Original Author: Mikko

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Mikko's point of view

• The Fed has updatedas well asas well aspolicy normalizationThe plan outlines a relatively clear tightening path for the market.

• Judging from the tone of the statement, the Federal Reserve believes that the current operating conditions of the US economyhas met its policy objectives. Inflation is above target and the job market is strong enough.

• Now that the policy goal has been achieved, the obstacles to raising interest rates in March have been removed, especially Taper will also end in March, and the statement has directly stated that it willsoon be appropriate to raise the target range for the federal funds rate.

• Judging from the file details of the shrink table, the previous "gradually" rhetoric, and become "significantly", from "gradual" to "substantial".

• The timing of shrinking the balance sheet is still unclear. The wording of the Fed is to start after the interest rate hike process (after), butIt was not stated whether it was the first rate hike to start.

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Original statement (changes are in bold)

(First paragraph of previous statement - "The Federal Reserve is committed to using its full range of tools to support the U.S. economy during these challenging times, thereby promoting its goals of full employment and price stability."completely removed）

Indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months but are being affected by the recent sharp rise in COVID-19 cases. Job gains have been solid in recent months, and the unemployment rate has declined substantially. Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

Indicators of economic activity and employment continued to strengthen. Sectors hardest hit by the outbreak have improved in recent months,But it is also being affected by the recent sharp increase in Omicron cases.Job gains have been solid in recent months, and the unemployment rate has fallen materially. Supply and demand imbalances related to the pandemic and the reopening of economies continue to keep inflation high. Overall financial conditions remained accommodative, reflecting in part policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain, including from new variants of the virus.

The path of the economy continues to depend on where the virus goes. Progress in vaccinations and easing of supply constraints are expected to support continued growth in economic activity and employment, while inflation will soften. Risks to the economic outlook remain, including from new variants of the virus.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent. With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate. The Committee decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March. Beginning in February, the Committee will increase its holdings of Treasury securities by at least $20 billion per month and of agency mortgage‑backed securities by at least $10 billion per month. The Federal Reserve's ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

The committee seeks to achieve full employment and 2 percent inflation over an extended period. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 0-0.25 percent. becauseWith inflation well above 2 percent and a strong labor market, the Committee expects to meet the criteria for a rate hike (which raises the target range for the federal funds rate) soon.The committee decided to continue reducing the monthly pace of its net asset purchases while ending Taper in early March. Starting in February, the Committee will increase its holdings of Treasury bonds by at least $20 billion per month and MBS by at least $10 billion per month. The Fed's continued purchases and holdings of securities will continue to promote smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of the information it receives for the economic outlook. The Committee will be prepared to adjust the stance of monetary policy as appropriate should risks arise that could impede the achievement of the Committee's objectives. The Committee's assessment will take into account a wide range of information, including interpretations of public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Principles of table reduction (emphasis in bold)

The Federal Open Market Committee agreed that it is appropriate at this time to provide information regarding its planned approach for significantly reducing the size of the Federal Reserve's balance sheet. All participants agreed on the following elements:

The FOMC agrees to provide information on the plannedsignificantlyInformation on the approach to reducing the size of the Fed's balance sheet is appropriate. All participants agree to the following.

• The Committee views changes in the target range for the federal funds rate as its primary means of adjusting the stance of monetary policy.

• The Committee considers band adjustments (changes in the target range for the federal funds rate) to be its primary means of adjusting the stance of monetary policy.

• The Committee will determine the timing and pace of reducing the size of the Federal Reserve's balance sheet so as to promote its maximum employment and price stability goals. The Committee expects that reducing the size of the Federal Reserve's balance sheet will commence after the process of increasing the target range for the federal funds rate has begun.

• The committee will decide when and how quickly to reduce the size of the Fed's balance sheet in order to promote its goals of full employment and price stability. The Committee expects that the reduction in the size of the Fed's balance sheet, known as balance sheet shrinkage, will begin after the process of raising interest rates, which raises the target range for the federal funds rate, begins.

• The Committee intends to reduce the Federal Reserve's securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities held in the System Open Market Account (SOMA).

• The Committee intends to reduce the Federal Reserve's securities holdings in a predictable manner over time, primarily by adjusting the amount reinvested from principal payments on securities held in the System Open Market Account (SOMA).

• Over time, the Committee intends to maintain securities holdings in amounts needed to implement monetary policy efficiently and effectively in its ample reserves regime.

• Over time, the Committee intends to maintain securities holdings at the levels required for the efficient and effective conduct of monetary policy under its ample reserve regime.

• In the longer run, the Committee intends to hold primarily Treasury securities in the SOMA, thereby minimizing the effect of Federal Reserve holdings on the allocation of credit across sectors of the economy.

• Over the longer term, the Committee intends to hold primarily U.S. Treasury securities in SOMA, thereby minimizing the effect of the Fed's holdings of securities on the allocation of credit among sectors of the economy.

• The Committee is prepared to adjust any of the details of its approach to reducing the size of the balance sheet in light of economic and financial developments.

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Key points of the press conference

FOMC communicated that rate hikes will start soon ("an increase in policy interest rate would soon be appropriate") as expected.

The FOMC agreed in early March ("early March") to stop asset purchases.

The labor market has made excellent progress ("remarkable progress"）, which is very strong by many standards. Wages are growing at their fastest pace in years as employers struggle to fill vacancies due to a constrained labor supply. Over time, there are good reasons to expect further improvements in labor force participation and employment.

Inflation remains well above ("well above") long-term goal of 2%.Supply-demand imbalances related to the COVID-19 pandemic and the reopening of economies continue to keep inflation high, especially as bottlenecks and supply constraints limit how quickly production can respond to higher demand in the short term. Omicron waves have exacerbated these problems, and the scale and duration of the impact has been greater than anticipated.

The price increases have now spread to a wider range of goods and services. Note that continued wage growth outpacing productivity risks putting pressure on inflation. Like forecasters, the FOMC continues to expect inflation to ease over the course of the year.

FOMC needs to be flexible ("nimble"）, to react to all possible outcomes. We will continue to monitor risks, including the risk that high inflation is more persistent than expected, and prepare to respond appropriately to achieve our policy objectives.

The principle of shrinking the balance sheet clarifies that the federal funds rate is still the main means for the FOMC to adjust monetary policy, and the shrinking balance sheet will start after the interest rate hike process begins. Balance sheet reduction will be achieved through reinvestment adjustments in a predictable manner over time.

Over time, the FOMC intends to hold securities in the amount required to operate the framework of adequate reserves; over the long run, the FOMC intends to hold primarily U.S. Treasury securities.The FOMC has not yet made a decision on the exact timing, pace or other details of the balance sheet reductionfirst level title

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answer:It is impossible to predict with absolute certainty which path the policy rate will take is most appropriate. No decision has yet been made on the policy path (count: 2), and I would like to stress again that we will be humble and flexible ("humble and nimble"), what we have to face next is the two-way risk ("two-sided risks"text

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Question 2 (Politico): Can the Fed keep inflation in check by raising interest rates without hurting jobs and wages?

answer:Most FOMC participants believe that labor force conditions have reached the standard of full employment, that is, the maximum level of employment consistent with the price stability goal, and this is my personal view. The judgment that the target range for the federal funds rate will soon be raised has also received broad support from the FOMC.

The problem with the labor market is that there are far more job openings than there are people employed. I think there is a lot of room for rate hikes ("quite a bit of room to raise interest rates"), there is no need to worry about this threatening the labor market. It's a very, very strong labor market, and my strong feeling is that we can let go of raising rates without wreaking havoc on it.

text"entrenched"）。

Question 3 (Wall Street Journal): Today's balance sheet statement calls for a "substantial" reduction in holdings. What does it mean? Can you disclose the pace of balance sheet reduction, specific operations and the composition of reinvestment?

answer:These are issues that the FOMC has just begun to discuss. During this meeting we reviewed and carefully codified a set of high-level principles ("a set of principles at a high level"), to guide the concrete decisions we make next on the pace of balance sheet reduction and all other issues.

I expect that in the next meeting we will spend time going through this process. I can't tell you how many meetings there will be, nor can I tell you how long it will take (count: 4). We will provide more information in due course. At the next meeting we will discuss more details of your question.

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Follow-up: The relationship between interest rate hikes and balance sheet shrinking

answer:We think the balance sheet will shrink in a predictable way, kind of like running in the background ("running in the background"); the active tool for meeting-by-meeting operations is not both, but only the federal funds rate.

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Question 4 (Axios): Could market volatility in recent weeks affect the policy path? Will tighter financial conditions help meet the Fed's tightening goals?

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Question 5 (Reuters): Are there any criteria for the next pace of interest rate hikes?

answer:Reiterates that no decision has been made (count: 6) and that a rate hike-related decision will be made at the March meeting. Assuming the conditions are right, the FOMC does intend to raise the federal funds rate at its March meeting.

Also looking at risk, especially around the world. It is indeed expected that the economy will weaken for a period of time under the influence of Omicron, but I think this should be temporary, and I believe that the inner strength of the economy will quickly emerge after the wave passes.

So the old question comes up, will things go as we expected? One scenario is that, for whatever reason, the economy slows down more and inflation pulls back more than expected, and we react to that. If, instead, we see inflation being more persistent at higher levels, we will react to that as well.

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Question 6 (CNBC): Meaning of balance sheet "running in the background" and its response equation

answer:There is a full paragraph in the balance sheet statement, which clarifies that we have the right to adjust the operational details of the balance sheet reduction at any time. That doesn't mean we'll do it, it's just that we won't hang ourselves on a tree if things go differently than we think ("we're not going to stick with something that isn't working"). That's what it says, it's a general statement, not a clue to speculate on operations.

The current economy no longer requires the highly accommodative policies we had before. So it's time to first stop asset purchases and start shrinking the balance sheet at an appropriate time. The balance sheet is now much larger than it needs to be. We have identified its end state, the quantity needed to conduct monetary policy effectively under a regime of adequate reserves. So the amount available for shrinkage on the balance sheet is enormous. This will take some time. We want this process to be orderly and predictable.

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Question 7 (Bloomberg): What do you mean by "two-way risk" you mentioned at the beginning?

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Question 8 (New York Times): Is the SEP's judgment on the fall in inflation reasonable at the December meeting?

answer:Personally, I would be inclined to increase my estimate of core PCE inflation in 2022, which may increase by a few tenths of a percentage point today. We will not compile the SEP at this meeting, but I think that since the December meeting, the inflation situation has not improved, and may have worsened, which is also the pattern in recent times. I think if you aggregate FOMC participants' inflation estimates into a range, the range has been shifting to the right over the past year.

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Question 9 (Financial Times): If inflation falls below expectations, will you consider raising interest rates by 50bps?

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Question 10 (Washington Post): How is the impact of inflation on low-income households measured?

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Question 11 (Fox): Will the supply bottleneck be eased by the end of this year? Will you consider speeding up interest rate hikes?

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Question 12 (Bloomberg TV): Will raising interest rates allow inflation to fall back below 2% in order to achieve the average 2% inflation target?

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Question 13 (Dow Jones): Do you think that the aggressive response of monetary policy and fiscal policy in the early stage of the epidemic caused the current inflation problem?

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Question 14 (MNI): How important is the risk of a yield curve inversion to Fed policy adjustment considerations?

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Question 15 (Yahoo Finance): Would you describe the Fed's tightening path as "gradual rate hikes"?

answer:We will make an assessment of the policy path at our March meeting. It will continue to shift over time, and I think we need to be quite adaptable in our understanding of the issue. I won't... I don't think it's possible to say exactly how that's going to go next (count: 9), and as mentioned, we need to be flexible on this issue.