The US Federal Reserve may raise the discount rate by 0.5% in May

Last night, the US Federal Reserve System published the minutes of the last meeting of the Open market Committee, held on March 15-16. It follows from the minutes that the Fed expects a 50 basis point increase in the base rate at the next meeting (May 3-4). 

Many participants of the meeting noted that one or more increases in the target rate by 50 basis points may be appropriate, especially in conditions of high inflationary pressure. At the same time, many would prefer to raise the rate by 50 bps at the last March meeting. 

In general, the US regulator expects a rate increase of 170 bps by the end of 2022, which is 70 bps more than predicted at the January meeting.

In addition to the rate, market participants are interested in how much the balance can be reduced in the future. According to the text of the protocol, the Fed intends to reduce the balance sheet currency by $95 billion monthly (due to the repayment of $60 billion of treasury bills and $35 billion of mortgage securities). Thus, if the reduction of the balance sheet begins in May and these amounts do not change, then by the end of the year the Fed's balance sheet will be reduced by $665 billion, and it will be reduced by $1.14 trillion annually ($1.8 trillion in 2022-23).

At the same time, a number of committee members noted that in the event of a deterioration in the situation with liquidity and monetary reserves, it will first have to slow down, and then, possibly, stop reducing the balance sheet altogether.