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Fed members look hawkish, 3 Fomc members express concerns about inflation

The US 10-year hit a high of 2.63% last seen in March 2019 and the dollar index also hit a 2-year high of 99.63. This, after 3 Fed governors – worried about inflation – spoke of a one-shot 50 basis point rate hike in May and a rapid reduction in the Fed’s balance sheet.

Federal Reserve Vice Chairman Lael Brainard said the Federal Open Market Committee (FOMC) will continue to tighten monetary policy through a series of interest rate hikes and beginning to shrink the balance sheet at a rapid pace. from the May meeting. She added that she expects the balance sheet to shrink significantly faster than it did during the last review in 2017-19.

Just yesterday, San Francisco Fed President Mary Daly spoke at a town hall meeting and said inflation was at a 40-year high, that it’s harmful, and that the Fed is on his case. She also backed the idea of ​​a balance sheet liquidation and said it should start in May.

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These two statements are also important because Brainard and Daly are seen as doves within the FOMC.

Kansas City Fed Chair Esther George also said in a Bloomberg TV interview that a 50 basis point hike in May was an option and that she would look at shrinking the Fed’s balance sheet alongside it.

Here are some details of the balance sheet. Its total size is $8.98 trillion, more than double $4 trillion in March 2020 i.e. before COVID and only $0.4 trillion or $400 billion in 2008 during the Lehman crisis.

Watch CNBC-TV18’s accompanying Latha Venkatesh video for the current shape of the Fed’s balance sheet.

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First post: STI

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