March FOMC Meeting Recap


March FOMC Meeting Recap: First Rate Hike Since December 2018 & Imminent Balance Sheet Runoff (As Soon as May)

The median dot in the updated Summary of Economic Projections now shows another six (25 bps) rate hikes at every remaining FOMC meeting this year. 


As widely expected, the Federal Open Market Committee (FOMC) voted (with James Bullard being the only person who voted for a 50 bps hike) to increase the funds rate target range by 25 bps to 0.25–0.50% to conquer inflation, and signaled the balance sheet runoff would come “at a coming meeting.”  

Main Points

  • As expected, the FOMC decided to hike the target range of the funds rate (by 25 bps) for the first time since 2018, citing that “inflation remains elevated” and “job gains have been strong (a characterization change from “solid” in FOMC’s January statement).” The median dot in the updated Summary of Economic Projections now shows another six (25 bps) rate hikes (vs. three hikes projected at the December meeting) at every remaining FOMC meeting in 2022.
  • When asked about the pace of future rate hikes, Powell commented that the FOMC participants would look at the incoming data at each meeting and make a judgement as to if sufficient progress has been made on the inflation front as “each meeting is a live meeting.” Also, Powell explicitly commented that the economy is “very strong” and can handle interest rate rises.
  • The FOMC’s updated statement now specifically mentions the war in Ukraine and its negative impact on both inflation and growth. The updated dot plot shows that the Real GDP forecast for 2022 was revised sharply lower with longer-term forecast unchanged, and (Core) PCE Inflation forecasts were revised significantly higher across the forecast horizon.
  • The Fed now “expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.” Powell reiterated that the balance sheet runoff in this cycle would start sooner and faster than the last cycle in order to anchor long-term inflation expectations, but the framework and process would look “familiar.”

Implications: 6 more rate hikes this year is a bit hawkish & 50 bps hike is on the table

Although the new FOMC statement did not surprise, the prospect of six more rate hikes this year and faster hikes (e.g., 50 bps hike) on the table given heightened inflation caused market jitters initially. Then equity markets reversed sharply higher during Powell’s presser and into the close as the market had already priced in a more-hawkish Fed (so the “heavy lifting” was already done). The 10-year UST yield and DXY initially jumped on the statement before reversing lower. Gold went the opposite.  

To review graphs click here: FOMC Insights _ 2022 0316

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