Notes released from the last Fed meeting show that the FOMC is optimistic that the way they have handled the rate increases have effectuated their desired outcomes thus far. Not surprisingly, they are also desirous to see further disinflationary data prior to easing monetary policy. They do agree that their Overnight Rate is as high as it’s going to get for this cycle, which statement is quite welcome by everyone looking to borrow money, anyone who lends someone else’s money, and for everyone who makes a living by selling goods that are financed in any way.
Digging further into the meeting notes, one discovers that the March meeting will be filled with a lively discussion about the velocity with which they will continue to liquidate the $7.7 trillion on their books. That portfolio was acquired quickly during the Pandemic to attenuate fiscal lockup by driving down interest rates. Selling it off too quickly will raise long term rates, which I am hoping they avoid. Market demand will also dictate how fast they can liquidate excess funds in their portfolio. That, is, they need enough buyers for their assets. The $16 billion 20 Year Note auction this morning was only 78.8% filled by buyers, rendering a “D” rating and putting upward pressure on rates by driving up the price of MBS securities (which compete with Treasuries for investor dollars) by 23bps.
So, no lower rates for now.
