The dot plot of the Fed’s first rate hike in more than four years shows that there are 9 more consecutive hikes

After the two-day meeting, the Federal Reserve announced a 25 basis point rate hike in the early morning of Beijing time.

This is the first U.S. rate hike since 2018.

Judging from the press release, the Fed believes that price pressures are widespread, not just energy prices, but also labor, etc. The current unemployment rate has dropped significantly (the U.S. CPI inflation rate was 7.9% in February, the highest in 40 years; the unemployment rate was 3.8% , is close to the pre-epidemic level).

The Fed is preparing to reduce its holdings of Treasury and agency debt MBS starting at its next meeting.

Among the voting members, St. Louis Fed President James Bullard voted to raise interest rates by 50 basis points.

According to FT reports, at the press conference after the meeting, Fed Chairman Powell talked about raising interest rates in response to high inflation and a tight labor market extremely tight labor market in high inflation.

The dot plot (the voting committee’s forecast of the interest rate range) shows that Fed officials have raised their interest rate forecasts from three months ago, and are expected to raise interest rates six more times in the rest of 2022 and at least three more in 2023. Second-rate. The federal funds rate will then be at 2.8%, above the “neutral position” that affects economic growth (most officials forecast a neutral rate of 2.4%).

The dot plot of the Fed's first rate hike in more than four years shows that there are 9 more consecutive hikes

US CPI (1965-2022)

The dot plot of the Fed's first rate hike in more than four years shows that there are 9 more consecutive hikes

U.S. labor force participation rate (1948-2022)

The Fed press release reads as follows :

March 16, 2022

Federal Reserve issues FOMC statement

For release at 2:00 p.m. EDT

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.

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 Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee 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. 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.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Esther L. George; Patrick Harker; Loretta J. Mester; and Christopher J. Waller. Voting against this action was James Bullard, who preferred at this meeting to raise the target range for the federal funds rate by 0.5 percentage point to 1/2 to 3/4 percent. Patrick Harker voted as an alternate member at this meeting.


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