Fed hawks will fly lower – eventually

AS WAS widely expected, the Federal Reserve decided to again leave the fed funds rate unchanged at the Federal Open Market Committee (FOMC) meeting that concluded on May 1, with members voting to maintain the target rate range at 5.25 to 5.50 per cent.

However, the central bank did tweak monetary policy through reducing the balance sheet runoff (or quantitative tightening) from US$95 billion per month to US$60 billion. Agency mortgage-backed securities will continue to run off at US$35 billion per month, and the US Treasury runoff will go from US$60 billion per month to US$25 billion. The Fed’s balance sheet is still US$7 trillion, though, after nearly doubling in size to US$9 trillion in response to issues the pandemic had created.

Although there were no huge surprises coming out of the meeting, the subsequent statement and press conference from Fed chair Jerome Powell was interesting nonetheless and may have provided hints at how the FOMC is thinking about future monetary policy changes.