makes sense why investors are so eager to read the hard work that is FOMC minutes.

Once our financial goodies read the protocols, they reacted negatively and the major stock indices went down.

The main reason for blaming the slight decline in the market was the mention in the notes of a faster potential breakdown of the Fed balance sheet than many investors expected.

Oh, the horror! how dare Fed members do not pick up their phones and call every investor and inform them that they are likely to break their huge balance sheet faster than investors expected?

Back in January, the commission said it would increase its mortgage-backed Treasury bonds and securities purchases by $ 20 trillion and $ 10 trillion, respectively. Treasury bonds and mortgage-backed securities.

The Fed noted that they plan to reduce their balance sheet by selling or allowing the redemption of mortgage-backed securities so that the balance sheet will eventually contain only treasury bonds.

I mean, a $ 9 trillion balance sheet seems a bit high, doesn’t it? Well, even the boys in the Fed are starting to agree with that.

Are you still with me, my money carrier friends? I told you this thing is exciting!

Referring to the balance sheet turnover at their last meeting, the FOMC minutes stated, “In their discussion, all participants agreed that increased inflation and tight labor market conditions justify the start of the balance sheet turnover at the next meeting, with a faster decline. Securities holdings than in 2017-19. The holdings of the Federal Reserve’s securities must be reduced over time as expected. “

Then there was the part of creating news in the process, which was the point of discussion in the financial press yesterday. The FOMC protocol reads, “Participants generally agreed that monthly ceilings of about $ 60 billion for Treasury securities and about $ 35 billion for MBS would probably be appropriate.”

Again, the horror!

Many market vendors predicted a $ 60 trillion balance sheet turnover. Then the Fed went completely crazy and said they would raise the total runoff to $ 95 trillion!

How dare they!

However, for the record, the FOMC has not yet agreed on a carpenter’s total. It was just a discussion, and they are expected to vote on a repeat number at their May meeting.

The FOMC also discusses market expectations for their interest rate policy, which is strange given that the Fed sets the interest rate policy. Why do they care what people think they are going to do? Are they subject to social pressure? Do they really care what people think of them? Do they want the cool kids to love them?

High school ended a long time ago, guys! But again, they say high school is never really over. Life is just one big high school.

With regard to market forecasting, the protocol stated the following:

“Incoming economic data and Federal Reserve communications have led investors to expect a faster removal of policy compliance than they previously expected. Market participants almost generally expected a 25 basis point rise in the federal funds’ target range at the current meeting. Moreover, futures prices “The rate of federal funds is expected to rise to around 170 basis points by the end of the year, about 70 basis points more than what will be priced at the January meeting.”

And here you are, people. The last Fed meeting is officially in the books. And now it’s time for May’s meeting, when the “Great Balance of 2022” is due to begin!

Up and down, Fed members watch! I’ll see you in May!

Fed Lays Groundwork For “Great Balance Sheet Runoff Of 2022” Source link Fed Lays Groundwork For “Great Balance Sheet Runoff Of 2022”

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