FOMC

Former U.S. Treasury Secretary Lawrence Summers said investors need to brace for the Federal Reserve to potentially raise interest rates at all seven remaining policy meetings this year and even for it to hike by more than a quarter point in one go.

Federal Reserve Bank of St. Louis President James Bullard said he would like to raise interest rates at the central bank’s meetings in March and May but played down the benefits of a larger-than-expected move.

Federal Reserve Bank of San Francisco President Mary Daly said the central bank could raise interest rates as early as March to fight high inflation, but she cautioned against overreacting and tightening policy too fast.

Bostic stuck to his prediction that three quarter-point increases starting in March is the most likely scenario, though stubbornly high consumer prices may justify a more robust rate rise.

The two biggest U.S. banks raised their forecasts of how quickly the Federal Reserve will raise interest rates this year, with Bank of America Corp. predicting a move at every meeting to tackle the highest inflation in four decades.

The statement offered no surprises, but Fed Chair jerome Powell's refusal to denounce more hawkish scenarios hurt market sentiment.

Triple-A benchmarks were cut two to six basis points across the curve with the largest moves concentrated again on bonds inside 10 years, underperforming Treasuries once again.

Munis are expected to underperform for another few weeks as markets remain volatile and investors reevaluate allocations.

Why are markets so sanguine about the interest rate outlook? The answer lies in the Fed’s balance sheet, and in particular the level of excess reserves placed there by commercial banks.

The combination of steady supply, heavy secondary selling and inconsistent demand have moved yields to their highest levels since May 2020.

The 2-, 5- and 10-year UST is higher than before the pandemic began as investors factor in a rate hike as soon as March.

Senate Banking Chair Sherrod Brown plans an early February hearing for President Joe Biden’s three most recent Federal Reserve picks and said he expects bipartisan confirmations of all five nominees to the central bank’s board.

Aoifinn Devitt, chief investment officer at Moneta Group, discusses the Federal Reserve’s plans to raise rates this year, whether this was truly a pivot in Fed thinking, how the market reacted to this change and will how they will respond when rates go up, how new members on the Federal Reserve Board could impact Fed plans and what this all means for investors. Gary Siegel hosts. (28 minutes.)

Newly released transcripts of Federal Reserve policy meetings in 2016 show then-Governors Jerome Powell and Lael Brainard were quick to pivot away from planned interest-rate hikes in the face of risks posed by a stumbling Chinese economy.

Federal Reserve Bank of Cleveland President Loretta Mester said the central bank should shrink its balance sheet as fast as it can without disrupting financial markets and repeated her backing to a March interest-rate increase.

Federal Reserve Board Chair Jerome Powell would not commit to timing for liftoff, stressing decisions would be data-based and the Fed will not allow inflation to become entrenched.

Pressures from inflation concerns and broader rising rates weigh on munis in the second week of 2022.

The Federal Reserve expects Omicron to fizzle in weeks, and while pandemic-related risks remain, the economy is strong and the Fed needs to address inflation and could liftoff as soon as March, Bullard says.

ICI reported $1.101 billion of inflows into municipal bond mutual funds for the last week of 2021. Refinitiv Lipper figures on Thursday may give a sense of investor sentiment for week one of 2022.

Until supply comes, market participants appear to be content to sit back and let the calendar flip to a new year without making any big moves.