Statement: https://www.federalreserve.gov/newsevents/pressreleases/mone…
News Conference ongoing. He said he thinks the labor market is so strong that there’s plenty of room to raise rates repeatedly without hurting it.
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He says they are committed to using their tools to ensure that the high inflation we’ve been seeing does not become entrenched. The committee is leaning toward raising rates at the March meeting, if conditions are appropriate at that time.
Markets have swung from a solid gain earlier in the day to negative now, apparently in reaction to the Fed statement and news conference.
The main risk he highlighted is continued high inflation. Also mentioned supply chain and Covid risk for slowing the economy.
The news conference is over. Not really anything new from it, compared to my expectations. He did clarify that the Federal Funds Rate is the primary tool that they use, and that the quantitative easing, the huge amount of bonds they have on the balance sheet, is secondary. They aim to begin reducing the bond holdings after they’ve implemented the coming rate increase, assuming conditions continue to call for those interventions to slow inflation.
He did sound a bit more hawkish/worried about high inflation than he has in the past, I guess that’s what the market is reacting too, though it’s also probably indistinguishable from noise, lol.
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Ben
Thank you.
David fb
The news conference is over. Not really anything new from it, compared to my expectations. He did clarify that the Federal Funds Rate is the primary tool that they use, and that the quantitative easing, the huge amount of bonds they have on the balance sheet, is secondary. They aim to begin reducing the bond holdings after they’ve implemented the coming rate increase, assuming conditions continue to call for those interventions to slow inflation.
He did sound a bit more hawkish/worried about high inflation than he has in the past, I guess that’s what the market is reacting too, though it’s also probably indistinguishable from noise, lol.
I know there is a mechanism, I have forgot what it is and how it works to cover the losses the Fed will take on the bonds, and it appears there will be a lot of losses.
Assume that the bonds were bought for about 3.5 trillion dollars. They are currently worth about 4 trillion.
1000 dollar 10 year bond yielding 1 percent is worth how much when interest rates rise to 3 percent?
The little online calculator says it drops by about 15 percent 900 and change to about 750.
So it looks like the Fed would to a 100,000,000 dollar hit.
Cheers
Qazulight
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