By Tom Burnett CFA
On June 25, 2022, the Federal Reserve raised its Fed Funds rate by 0.75% to a range of 1.5%-1.75%. The vote was 11 to 1 with the dissenter voting for an increase of just 0.50%. The 75-basis point move was the largest since 1994.
The Fed also reiterated its intention to shrink its $9 trillion balance sheet by selling down and not reinvesting maturing bonds in its holdings of Treasuries and mortgage-backed securities. The Board remains committed to getting inflation down in a manner that will slow the economy but not push it into a recession.
The Fed also released its quarterly updates of Economic Projections. It now sees GDP growth of just 1.7% in 2022 and in 2023. In March, the Fed projected GDP growth of 2.8% in 2022 and 2.2% in 2023. It now expects unemployment to average 3.7% in 2022, up from a forecast of 3.5% in March. Unemployment is not expected to reach 4.0% until 2024. PCE inflation is now seen at 5.2% this year and only 2.6% in 2023. Finally, the Fed Funds rate will end the year at 3.4%, climbing to 3.8% next year.
The next Fed meeting will take place over two days –July 26-27, 2022.