Fed: Indicators of how quickly policy rates will be raised to neutral – Barclays

With an increase of 50 basis points(bps) rate from Wednesday’s FED policy decision, the Barclays research team offers a few possibilities that include

May 03, 2022 - 11:57 AM 333 views

Fed: Indicators of how quickly policy rates will be raised to neutral – Barclays

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© Fed: Indicators of how quickly policy rates will be raised to neutral – Barclays

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 With an increase of 50 basis points(bps) rate from Wednesday’s FED policy decision, the Barclays research team offers a few possibilities that include:

Important Quotes

At its May meeting this week, the Fed is expected to raise the target range for the federal funds rate by 50 basis points, from 0.75 percent to 1.00 percent. Since the March meeting, FOMC participants have become increasingly open to front-loaded rate hikes amid strong data on activity and intensifying cost-push price pressures, signaling a hike in May.

We expect the monthly run-off caps to increase from $35 billion in June ($20 billion for treasuries, $15 billion for agency MBS), to $65 billion in July ($40 billion/$25 billion), and then to $95 billion per month in August, based on the broad parameters for balance sheet normalization laid out in the March meeting minutes.

We expect much of the conversation at the press conference to centre on how quickly the committee is willing to raise its policy rate to neutral, with markets now pricing in 50 basis point(bps) hikes at each meeting until September. We predict 50bp rises in May and June, with the pace slowing to 25bp per meeting from July onwards as the committee sees signs of inflation moderating.

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