Fed Members Gearing Up For An Aggressive Rate Hiking Cycle 

The minutes of the 25-26 January 2022 meeting of the Federal Open Market Committee (FOMC) showed growing confidence in economic momentum and growing concerns about high inflation among participants.

Committee members said that “indicators of economic performance and employment have continued to strengthen. The worst-hit sectors affected by the pandemic have improved in recent months but have continued to be affected by the recent sharp rise in COVID-19 cases. in recent months, and the unemployment rate has fallen sharply. “

On pressures, they stated that “inflation readings continued to significantly exceed the Committee’s longer-term target and rising inflation lasted longer than anticipated, reflecting supply and demand imbalances in relation to the pandemic and the reopening of the economy.”

On the upcoming policy tightening, they stated that “a faster rate of increase in the target range for the federal currency exchange rate than in the post-2015 period would probably be guaranteed” due to the strength of the current economic background.

Key Implications

It is no longer a question of whether the Fed will raise rates, but how much. With consumer prices rising to 7.5% and the unemployment rate at 4.0%, the Fed is behind the curve. It needs to achieve what will hopefully cool some of the inflation foam.

The minutes revealed that Fed members are planning an aggressive migration cycle that will begin on March 16th. It seems that a series of rates in successive meetings is in order, which will cause significant upward pressure on short-term interest rates above 2022. This has already been shown in Treasury yields, where the US 2-year has risen more than 2022. 1% in the last three months. Expect this to continue as the Fed executes rates over the coming months.