Federal Reserve Largest Raises Rates Most Since 1994, Up 75 Basis Points as Expected

The Federal Reserve raised rates by a 75 bp at their June meeting. The market was pricing in an 87% chance of a 75-basis point hike with the balance on 50 bps. It was not a unanimous vote, however. Kansas City Fed President George dissented, preferring a hike of only 50 basis points. Out the Fed funds futures curve, the terminal top was in May 2023 at 3.982% with a path of 75/75/50/50 priced in for the next four meetings, including today. This was just the second time the bank raised rates this much since May 2000 when the Fed was led by Alan Greenspan.

Fed Boardroom

Federal Reserve FOMC Statement 

Federal Reserve Announcement Wednesday 15 June 2022 14:00:00 ET

The FOMC raises the target rate by 75 basis points to 1.50% to 1.75%

  • The median estimate for the fed funds rate for 2022 is now 3.4%, versus 1.9% in the March projection
  • The median estimate for the fed funds rate for 2023 is now 3.8%, versus 2.8% in the March projection

Conference To Follow At 2.30 ET PM With Chairman Powell

Highlights

  • Decision was unanimous
  • Band is now from 0.75% to 1.00%
  • The dot plot for June 2022 shows the median rate at the end of 2022 at 3.4%, up from 1.9% in March 2022. With the current rate at 1.7%, that implies an additional 170 bps.
  • For 2023, the median Fed funds target rate is up to 3.8%, up from 2.8% in March 2022 or an increase of 40 basis point from the end of 2022.
  • In 2024, the Fed projects a Fed funds target rate of 3.4%, down 40 basis points from the end of year 2023.
Fed Rate Rises via WSJ

A summary of the central tendencies compared to March shows for 2022:

  • GDP 1.7% from 2.8% in March. That is down 1.1% from March
  • Unemployment 3.7% from 3.5% in March. That is up 0.2% from 3.5% March
  • PCE inflation 5.2% from 4.3% in March. That is an increase of 0.9% from March
  • Core PCE inflation 4.3% from 4.1% in March. That is an increase of 0.2% from March

In 2023, the FOMC now sees:

  • GDP 1.7% vs. 2.2% in March, down 0.5%
  • unemployment 3.9% vs. 3.5% March, up 0.4%
  • PCE inflation 2.6% vs. 2.7% in March, down -0.1%
  • Core PCE inflation at 2.7% from 2.6% March, up 0.1%

June 15 22 FOMC STATEMENT CHANGES via @Newsquawk

The full statement from the June 2022 Fed Decision

Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. 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 invasion and related events are creating additional upward pressure on  inflation  and are weighing on global 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. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1‑1/2 to 1-3/4 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. 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 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; Lisa D. Cook; Patrick Harker; Philip N. Jefferson; Loretta J. Mester; and Christopher J. Waller. Voting against this action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate by 0.5 percentage point to 1-1/4 percent to 1-1/2 percent. Patrick Harker voted as an alternate member at this meeting.

Implementation Note issued June 15, 2022

Source: Federal Reserve

From the TradersCommunity Research Desk