Markets have been whipped into a frenzy in the weeks leading up to this policy decision. In early January, US Treasury yields soared as bond traders rushed to price in at least three quarter-point rate increases in 2022 and an expedited start to the Fed’s balance-sheet runoff. By the time central bankers entered their self-imposed blackout period, short-term rates traders were betting on four increases this year, and some investors floated the idea of a 50-basis-point move in March.
Can the Federal Reserve truly be “nimble,” “flexible” and “adaptable”, or is it simply too big?
That is now the most pressing question for traders in 2022. After the US central bank said on Jan 26 that increasing interest rates “will soon be appropriate,” Chair Jerome Powell bluntly acknowledged the phrase means that a hike from the current range of 0% to 0.25% is coming after its next gathering. “I would say that the committee is of a mind to raise the federal funds rate at the March meeting,” he said.
