FOMC Minutes signaled a potential sooner normalization – UOB
07.01.2022, 11:55

FOMC Minutes signaled a potential sooner normalization – UOB

Senior Economist at UOB Group Alvin Liew reviews the recently published FOMC Minutes of the December meeting (Wednesday).

Key Takeaways

“The Dec 2021 FOMC minutes were seen as overtly hawkish with an extensive discussion about policy normalisation considerations, especially on reducing the Fed’s signifcant balance sheet.”

“The minutes revealed FOMC policymakers’ thoughts of an earlier and faster timeline to raise interest rates in 2022 due to inflation concerns and tighter labor market conditions. It also extensively discussed reducing the US$8.8 trillion balance sheet with participants looking at a shorter time frame between the start of the balance sheet runoff and the policy rate liftoff this time (versus 2018 which was a gap of 2 years).”

“Post-FOMC minutes, our projection for the faster pace of QE reduction by Mar 2022 remains intact. Thereafter, we still expect three Fed funds target rate hikes in 2022, the first hike in Jun 2022 by 25bps to 0.25-0.50%, followed by 2 more hikes in Sep 2022 and Dec 2022. While the risk admittedly is skewed towards the Fed to hike even earlier in Mar FOMC, our principal concern is about Omicron variant developments, given the rapid spread across US accompanied by the country’s relatively low vaccination rate, when compared to its G7 peers.”

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