I Read The Entire FOMC, Here Are The Key Points

by GushingGranny1

1. QE will continue until their March 15-16 meeting. A couple of members expressed their desire to end asset purchases ahead of schedule to send a strong message that the Federal Reserve is ready to combat inflation but the idea is not shared among the vast majority of members.
2. They will use interest rate hikes as main tools for monetary policy and a rate hike in March is appropriate. No mention on scale of rate hike or probability of inter-meeting rate hikes.
3. As per rate of interest rate hikes, most participants think that a faster rate of increases than in the post 2015 period is warranted due to GDP growth outlook and inflation pressures. If inflation proves to be more stubborn than anticipated, they are open to stepping up rate hikes.
4. As per QT, they will formalize a strategy in later meetings. As of right now, some participants think that best course of action is to sell MBS but not long term treasuries. Others also stated that a large portion of their balance sheet can also be unwinded naturally as the securities reach maturity. As per timing of QT, a number of participants think it is appropriate to unwind the balance sheet sometime later this year.
5. In terms of inflation, they acknowledged that inflation remains well above their forecasts and they revised upwards their short term PCE projections in December to reflect supply chain constraints. Despite this, they see little evidence to suggest that long term inflation will remain at such elevated levels over their 2% target. Because of this, the committee projects PCE will end 2022 at 2.6% due mostly to easing supply chain constraints and a decrease in energy costs. PCE is also forecasted to go to 2% in 2023 and 2.1% in 2024.
6. As per asset valuations they mentioned S&P forward PE ratio near higher end and a few members believe this can prove to be an issue, particularly with the extremely accomodative monetary policy. A few participants also expressed concern of the rapid rise of cryptocurrencies and other highly speculative asset classes as well as decentralized financial systems and the threats they can pose on the economy if left unchecked. Some think that the economy is fundamentally strong enough to take a large painful correction but a couple are not so sure since a drastic decrease in asset prices can damage economic recovery. Overall, asset prices are not heavily discussed.