Federated's Hill on Fed Acceleration
A recent post from Federated Hermes' Sue Hill, entitled, "Acceleration: The Fed increases the pace of taper and expectations for rate hikes," explains, "The market expected a hawkish outcome from the Federal Reserve policy meeting ... and the Fed did not disappoint. Officials delivered on the anticipated doubling of the pace of taper to $30 billion a month—meaning the purchase program likely would conclude by March 2022. But the headline news came with rates. In recent weeks, the market has notably shifted its projections of when the Fed might raise rates, pricing in liftoff as early as March 2022. This swing was so swift and dramatic that one could have expected Chair Powell to push back in his press conference. Instead, he leaned in." Federated's piece continues, "The new dot plot released at this meeting showed most Federal Open Market Committee participants projecting three or more 25 basis-point rate hikes in 2022, another three in 2023, and two more in 2024. These estimates -- anywhere from 25 to 75 basis points higher than the dot plot released just this past September -- reflect an earlier liftoff and faster pace of tightening than previously thought. We also have brought our own expectations with respect to the first hike into the first half of 2022." Hill writes, "In a somewhat anticlimactic development relative to the fireworks from the Fed, we also seem to have a resolution to the debt ceiling, as both the Senate and the House have approved a $2.5 trillion increase in borrowing authority. This action should lead to near-term Treasury bill supply as the U.S. Treasury replenishes its dwindling cash in hand, and also should put an end to the debt limit shenanigans until after the 2022 midterm elections at least." She adds, "Finally, the SEC voted to approve a proposal of new regulations for money market funds. They include removing the linkage between weekly liquid assets and consideration of liquidity fees and redemption gates, increasing daily and weekly liquidity requirements for all funds from their current levels, requiring that institutional prime and tax-free money funds adopt swing pricing policies, and proposals regarding negative yields and enhanced reporting requirements. It is important to realize this marks the beginning of a longer process, including another round of public comments."
