Fed raised federal funds rate target by 25bps to 0.25-0.50% s widely expected. James Bullard dissented, and voted for a 50bps hike. Additionally, Fed expects to start reducing asset holdings “at a coming meeting”.
In the updated dot plot, 12 of the FOMC participants expected federal funds rate to reach 1.75-2.00% by then end of 2022, that is, 1.50% above the current level.
Fed has also significantly lowered 2022 GDP growth forecast, raised 2022 core inflation forecasts and federal funds rate forecasts. The end point of current tightening cycle was also raised from 2.1% to 2.8%, and pulled ahead to 2023.
New median projections – GDP growth
- 2022 real GDP growth was lowered from 4.0% to 2.8%.
- 2023 real GDP growth unchanged at 2.2%.
- 2024 real GDP growth unchanged at 2.0%.
- Longer run GDP growth unchanged at 1.8%.
Unemployment rate:
- 2022 unemployment rate unchanged at 3.5%.
- 2023 unemployment rate unchanged at 3.5%.
- 2024 unemployment rate raised from 3.5% to 3.6%.
- Longer run unemployment rate unchanged at 4.0%.
Core PCE:
- 2022 core PCE inflation raised from 2.7% to 4.1%.
- 2023 core PCE inflation raised from 2.3% to 2.7%.
- 2024 core PCE inflation raised from 2.1% to 2.3%.
Federal funds rate
- 2022 federal funds rate raised from 0.9% to 1.9%.
- 2023 federal funds rate raised from 1.6% to 2.8%.
- 2024 federal funds rate raised from 2.1% to 2.8%.
- Longer run federal funds rate lowered from 2.5% to 2.4%
