5/1/2024: Fed Kept Rates Unchanged
Today is the FOMC announcement day. As expected, the Fed kept the rates unchanged at 5.25% - 5.5%. Today’s FOMC statement has quite a bit of changes from the March one as highlighted above. First, the Fed acknowledged that the progress toward 2% inflation is stalling. Secondly, the QT taper will officially start in June. Instead of removing up to $60B of money supply per month through treasury redemptions, the Fed will lower the $60B cap to $25B. The Fed will keep the $35B cap for agency MBS but if monthly MBS redemptions exceed $35B, they will use the excess funds to buy treasuries instead of buying MBS. I wonder if the Fed is doing this to ensure sufficient demand for treasuries as the federal government’s borrowing has been accelerating.
In the press conference, JPow said it’s unclear how long it will take for the Fed to start cutting rates. (I suppose the June rate cut is out of question.) He also said it’s unlikely the next rate move will be a hike. (Good to know!!) Well, it sounds like we won’t really see meaningful rate cuts this year and the rates will likely stay at 5.25-5% for a while unless something big happens.
Jaypow gave the markets exactly what they wanted.
The slightly higher reduction of tightening speed I imagine is to offset the higher than expected treasury issuance.
The long bond in the US is at risk of getting out of control with this level of US government spending.