FOMC Update

July 27, 2022
In a unanimous decision, the FOMC raised its benchmark interest rate by 0.75% in what are now back-to-back 75bps rate hikes. Aside from last month's 75bps hike, November 1994 was the last time a hike of this size occurred. That was the only hiking cycle in the last 30 years that did not precede a recession, mostly because NAFTA started taking off earlier that year. With the Fed Fund target rate at 2.50% (upper bound), policy is “neutral” at this point, with Chairman Powell pointing to the Fed’s long-run estimate of 2.40%. However, with the current and projected environment, Powell was quick to point out that the Fed needs to get to “moderately” restrictive, so a 50-75bps September move seems to be still on the table. Today’s announcement was aligned with previous Fed guidance and the implied market expectation.
Rates and Market: 
  • Fed Funds Target: 2.25% – 2.50% 
  • Market Reaction: Pre-announcement Treasury yields were down ~2bps across the curve. Post-announcement, Treasury yields are down ~8-10bps, and US equities are rallying ~1% - 3+%
The FOMC announced the following actions and analysis: 
  • 12-0 vote 
  • The Committee remains highly attentive to inflationary risks 
  • Spending and production have softened, however job gains remain robust
  • The ongoing war between Russia and Ukraine continue to add upward inflationary pressure and market volatility
  • Balance sheet reduction is proceeding at the announced pace

Previous Report

Consumer Confidence: Further Declines (07/26/22)
The Conference Board's Consumer Confidence Index fell further in July, coming in below expectations with negative revisions to previously reported data. This survey had been showing better consumer attitudes than the...