Cottage Cheese! Fed Leaves Rates Unchanged, Plot Reveals Rates Will Rise In 2023 … And Beyond (Fed Raises Overnight Repo Rate To 0.15%) Dow And 10Y TNote Price Fall

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by confoundedinterest17

The Fed’s open market committee meetings are as nonsensical as the Crow song “Cottage Cheese”

After all the speculation about rapid rising prices and The Fed’s need to cool things down, The Fed decided to do … nothing.

The reasoning?? They fear the resurgence of Covid.

The Fed dot plots project reveals that The Fed’s target rate is expected to rise in 2023 … and beyond.

While The Fed left their target rate unchanged, Fed officials boosted the rate on its overnight reverse repurchase agreement facility by 5 basis points to 0.05% and decided to lift the interest paid on excess reserves by 5 basis points to 0.15%, according to the Federal Reserve.

Policy makers kept the overall target range for the fed funds rate — its main overnight benchmark — unchanged at 0%-0.25%.

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The effective fed funds rate is currently at 0.06%; some strategists had previously said tweaks to so-called administered rates would be warranted if the level of reserves at the Fed grew too much, pushing short-term rates too low and increasing the risk that fed funds might fall below the level with which the central bank is comfortable.

The move in administered rates comes amid a growing cash glut in U.S. funding markets that’s put downward pressure on rates across various instruments and spurred usage of the overnight RRP facility
Both Fed Chairman Jerome Powell and New York Fed executive vice president Lorie Logan have said the rates can be adjusted as needed, with Powell suggesting an action could come at a regular meeting or between them.

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This is the second time since January 2020 that the central bank has shifted the gap between IOER and the bottom of the central bank’s range.

Last time, the Fed raised both IOER and O/N RRP rates by 5bp as fed funds dropped within 5bp of the bottom of the target range.

NOTE: Before that, the Fed has previously taken actions to keep a buoyant fed funds rate from getting too close to the top of its target range, including reductions to IOER relative to its overall band for fed funds.

The announcement effect? Both the Dow and the 10-year Treasury note fell in price. The Dow tanked 300 points.

Gold declined and the US Dollar rose on the “hawkish” announcement.

Fear The Talking Fed!

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