Quarterly Letter to Members
The Federal Open Market Committee (“FOMC” or “The Fed”) left the Federal Funds Target Rate range unchanged 0 to 0.25%.
The FOMC completed its pivot at the December meeting by dropping the “transitory” reference to inflation, accelerating the taper, and moving up the projected rate liftoff. They will now be reducing asset purchases by $30 billion per month (treasuries $20billion/month, mortgages $10 billion/month) which should put them on pace to complete tapering by the March meeting.
Chairman Jerome Powell pushed back on the notion that the pivot was politically motivated and said the rethink was prompted by the combination of employment and CPI data for October. He claims that he decided to accelerate the taper the weekend after the release of October CPI on November 10th, about 10 days before he was renominated to serve a second term.
The Summary of Economic Projects (“SEP”) now shows three hikes for 2022, three in 2023 and two in 2024, which puts the funds rate at 2.125% by the end of 2024.
Although the Fed dropped the reference to “transitory” inflation, it still expects it to normalize, albeit not until 2023, which is what presumably will allow the FOMC to slow the pace of tightening by 2024. This implies that policy will still be accommodative three years from now, even if inflation consistently overshoots 2% for three+ years. Thus, the Fed’s reaction function remains very dovish compared to the last expansion.
The FOMC retained the “maximum employment” condition for liftoff in its rate guidance, but it redefined what it means. In past communications, the Fed said it would look to broad measures of labor market slack (e.g., the participation rate, employment/population ratio or racial unemployment gaps) to gauge progress toward “broad-based and inclusive” employment.
Jerome Powell suggested that it might take two years for participation to improve, and the Fed can’t afford to wait that long if inflation is a problem right now. Instead, Powell is not relying more heavily on wage data and the quit rate, both of which indicate that the labor market is already tight.
That said, analysts still believe the Fed will still want to wait until the unemployment rate reaches 4 percent before lifting off, and their current forecast suggest that we will not get there until Q2. Thus, the guidance and the SEP imply that the first-rate hike is unlikely before mid-year 2022.
The new tapering timeline also makes a March liftoff unlikely. Powell confirmed during the press conference that the Fed will not hike until taper is completed. “Since we’re two meetings away from completing the taper, assuming things go as expected, I think if we wanted to liftoff before then, then we would stop the taper potentially sooner, but it’s not something I expect to happen,”
All of this is leading analysts to believe that May is the first live meeting for a rate increase signal which they assume would then be delivered by June.
Powell confirmed that the Committee had its first discussion of balance sheet issues at the meeting, but characterized it as an open-ended discussion that will be continued at upcoming meetings.
That said, Powell hinted that the Fed would move faster this time on balance sheet reduction, but that decisions still seem several meetings away.
Markets interpreted the meeting as hawkish, with 2-year yields up 4 basis points and 10-year yields up 2 basis points. The US dollar appreciated, and the stock market was up, indicating it may be time for the Fed to act.

Portfolio Matters

Fund Composition
The month opened with a $513,720,315.72 balance and closed with a balance of $501,099,074.65. The seven-day effective yield ended the month at .01%. The monthly seven-day average effective yield for the month was .01%. Average maturity ended the month at 18 days.
q4 2021 2

Comparisons

Money Market Composition
At the end of the month, the AMLIP portfolio had 31% of its portfolio assets allocated to overnight investments/cash, corporate securities made up 3% of the assets, commercial paper represented 34% CDs represented 7%, and Treasury & Agency represented 25%. On December 31, the seven-day compound yield of all taxable money market funds as reported by iMoneyNet, Inc. was 0.1%, the Tier 1 Institutional Compound Yield was .03% and the Pool’s 7-day effective rate of .01% on the same day. All Pool rates are quoted net of fees and expenses
Q4 2021

AMLIP Board Members
Terry Eubank – President
City of Kenai
Cheyenne Heindel – Vice President
Matanuska-Susitna Borough
Jody Tow – Treasurer
Petersburg Borough
Nils Andreassen
Alaska Municipal League
Margaret (Peggy) Macdonald
Fairbanks North Star Borough
Julie Lew
City of Kodiak
Kris Erchinger
City of Whittier
Melissa Haley
City and Borough of Sitka

AMLIP Membership
AMLIP Membership
 Adak, City of
Alaska Association of Municipal
Clerks
Alaska Government Finance
Officers Association (AGFOA)
Alaska Industrial Development
Export Authority
Alaska Municipal League
Alaska Municipal Management
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Aleknagik, City of
Aleutians East Borough
AML/JIA
Anchorage Community
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Annette Islands School District
Angoon, City of
Atka, City of
Atqasuk, City of
Barrow, City of
Bethel, City of
Brevig Mission, City of
Bristol Bay, Borough of
Chevak, City of
Chuathbaluk, City of
Cold Bay, City of
Cordova, City of
Delta Junction, City of
Denali Borough
Dillingham, City of
Eagle, City of
Eek, City of
Egegik, City of
Elim, City of
Fairbanks, City of
Fairbanks North Star Borough
False Pass, City of
Fort Yukon, City of
Gustavus, City of
Haines Borough
Homer, City of
Hoonah, City of
Huslia, City of
Juneau, City and Borough of
Kake City School District
Kenai, City of
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Ketchikan Gateway Borough
King Cove, City of
Kodiak, City of
Kodiak Island Borough
Kotzebue, City of
Koyuk, City of
Manokotak, City of
Marshall, City of
Matanuska-Susitna Borough
Mekoryuk/Nima, Village of
McGrath, City of
New Stuyahok, City of
Nome, City of
North Pole, City of
Northwest Arctic Borough
Northwest Arctic School District
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Old Harbor, City of
Palmer, City of
Pelican, City of
Pelican City School District
Petersburg, City of
Pilot Station, City of
Pribilof School District
Quinhagak, City of
Sand Point, City of
Selawik, City of
Seldovia,City of
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Sitka, City and Borough of
Soldotna, City of
Southeast Conference
Southwest Alaska Municipal
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Toksook Bay
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Upper Kalskag
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Whittier, City of
Wrangell, City and Borough of
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