What to expect at the upcoming FOMC meeting

24 January 2022

The Federal Open Market Committee (FOMC) is likely to use its January meeting this week to set the stage for a rate hike in March and to begin formulating a plan for balance sheet reduction. Please find below what we expect:

  • The Federal Reserve System (FED) to confirm a rate hike in March following the publication of very robust data on employment and prices.
  • As uncertainty remains very high, especially on the inflation front, we expect the FED to remain data dependant regarding the pace of rate hikes in 2022.
  • The FED to confirm the tapering pace ($30bn per month), with quantitative easing ending in March. We do not think the FED will end purchases abruptly at this meeting.
  • We also expect the FED to give more information regarding the balance sheet runoff, without committing to a specific timeline (nor to a specific amount) to avoid any panic reaction on financial markets. The formal announcement could come during the summer, after the first two rate hikes (March and June).
  • We do not expect the FED to indicate being open to the possibility of a 50bps hike in March.
  • Given recent comments from FOMC members supporting the current hawkish bias of the FED (and thus market pricing), we do not expect a significant hawkish surprise at this meeting

In conclusion, the statement is unlikely to differ considerably from the December statement. Consensus seems to be leaning towards a hawkish tilt, with financials markets already short on US treasuries (short end of the curve). We expect a modest steepening of the US curve.

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