Powell made hawkish remarks, the three major U.S. stock indexes rose and fell

At 3:00 am Beijing time on January 27, the Federal Reserve Open Market Committee announced that the target range of the federal funds rate will remain unchanged at 0-0.25%. The Fed also said that with inflation well above 2% and a strong labor market, it expected an appropriate increase in the target range for the federal funds rate soon, and decided to continue reducing the pace of monthly net asset purchases, halting purchases in early March. Starting in February, it will increase its holdings of U.S. Treasury securities by at least $20 billion a month and agency mortgage-backed securities by at least $10 billion a month. Affected by Powell’s hawkish remarks, the three major U.S. stock indexes rose and fell, closing mixed. The Dow fell 0.38%, after rising about 1.5% earlier; the S&P 500 fell 0.15%, after rising more than 2.2% earlier; the Nasdaq rose 0.02%, after rising about 3.4% earlier. Affected by this, cryptocurrencies also fell back.

Fed Chairman Jerome Powell said at a news conference after the rate decision that the central bank’s policy has been adapting to the changing economic environment and will continue to do so against the backdrop of rising inflation and a strong labor market. Powell further noted that the economy no longer needs sustained monetary policy support due to the remarkable progress seen in the labor market and inflation well above its long-term 2% target. That’s why the Fed is phasing out asset purchases and why it’s expected to raise the target range for the federal funds rate soon.
Powell explained that to provide more clarity on the approach to reducing the size of the Fed’s balance sheet, the Committee (FOMC) today released a set of principles that will set the stage for future decision-making. These high-level principles articulate that the federal funds rate is the Fed’s primary vehicle for adjusting monetary policy, and that shrinking the balance sheet will occur after the rate hike process begins. The reduction will occur in a predictable manner over time, primarily by adjusting reinvestment so that securities are reduced from the Fed’s balance sheet. Over time, the Fed intends to hold as many securities as necessary to have sufficient reserves, and in the long run the Fed’s vision is to hold primarily U.S. Treasury securities.
Powell said the committee has not yet made a decision on the timing, pace or other details of the balance sheet reduction and will discuss those matters at an upcoming meeting and provide more information in due course.
It is worth noting that the next Fed meeting on interest rates will be held on March 15-16.

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