The Federal Reserve Begins to Raise Interest Rates

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.