Expectations Mount: US Federal Reserve to Cease Monetary Policy Tightening

There are mixed opinions on whether the US Federal Reserve will stop tightening monetary policy. Here are some key points from the sources: The Federal Reserve started the “tightening” process in March 2022 by raising interest rates 0.25% .The commercial banking system has several trillion dollars in cash on their books, which may be the reason for the disconnect between the Fed and Wall Street.

The Federal Reserve has raised the federal funds rate (FFR) at the fastest pace since the 1980s to combat high inflation levels.The fast tightening of 2022 was broadly in line with the Fed’s historical behavior, but it is also important to consider the market path of the FFR, which affects the longer-term interest rates that individuals and businesses face when making their consumption and investment decisions.

World interest rate probabilities suggest a 25 bp Federal Reserve hike on February 1 is fully priced in, with less than 10% odds of a larger 50 bp move. Another 25 bp hike March 22 is almost priced in, while one last 25 bp hike in Q2 is only about 30% priced in.
The Fed is considering using the balance sheet to tighten policy along with rate hikes.

Overall, it seems that the Federal Reserve has been tightening monetary policy to combat high inflation levels, but there is uncertainty about whether they will continue to do so. While some sources suggest that the Fed will continue to raise interest rates, others suggest that they may stop tightening or use other methods to tighten policy.