• Notes From The Desk | The Fed's Playbook Leaked

Notes From The Desk | The Fed’s Playbook Leaked May 05 2022

Notes From the Desk | The Fed’s Playbook Leaked

Unlike the Supreme Court’s abortion ruling, which was leaked in secret, the Fed’s playbook was leaked by Chairman Powell himself.

Today’s meeting was fairly uneventful in that they raised the Funds rate by 50 bps and announced that Quantitative Tightening was commencing.

The press conference was where bond nerds got excited as Chairman Powell shared some of the committee’s thinking.

  • 50bps hikes are on the table at the next two meetings

Conclusion: The Fed wants to get to 2% quickly, which is the bottom end of their estimates range for neutral Fed Funds rate

  • It will take about three years to run off the balance sheet

Conclusion: For now, quantitative tightening is unlikely to have a material impact on the market function on yield.

  • The Fed is expected to use their measurement of financial conditions to guide them as to the level of Fed funds that will be required to curb inflation

Conclusion: The hiking process will not be mechanical until inflation drops to 2%, and that financial conditions will be assessed along the way. On the back of a more measured and thoughtful approach to the hiking cycle, risk assets have rallied and interest rates have moved lower.

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