June 15, 2022
The FOMC raised its benchmark interest rate by 75bps to a new target range of 1.50%-1.75%. This is the first 75bps increase since 1994. The Fed plans to continue to reduce its balance sheet by $47.5 billion a month, as laid out in May. The FOMC “anticipates that ongoing increases in the target range will be appropriate.” Kansas City Fed President Esther George was the only dissenter, favoring a 50bps rate hike. The Federal Reserve’s dot plot, which signals its outlook for the path of interest rates, projects another 175bps of rate hikes this year, with median year-end projections for 2022 moving up to 3.40% from 1.90% along with another 50bps of rate hikes in 2023, with median year-end projections moving up to 3.80% from 2.80%.Rates and Market:
- Fed Funds Target: 1.50% – 1.75%
- Market Reaction: The market took the message in stride with stocks and interest rates roughly at the same levels that they were before the rate decision. Shortly thereafter, rates fell down sharply after Fed Chair Jerome Powell said, “Don’t expect moves of today’s size to be common.” The 2-year UST yield is down 19bps to 3.23%, while the 10-year yield is down 9 bps to 3.38%.
The FOMC announced the following actions and analysis:
- 10-1 policy vote
- The invasion of Ukraine by Russia is causing human and economic hardships elevating inflationary pressures
- COVID related lock downs in China are likely to exacerbate supply chain problems