By Tom Burnett CFA
On July 27, 2022, the Federal Reserve raised its base interest rate by 0.75%. The vote was unanimous. Most observers expected an increase in the Fed Funds rate of that amount. The new range is 2.25%-2.50%. The Fed’s announcement also emphasized that the balance sheet reductions will continue in the fixed-income markets. The Fed is ‘determined’ to reduce its $9 trillion balance sheet which increased greatly in response to the economic weakness triggered by the Covid-19 outbreak. The latest Fed balance sheet press release showed total assets of $8.86 trillion, down from the recent high of $9.4 trillion. Additional reductions will be actively pursued. The Fed statement also made clear that ‘ongoing increases in the Funds target range will be appropriate.”
The initial market reaction was minor as the ten-year Treasury bond yield remained in the 2.76-80% range after the market absorbed the news.
Tom Burnett CFA is Director of Research