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FOMC adopts investment and trading activity rules
On February 18, the Federal Reserve Board announced that the Federal Open Market Committee (FOMC) adopted new comprehensive rules for the investment and trading activity of senior officials that were first announced in October 2021. The rules aim to enhance public confidence in the impartiality and integrity of the Committee's work. The new rules prohibit senior Federal Reserve officials from: (i) purchasing individual stocks or sector funds; (ii) holding investments in individual bonds, agency securities, cryptocurrencies, commodities, or foreign currencies; (iii) entering into derivatives contracts; or (iv) engaging in short sales or purchasing securities on margin. The new rules also require senior Federal Reserve officials “to provide 45 days’ non-retractable notice for purchases and sales of securities, obtain prior approval for such transactions, and hold investments for at least one year.” Purchases and sales will be prohibited during periods of heightened financial market stress. The rules become effective on May 1, except that the requirements for advance notice and pre-clearance of transactions will take effect on July 1.
Fed will maintain federal funds rates due to Covid-19 effects
On December 16, the Federal Reserve Board stated it intends to keep the target range for the federal funds rate at zero to 0.25 percent until the unemployment rate lowers and inflation has risen to two percent steadily. While the Board notes that “[o]verall financial conditions remain accommodative,” and “[e]conomic activity and employment have continued to recover,” the Covid-19 pandemic has still caused tremendous economic hardship that has left overall economic levels “well below their levels at the beginning of the year.” According to the Board, the Federal Open Market Committee (FOMC) is seeking to achieve maximum employment and inflation at the rate of two percent over the longer run before adjusting the current monetary policy. Additionally, the Board notes that it will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month. FOMC will monitor the economic outlook and is prepared “to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”
Fed Raises Rates for Only Second Time Since Financial Crisis
On December 14, the Federal Open Market Committee (FOMC) announced that it had voted unanimously to raise the target range for the federal funds rate by 25 basis points to 0.5 to 0.75 percent – marking only the second rate hike since the financial crisis. According to a statement released by the FOMC, Committee members attributed the increase to consistent economic growth, in particular strong job gains, throughout 2016. Projections released yesterday include accelerated growth over the next few years, which suggest a series of additional rate hikes throughout 2017. The Committee continued to stress, however, that future rate hikes will “depend on the economic outlook as informed by incoming data.” A transcript of Fed Chair Yellen’s press conference opening remarks can be found here.
As part of implementing the rate hike, the Federal Reserve Bank of New York, effective December 15, will conduct overnight reverse repurchase operations at an offering rate of 0.50 percent, with a per-counterparty limit of $30 billion per day. The regional bank’s Open Market Trading Desk estimates approximately $2 trillion of Treasury securities in its account will be available for these operations.