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•The Fed will raise the federal fund rates at the March meeting. High inflation pressure made

oAt the January FOMC meeting, the Fed turned to more hawkish.For the interest rate, the Fed views changes in federal funds rate target as its primary means of adjusting policy stance, and the chairman Powell implicated that they would raise the federal funds rate at the March meeting. Several Fed officials said that the future path of interest rates depends on economic data.For the balance sheet, the asset purchases will be ended in early March. Although the Fed did not provide any details of timeline and path of future tightening, the Fed released “Principles for Reducing the Size of the Federal Reserve's Balance Sheet”, showing that

1) balance sheet reduction will start “after the process of increasing the target range for the federal funds rate has begun”;
2) the possibility of active asset sales is not high; 3) the Fed intends to hold primarily Treasury securities. oAmid persistent inflationary pressures, institutions are expecting more rate hikes in 2022. The U.S. CPI rose 7.5% year-on-year in January, hitting a 40-year high. The federal funds futures market currently expects the Fed to raise interest rates five times in 2022, with a more likely 25 bps hike at the March meeting. Some major banks gave more aggressive forecast. Both Goldman Sachs and Bank of America expected 7 rate hikes this year, with each rate hike by 25 bps. The market also expects the balance sheet reduction to start in June.