Timely and Relevant News: Federal Reserve Meeting Recap: We Have Liftoff

The Federal Reserve (Fed) ended its two-day Federal Open Market Committee (FOMC) meeting on Wednesday, March 16th and as expected, the Committee voted to increase the fed funds rate by 25 basis points (0.25%) and signaled further rate increases are appropriate. This was the first rate hike since 2018.

“While the rate hike was expected, the revised dot plot showed the Committee is serious about bringing inflationary pressures back down,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “The Fed’s job, especially from this point forward though, is to prove that it can manage the removal of monetary accommodation without slowing the economy too much. It’s a tall order given the number of expected interest rate hikes this year.”

Below is the “dot plot”, which provides the individual Fed member’s projections on the future path of interest rates. The median dot of the Committee reflects seven interest rate hikes in 2022; up from three hikes three months ago.
During the press conference Fed Chairman Jerome Powell mentioned that each meeting was “live” and a 50 basis point hike could be appropriate, depending on the path of inflationary pressures. Interestingly, the Committee expects to hike interest rates above its long-term neutral rate in 2023, holding rates steady in 2024 and then cutting rates thereafter.

Fed updates its economic projections four times a year for the next several years as well as its longer-term forecasts. The Fed now sees 2.8% GDP growth in 2022 (down from 4.0% in December) and higher inflation expectations. The Committee sees inflation falling back to 2.7% headline and 2.6% core in 2023.

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