By Tom Burnett CFA
On March 16, 2022, the Federal Reserve (“Fed”) announced that it has decided to raise the target Fed Funds rate by 0.25% to a range of 0.25% to 0.50%. The increase is the first hike since 2018. The Fed vote was not unanimous, however, since Governor Bullard voted for an increase of 0.50%. Several additional increases are now expected with the Funds rate now estimated to average 1.9% in 2022. The rate is now forecast to increase again in 2023 when the average will rise to 2.8%. The efforts to reduce the Fed balance sheet are now expected to begin shortly at a future meeting.
The Fed also released its quarterly update of economic projections. The 2022 GDP growth is now projected at 2.8%, down from 4.0% in the December 2021 projections. The average unemployment rate is forecast at 3.5%, the same rate as the December projection. Inflation is now forecast to average 4.3% in 2022, well above the 2.6% figure in the December forecast.
Following the announcement, interest rates rose slightly. The 10-year yield rose to 2.23%, from 2.19% prior to the announcement.
On April 6, 2022, the Fed will release the minutes of the March 15-16 Meeting.