The Federal Open Market Committee (FOMC) kept monetary policy unchanged at its meeting this week. The fed funds target rate remains in the range of 0.0% to 0.25%, and the Fed continues to purchase $80 billion of Treasuries per month, and $40 billion of agency mortgage-backed securities per month. The FOMC raised the interest rate on excess bank reserves (IOER) and reverse repo rates by 5 basis points to 0.15% and 0.05%, respectively. We believe this move was primarily meant to improve money market functioning, relieve pressure on front-end rates, and prevent repo rates from falling below 0%, but do not see this as a sign of monetary tightening. The Fed has started to discuss the idea of reducing its asset purchases at some point, but that decision remains uncertain. FOMC members’ updated economic projections also suggest that the Fed may start to raise interest rates in 2023, versus the previous estimate of 2024. Overall, monetary policy remains highly accommodative for now, but the Fed seems to be inching toward a path of policy normalization.