In line with widespread expectations, the Federal Open Market Committee (FOMC) raised the target range for the federal funds rate by 25 basis points (bp) at its meeting on March 15-16, 2022. The new target range is 25-50 bp.

    The FOMC's press release stated: "Indicators of economic activity and employment have continued to strengthen. Job gains have been strong in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures."

    Key Takeaways

    • The Federal Open Market Committee (FOMC) voted to increase the fed funds rate by 25 basis points at its meeting on March 15-16, 2022.
    • It cited strong job gains, a falling unemployment rate, and "elevated" inflation as its reason.
    • The FOMC sees Russia's war on Ukraine as a key risk that may produce higher inflation and decreased economic activity.
    • The FOMC expects to begin reducing its balance sheet at some unspecified future meeting.

    Near-Unanimous Vote

    Of the nine voting members present at the meeting, eight voted in favor of the 25 bp rate increase, including Fed Chair Jerome Powell and Vice Chair Nominee Lael Brainard . The only dissenting vote was cast by James Bullard, who favored a rate hike of 50 bp.

    Key Contingencies

    The FOMC's statement noted key contingencies that may affect the future course of monetary policy . One was Russia's war on Ukraine. The statement said: "The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity."

    The statement also said: "The Committee [i.e., the FOMC] would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals [i.e., maximum employment and inflation at 2% over the longer run]. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments."

    Reducing the Fed's Balance Sheet

    The statement indicated that the FOMC will be reducing its holdings of U.S. Treasury securities , U.S. agency debt , and U.S. agency mortgage-backed securities (MBS). However, this decision will be made at an unspecified future meeting.

    Implementation Note

    The FOMC's statement was accompanied by an implementation note. In addition to raising the target range for the federal funds rate by 25 bp, the FOMC voted unanimously to raise the interest paid on reserve balances to 40 bp and to increase the primary credit rate by 25 bp to 50 bp.

    Regarding current balance sheet management, the implementation note instructs the Open Market Desk to: "Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities (MBS) in agency MBS."

    How much will the feds raise interest rates in March 2022?
    With the Fed planning to end its pandemic-era bond purchases in March, they are set for a 0.75% total interest rate increase by the end of 2022. more
    Will interest rates go up in March 2022?
    The Fed decided, in March 2022, a target rate of between 0.25% and 0.50% for its federal funds rate and also signalled that US rates will also rise to almost 2% by the end of the year. more
    What is current Fed interest rate?
    2.25 to 2.5 percent The Fed's policy rate, which trickles out through the economy to effect other borrowing costs and curtail growth, is now set to a range of 2.25 to 2.5 percent. more
    What is the Fed interest rate 2022?
    Selected Interest Rates more
    Will Feds raise interest rates in March 2022?
    The next meeting of the Federal Open Market Committee (FOMC) is on March 15-16, 2022. Fed Chair Jerome Powell told Congress that he supports a 25 bp increase in the fed funds rate. Amid rising inflation and a strong labor market, the markets are anticipating a 25 bp rate hike. more
    How many interest rate hikes expected in 2022?
    The Federal Open Market Committee (FOMC) unanimously decided to raise the target range for the federal funds rate to 1.50 to 1.75, with further rate hikes looking inevitable. The 75 basis point hike follows an already aggressive 50 basis point increase in May 2022 and marks the largest upward step since 1994. more
    What is the US Fed interest rate?
    The U.S. Federal Reserve increased its benchmark interest rate by 75 basis points to a range of 1.5%-1.75% in June — the biggest increase since 1994. more
    What is the new interest rate 2022?
    The Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 1.65 percent, effective June 16, 2022. more
    Does the Fed interest rate affect mortgages?
    As far as fixed-rate mortgages go, a Fed rate increase does not directly impact these longer-term loans, but it does influence movement. The recent rise in fixed mortgage rates is a combination of Fed policy, recessionary concerns and inflation. more
    What is the current Fed interest rate 2022?
    The Federal Reserve raised the target range for the fed funds rate by 75bps to 2.25%-2.5% during its July 2022 meeting, the fourth consecutive rate hike, and pushing borrowing costs to the highest level since 2019, matching market forecasts. more
    Will Fed interest rate affect crypto?
    How the Fed Meeting Can Affect the Crypto Market. Aggressive rate hikes are not positive for crypto prices, and experts say the choppiness will likely continue in the short term. Risky assets like stock and crypto have been heavily correlated since the start of 2022. more

    Source: www.investopedia.com

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