The Federal Reserve raised rates by a half of a percent at their May meeting. This was the first time the bank raised rates this much since May 2000 when the Fed was led by Alan Greenspan. The Central Bank raised interest rates by 0.50% (to a target of 6.5%) back then. That was the last time the Fed would ever raise interest rates by that much in one move until day. The rate hike was priced in. The Balance sheet runoff will begin on June 1 with runoff caps of 60B for Treasuries expected and runoff caps of 35B for MBS vs 35B expected.
Federal Reserve FOMC Statement
Federal Reserve Announcement Wednesday 4 May 2022 14:00:00 ET
The FOMC raises the target rate by 50 basis points to 0.75% to 1.00%
Conference To Follow At 2.30 ET PM With Chairman Powell
- Decision was unanimous
- Band is now from 0.75% to 1.00%
- At the previous meeting, the Fed hiked by 25 bps to 0.25-0.50%
- No mention of anything indicating a faster or ‘expiditious’ pace of tightening, as speculated by some
- At last look the Fed funds market is priced at 90.5% for a 50 bps hike and a 9.5% chance of 75 bps
- Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong
- Added the line: “The Committee is highly attentive to inflation risks.”
- Job gains now described as ‘robust’ vs ‘strong’ previously
- Balance sheet runoff will begin on June 1
- Balance sheet runoff caps of 60B for Treasuries vs 60B expected
- Balance sheet runoff caps of 35B for MBS vs 35B expected
- Balance sheet runoff phased in over 3 months vs 3 months expected
May 4 22 FOMC STATEMENT CHANGES via @Newsquawk
The full statement from the May 2022 Fed Decision
Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust 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. The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.
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 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in conjunction with this statement.
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; James Bullard; Esther L. George; Patrick Harker; Loretta J. Mester; and Christopher J. Waller. Patrick Harker voted as an alternate member at this meeting.
Source: Federal Reserve
From the TradersCommunity Research Desk