Key Points:
1: Balance sheet reduction may begin after the March interest rate hike, but no decision has been made yet regarding the timing and pace of reducing the balance sheet; the process is complex.
2: The reduction will proceed in a predictable manner, with all details prepared for the pathway; the pace of both interest rate hikes and balance sheet reduction will depend on data and evolving outlooks.
3: There is still significant room for interest rate hikes, and it is possible that increases could occur at every meeting.
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On January 26, 2022, the Federal Reserve issued the Federal Open Market Committee statement.
Economic activity and employment indicators continue to strengthen. In recent months, sectors most affected by the pandemic have improved but remain impacted by the recent sharp rise in COVID-19 cases. Employment growth has been robust in recent months, with a substantial decline in the unemployment rate. Supply and demand imbalances related to the pandemic and economic reopening continue to drive elevated inflation levels. Overall financial conditions remain accommodative, reflecting policy measures supporting the economy and credit flows to U.S. households and businesses.
The path of economic development continues to depend on the trajectory of the virus. Progress in vaccinations and the easing of supply constraints are expected to support sustained growth in economic activity and employment, as well as a reduction in inflation. Risks to the economic outlook remain, including those from new virus variants.
The Committee seeks to achieve maximum employment and inflation at a rate of 2% over the long run. To support these goals, the Committee decided to maintain the target range for the federal funds rate at 0% to 1/4%. Given that inflation...