In the last few weeks or maybe even months, analysts have been widely discussing the possibility of the monetary policy tightening by the Fed. There has already been lots of news and speculation about this meeting. The results of the meeting will be announced today. Investors expect the Fed to shrink the QE program by at least another $ 30 billion per month or more. Notably, if the regulator significantly cuts bond purchases today, the US dollar will soar. The equity market as well as the crypto market, on the contrary, will sink. Meanwhile, analysts at the Wall Street Journal believe that the Fed is going to raise rates to curb rising inflation. They also stress that the current conditions are rather unusual, so it is very difficult to predict the consequences of all changes in monetary policy in 2022. Apart from that, they are sure that today Jerome Powell may provide hints about rate hikes at the meeting in March. "Declining labor market slack has made Fed officials more sensitive to upside inflation risks and less sensitive to downside growth risks. We continue to see hikes in March, June, and September, and have now added a hike in December for a total of four in 2022," The Wall Street firm's chief economist, Jan Hatzius, said.
Goldman Sachs expects the Fed to raise rates four times this year, one more than previously forecast amid rising inflation and a tightening job market. "We continue to see hikes in March, June, and September, and have now added a hike in December for a total of four in 2022," the bank pointed out. The regulator may also start unloading its balance sheet, starting from July this year by $100 billion monthly. "Our baseline forecast calls for four hikes in March, June, September, and December. But we see a risk that the [Federal Open Market Committee] will want to take some tightening action at every meeting until the inflation picture changes," Goldman economist David Mericle said. Jerome Powell does not make decisions alone. 18 members of the committee should vote "for" or "against" monetary policy tightening. In January, the majority of the committee's members spoke in favor of an early increase in the key rate. So, maybe today the FOMC may announce the key rate hike. Mericle also believes that the problem with supply chain disruptions has only worsened this winter due to Omicron. Thus, inflation is unlikely to slow down as the Fed previously expected. Energy prices continue to rise, pushing up the prices of many goods and services around the world. The probability of 4 rate hikes this year amounts to 85%, while for the 5 rate hike it totals 60%. Economists also forecast a reduction in the Fed's balance sheet in the next 2-2.5 years. The Fed may cut its balance sheet to $6 trillion from $9 trillion.
