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NEW YORK (Reuters) - The Federal Reserve on Wednesday signaled it is likely to raise U.S. interest rates in March and reaffirmed plans to end its bond purchases that month before launching a significant reduction in its asset holdings.
The combined moves will complete a pivot away from the loose monetary policy that has defined the pandemic era and toward a more urgent fight against inflation.
STOCKS: The S&P 500 extended gains then pared and was up 1.3%
BONDS: The 10-year U.S. Treasury note yield rose to 1.8011%, and the 2-year yield was flat at 1.0273%; The 2s/10s yield curve steepened to 77.36 basis points
FOREX: The dollar index was little changed, 0.12% firmer
ELLEN HAZEN, PORTFOLIO MANAGER, F.L.PUTNAM INVESTMENT MANAGEMENT, WELLESLEY, MASSACHUSETTS
“There are no surprises here, they are keeping rates where they are but clearly setting the stage to increase rates in March, that is what has been widely expected. As we look at the implied forecast the market is expecting four hikes this year, I don’t think that is going to change. The key question is when are they going to start talking about actually reducing the size of the balance sheet. It looks as through the taper is going to finish a couple of weeks ahead of schedule, that is not really big news either way but what Powell says in the press conference with respect to how quickly they might actually start to reduce the balance sheet will be very critical.”
“They really didn’t talk much about inflation, clearly Powell pivoted on inflation back in December when he said it was time to retire the word transitory and they did not address inflation directly in the statement so that will be key to watch in the press conference as well. If they had something specific to say on inflation they would have said it, and the fact they danced around it a little bit in that first paragraph means they are keeping their options open, perhaps because they still are not convinced that it will end up being sustained.”
TOM DI GALOMA, MANAGING DIRECTIOR, SEAPORT GLOBAL HOLDINGS, NEW YORK
“I think it really was everything that the market was looking for. They will stop their purchasing program by mid-March, so I think it’s really everything that I was expecting. It should be interesting to see what the press conference will say, but it seems to me the Fed is recognizing that inflation’s a problem, it’s not transitory, and they’ve got to start the process of a liftoff here in rates…they are saying it will soon be appropriate to raise rates, so I don’t think there’s any mystery here.”
BRENT SCHUTTE, CHIEF INVESTMENT STRATEGIST, NORTHWESTERN MUTUAL WEALTH MANAGEMENT COMPANY, MILWAUKEE, WISCONSIN
“Anyone looking for a hawkish message or pivot didn’t get it. So that is giving the market some comfort that the plan that the market has adapted to and priced in is still in place.”
“I do believe the market was worried at least that there would be some sort of a more hawkish message that was delivered and so far that has not been the case, we will see what the press conference holds. Certainly it is kind of along the plans of what they had outlined in the past and what the market has priced in already. So the market is taking, I think, some solace in that and actually pushing just a bit higher.”
ALAN LANCZ, PRESIDENT, ALAN B. LANCZ & ASSOCIATES, TOLEDO, OHIO
“It was nothing as draconian as what some investors were worried about when (the Fed) last spoke. The market had taken a tumble, and that’s why there’s probably a sigh of relief. But as you read into it, they’re still keeping it pretty open.”
RUSSELL PRICE, CHIEF ECONOMIST AT AMERIPRISE FINANCIAL SERVICES, TROY, MICHIGAN
“The statement still leaves a lot of questions to be answered particularly when it comes to the balance sheet roll off. There wasn’t a whole lot of detail provided.”
“The Fed provided some clarity on the prospect of rate hikes but not all the clarity markets were looking for. There’s still some uncertainty when it comes to the balance sheet roll off. The market’s glad to get a little more clarity given the uncertainty that accompanies transition periods like this.”
“More details will come in the press meeting.”
“This decision by the Fed sounds like they are not convinced the time to hike will be in March necessarily as they are leaving open room for consideration of policy stance to adjust as needed.”
“Keeping the balance sheet the same until hikes begin means that they are indeed not taking all easing measures away quite yet. We thought there was chance of this to happen and it could bode poorly for the dollar in the sort-term.”
Compiled by the U.S. Finance & Markets Breaking News team
