Federal Reserve Raises Rates 25bps as Expected, Project One More 25bps Hike

The Federal Reserve raised rates by 25 bp to a target range of 4.75-5.00% in unanimous vote at their February meeting as expected. Market Fed futures pricing suggested 81% of a 25-bps hike before the decision while the vast majority of economists were also predicting a hike with a handful predicting no change or a cut. Fed projection show there will be one more 25 basis point hike this year and 75 basis point cuts in 2024. Fed statement deletes reference to ‘ongoing increases’ in rates.

Fed Boardroom

Federal Reserve FOMC Statement 

Federal Reserve Announcement Wednesday 22 March 2023 14:00:00 ET

The FOMC raised the target rate by 25 basis points 4.75-5.00% from 4.50-4.75%

Conference To Follow At 2.30 ET PM With Chairman Powell


  • Decision was unanimous for raise
  • Fed statement deletes reference to ‘ongoing increases’ in rates
  • US banking system is sound and resilient.
  • Recent developments are likely to result in tighter credit conditions but extent of effects is uncertain
  • FOMC anticipates ‘some additional policy firming may be appropriate’

FOMC dot plot and central tendencies (From March Meeting)

EOY 2023 5.1 and terminal rate

  • The Dot plot from March 2023 show the median rate at the end of 2023 at 5.1% vs 5.1% at the December 2022 projections
  • For 2024, the median fed funds target rate is 4.3% vs 4.1% in December
  • For 2025, the median fed funds target rate is 3.1% vs 3.1% in December
Dot Plot FOMC Dec 14 2022

Market Reaction After FOMC

  • Dow Industrial Average up 21 points or 0.07% at 32581
  • S&P index up 12.22 points or 0.30% at 4015.25
  • NASDAQ index up 76 points or 0.65% at 11936.61
  • 2 year yield 4.04%
  • 5 year yield 3.62%
  • 10 year yield 3.522%
  • 30 year yield 3.69%
  • Crude oil $70.62
  • Spot gold $1958.19
  • Spot silver $22.71
  • Bitcoin $28,459
  • EURUSD 1.0849
  • USDJPY 131.83
  • GBPUSD 1.2295
  • USDCAD 1.3692
  • AUDUSD 0.6724
  • NZDUSD 0.6249

Market Reaction After Press Conference

  • Dow Industrial Average -191.68 points or -0.59% at 32368.93
  • S&P index down -15.90 points or -0.40% at 3986.88
  • NASDAQ index down -22.8 points or -0.19% at 11837.31
  • 2 year yield 3.97%
  • 5 year yield 3.560%
  • 10 year yield 3.492%
  • 30 year yield 3.699%
  • Crude oil $70.56
  • Spot gold $1963.93
  • Spot silver $22.88
  • Bitcoin $27,459
  • EURUSD 1.0862
  • USDJPY 131.37
  • GBPUSD 1.2282
  • USDCAD 1.3703
  • AUDUSD 0.6694
  • NZDUSD 0.6232

Yields Lower After FOMC on Day:

  • 2-yr: -20 bps to 3.98%
  • 3-yr: -21 bps to 3.77%
  • 5-yr: -17 bps to 3.57%
  • 10-yr: -11 bps to 3.50%
  • 30-yr: -4 bps to 3.70%

Prior to release:

  • 2-yr: -1 bp to 4.17%
  • 3-yr: -3 bps to 3.95%
  • 5-yr: -2 bps to 3.73%
  • 10-yr: -4 bps to 3.57%
  • 30-yr: -4 bps to 3.70%

U.S. Treasuries finished Wednesday with gains across the curve. The FOMC statement called for a 25 bps increase to the fed funds rate range, but the central bank’s stance appears to have softened a bit. The Statement noted that “some additional policy firming may be appropriate” while the February Statement said that “ongoing increases in the target range will be appropriate.”

During his press conference, Fed Chairman Powell said that it is too early to determine the extent of the recent events in the banking system, and it is too early to tell how monetary policy should respond. He added that policymakers do not expect to cut rates this year.

March 22 FOMC STATEMENT CHANGES via @Newsquawk

The lines of note that change FOMC: “Inflation has eased somewhat but remains elevated.” in a change from “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.” Prior “In determining the pace of future increases in the target range” is now “In determining the extent of future increases in the target range”

The full statement from the March 2023 Fed Decision

Recent indicators point to modest growth in spending and production. Job gains have picked up in recent months and are running at a robust pace; the unemployment rate has remained low. Inflation remains elevated.

The U.S. banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-3/4 to 5 percent. The Committee will closely monitor incoming information and assess the implications for monetary policy. The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

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 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; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.

Implementation Note issued March 22, 2023

Source: Federal Reserve

From the TradersCommunity Research Desk