Fed First Interest Rate Hike, A Possible March Q1 Timeline – Nomura

Nomura, a Japan-based investment giant, has pegged the first quarter of 2022 as a possible timeline for the US Federal Reserve’s first interest hike enforcement.

Nomura pegged the Fed increase at a possible 50-basis point (bps) increase come March. Statements from the international bank’s spokesperson revealed that Nomura projects a subsequent three-time hike of 25 bps that will see implementation in May, June and July respectively. Reportedly, a stand-alone 25 bps can be expected in December.

Earlier on Wednesday, Fed Chair, Jerome Powell made several hawkish comments before the Fed aired its stance on near-zero interest rates. Chair Powell incessantly emphasized the Fed’s new policy shift that highlights a major differential between the upcoming hiking cycle and the normalized quarterly interest hike adoption.

Fed Quarterly Interest Hike Cycle To Commence In March

The US Federal Reserve is still on schedule regarding its previously announced rate policy. Its Wednesday official announcement and Chair Powell’s press conference indicate a dedicated commitment to the proposed schedule. The commitment indications came in the form of statements from the duo that confirmed that the quarterly interest hike cycle will commence in March with the quarter one variant of the hike focused on the funds and benchmark interest rate.

The Federal Reserve and its governors have chosen to focus on inflation despite the turbulence that has taken the global finance sector in a storm. The US economy’s capitulated decline, global equities dump, tech sector’s stock market underperformance, and devaluation of the dollar, are a significant portion of critical developmental issues that are breathing down the Fed’s back, but it has chosen to tackle inflation as a pilot undertaking.

As inflation rates breach the 2% margin and the US economy fields a strong labor market, the Fed Committee believes that the most appropriate timeline to implement its hike cycle will be in March a Federal Open Market Committee (FOMC) spokesperson revealed.

The Federal Reserve aims to reduce its balance sheet size by roughly $9 trillion. The impending tightening that will be implemented via the quarterly interest hike is set to go live in March. The announcement of the quarterly cycle launch impacted the equities and stock market minimally, however, the projected 0.25% increase in March will be the first since the last hike of December 2018.

Chair Powell’s Press Conference

Chairman Jerome Powell hosted a press conference on Wednesday shortly after the Fed’s statements regarding near-zero interest rates.

In his press conference, Chair Powell said that he believed that the quarterly interest cycle can be implemented without affecting the labor market negatively. He commented on the policy shift of the Feds from the previous accommodative monetary conditions to its new labor-friendly policy citing the Fed’s commitment to its mandate that subs for inflation and employment.

He added that the Reserve’s balance sheet is more robust than necessary and that the estimated $9 trillion reductions will serve as an anchor for the economy. 

Despite the optimism-themed highlight of Chair Powell’s press conference, his hawkish comments however sent equities spiraling downward, straightening out the short end of the Treasury curve with record highs.

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