Fed Signals Liftoff ‘Soon,’ Sees Asset-Reduction Start Afterward

• The Federal Reserve signaled it will start raising interest rates “soon” to fight the hottest inflation in a generation. The Central Bank is also gearing up to reduce the size of its balance sheet, which ballooned as the Fed tried to avert an economic meltdown in the wake of the COVID-19 pandemic by pumping money into the system. 
• “With inflation well above 2% and a strong labour market, the committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the Federal Open Market Committee said in a statement Wednesday following a two-day policy meeting. This will be the first time officials will be increasing the benchmark policy rate after lowering it to 0% to 0.25% in March 2020 to help support economic recovery amidst the pandemic. 
• The Fed also stated that it will conclude asset purchases on schedule, leaving them on track to end in “early March.” The Fed’s balance sheet stands at nearly $8.9 trillion, more than double its size before officials began massive asset purchases at the onset of the pandemic to calm market panic. 

 (Sources: Bloomberg & NCBCM Research)