15 Dec 2015
Guide to the first Fed rate hike in almost a decade – Danske Bank
FXStreet (Delhi) – Research Team at Danske Bank, present the summary guide to the first Fed rate hike in almost a decade.
Key Quotes
• “The FOMC will continue to target a range for the effective fed funds rate.
• The IOER is set at the top of that range and the ON RRP rate will be set 25bp below that rate (currently 20bp below).
• The daily limit of the ON RRP facility is likely to raised above the current USD300bn level. The FOMC has an aversion towards boosting the facility too much, as it risks reducing activity in the fed funds market. However, the Fed will allow the aggregate capacity of the ON RRP facility to be temporarily elevated to support the lift-off.
• Changes to rates and facilities would be effective the day after the FOMC meeting. The FOMC will release an appendix with all operational details in conjunction with the FOMC statement.
• Reduction of the balance sheet (via a halt or reduction of reinvestment of maturing securities) will come after the initial lift-off and will be at a gradual and smooth pace.”
Key Quotes
• “The FOMC will continue to target a range for the effective fed funds rate.
• The IOER is set at the top of that range and the ON RRP rate will be set 25bp below that rate (currently 20bp below).
• The daily limit of the ON RRP facility is likely to raised above the current USD300bn level. The FOMC has an aversion towards boosting the facility too much, as it risks reducing activity in the fed funds market. However, the Fed will allow the aggregate capacity of the ON RRP facility to be temporarily elevated to support the lift-off.
• Changes to rates and facilities would be effective the day after the FOMC meeting. The FOMC will release an appendix with all operational details in conjunction with the FOMC statement.
• Reduction of the balance sheet (via a halt or reduction of reinvestment of maturing securities) will come after the initial lift-off and will be at a gradual and smooth pace.”