MNI: Fed Raises Rates 25 BP, Signals Seven Hikes in 2022

The Federal Reserve Wednesday raised interest rates for the first time in more than three years to combat an unexpected surge in inflation, and officials’ forecasts pointed to another seven increases this year.

The Fed also indicated it expects to begin shrinking its USD8.9 trillion balance sheet sometime soon. St. Louis Fed President James Bullard dissented in favor of a more aggressive 50BP hike in the federal funds rate.

"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," the FOMC said in its post-meeting statement.

"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." The Fed's seven-hike forecast was up from just three rate hikes officials had penciled in at their December meeting, as MNI reported was likely last month.

SEP PROJECTIONS

Officials’ median projection for the fed funds rate at the end of next year, released as part of the quarterly Summary of Economic Projections, was 2.8%, pointing to at least three more rate increases next year. Such estimates are highly conditional on uncertain economic developments like the war and the path of inflation.

Policymakers now see the economy expanding 2.8% this year, down sharply from a December forecast of 4%. Officials are now forecasting PCE inflation will end the year at 4.3%, a major upward revision from 2.6% in its December estimates. The PCE jumped 5.2% in the year to February, the biggest annual rise since 1983.

With regards to Russia's invasion of Ukraine, the Fed said: "in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity."