No big surprise today as the Federal Open Market Committee announced a 25 basis point hike to the Federal Funds Rate, according to the FOMC’s announcement…(FOMC)
- “The Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate.”
The rate hike was not surprising but there were some questions that have sort of been answered in today’s release…
- HOW MANY: According to the Fed’s Summary of Economic Projections the Fed is expecting the Fed Fund Rate to rise to 1.9% by the end of 2022. Using basic math this would mean six more rate hikes for a total of seven in this calendar year. Fed traders had priced this in earlier this week.
- ASSET PURCHASES: Good news, “the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities…” Bad news, they didn’t say when this would happen only that it would be happening at a coming meeting.
- WHAT WAS THE VOTE: Everyone voted for the quarter rate hike except James Bullard who voted for a 50 basis point hike.
IMPORTANT NOTE: The Fed revised their 2022 economic predictions from 4.0% GDP growth to 2.8% and increased the inflation from 2.6% to 4.3%.
I would have preferred to see a 50 basis point hike but I also understand why Powell is approaching the hikes with caution. The quarter-point hike is unlikely to do anything about inflation but you do have to wonder what happens in two or three months. Powell mentioned in a subsequent presser that we could see a 50 bip hike in May and that is when the could begin selling down the balance sheet.
