Fed continuing to downshift: 31 January-1 February FOMC review

The Federal Reserve hiked the fed funds rate by 25bp, to 4.50-4.75%, a step down after the Fed hiked by 50bp in December. The slowing in the pace of rate hikes was widely expected. 

Fed continuing to downshift- 31 January-1 February FOMC review

Some modest changes to the FOMC statement were initially perceived as hawkish. However, Chair Powell’s comments at the press conference were not as hawkish as the FOMC statement and prepared remarks. Post the meeting, risk assets rallied strongly, as Chair Powell did not show concern about the recent easing in financial conditions (yields falling and stocks rising). Market reaction was strong: with US Treasury yields down, equity markets rallied and the USD sold off.

Key takeaways

  • The Fed slowed the pace of rate hikes for the second consecutive meeting from 50bp to 25bp, moving the Fed funds target rate to 4.50-4.75%.
  • The FOMC statement: Some modest changes were made to the text, but the tone remained hawkish.
  • Press conference: Chair Powell’s tone during the press conference was not as hawkish as in the FOMC statement and the prepared opening comments.

You can now read the full whitepaper at the link below