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Financial markets remained volatile this week after digesting the actions of the Federal Open Market Committee (FOMC). The FOMC announced it would raise the federal funds rate by 0.50% to a range of 0.75%- 1.00% and begin shrinking its $9 trillion balance sheet starting June 1st. The FOMC will initially reduce its balance sheet by $47.5 billion, increasing to $95 billion per month after three months with a combination of US Treasury, agency debt, and agency mortgage-backed securities. Federal Reserve Chair Powell took steam out of market speculation that the Fed would further ratchet up its pace of tightening by saying “a 75 basis point increase is not something the committee is actively considering,” which provided a catalyst for lower short term rates in the near term.

US GDP unexpectedly declined at an annualized rate of 1.4% in the first quarter of 2022, coming off an exceptionally high growth rate of 6.9% in Q421. The economy contracted mostly due to a significant increase in the trade deficit, with more imports than exports as domestic consumer demand remained strong, while lockdowns in China and the war in Ukraine took a toll on global demand for US products.