May 4, 2022
The FOMC raised its benchmark interest rate by 0.50% for the first time since 2000, and policy makers have not raised the benchmark in successive meetings since 2006. This comes as no surprise to the markets since Chairman Powell put a 50bp hike “on the table” at an IMF presentation just last week.
With a 9-0 vote, Powell commented that inflation is too high, and the Fed’s commitment to bring inflation down is essential for promoting employment in an already tight labor market. Moreover, the underlying momentum for the U.S. economy remains strong, and the Fed has begun the process of significantly shrinking its balance sheet. With that, half-point hikes are on the table for the next couple of meetings since future inflationary surprises could be in store. Future surprises and shocks will require policy makers to be nimble when responding to the data.
Rates and Market: 
  • Fed Funds Target: 0.75% – 1.00% 
  • Market Reaction: Initially a modest and brief relief rally (flat-to-down ~3bps). However, after Chair Powell commented that a 75bp hike is not under active review, 2’s/5’s were ~13bps lower and 10’s/20’s remained largely anchored at pre-commentary levels.
The FOMC announced the following actions and analysis: 
  • 9-0 vote 
  • Inflationary expectations continue to be the key driver for today’s and future rate hikes.
  • The Ukraine situation and China’s dual-headed COVID and hard-landing will be among the core concerns.
  • The Fed will be “highly attentive” in regard to inflation. This could be taken to mean more hawkish than currently implied or less hawkish depending on how economic and geopolitical events unfold.
  • Risks to the U.S. economic outlook remain, given continued geopolitical unrest. 
Read Full FOMC Statement
Implementation Note issued May 4, 2022