Fed lifts rates a quarter point in opening bid to curb inflation

Fed lifts rates a quarter point in opening bid to curb inflation
Policy makers led by Chair Jerome Powell voted 8-1 to lift their key rate to a target range of 0.25% to 0.5%, the first increase since 2018.
MAR 16, 2022

The Federal Reserve raised interest rates by a quarter percentage point and signaled hikes at all six remaining meetings this year, launching a campaign to tackle the fastest inflation in four decades even as risks to economic growth mount.

Policy makers led by Chair Jerome Powell voted 8-1 to lift their key rate to a target range of 0.25% to 0.5%, the first increase since 2018, after two years of holding borrowing costs near zero to insulate the economy from the pandemic. St. Louis Fed President James Bullard dissented in favor of a half-point hike, the first vote against a decision since September 2020.

The hike is likely the first of several to come this year, as the Fed said it “anticipates that ongoing increases in the target range will be appropriate,” and Powell has pledged to be “nimble.”

In the Fed’s so-called dot plot, officials’ median projection was for the benchmark rate to end 2022 at about 1.9% — in line with traders’ bets but higher than previously anticipated — and then rise to about 2.8% in 2023. They estimated a 2.8% rate in 2024, the final year of the forecasts, which are subject to even more uncertainty than usual given Russia’s invasion of Ukraine and new Covid-19 lockdowns in China are buffeting the global economy.

“The invasion of Ukraine by Russia is causing tremendous human and economic hardship,” the Federal Open Market Committee said in a statement Wednesday following a two-day meeting in Washington, the first held in person — rather than via videoconference — since the pandemic began. “The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”

Treasury yields jumped and the curve flattened following the decision. The S&P 500 index erased most of its gains and the dollar index pared losses.

The Fed said it would begin allowing its $8.9 trillion balance sheet to shrink at a “coming meeting” without elaborating. The purchases of Treasuries and mortgage-backed securities, which concluded this month, were intended to provide support to the economy during the Covid-19 crisis and shrinking the balance sheet accelerates the removal of that aid.

The statement omitted previous language saying that the economy’s path depended on the course of the coronavirus, though it kept a reference to the pandemic’s impact on inflation.

Powell, who is currently serving as chair pro-tempore as he awaits Senate confirmation for a second term, will hold a virtual press conference at 2:30 p.m. Washington time.

The Fed faces the arduous task of securing a soft landing for the world’s largest economy for the first time since the early 1990s. Tighten too slowly and it risks allowing inflation to run out of control, requiring even tougher action. Shift too quickly and the central bank could roil markets and tip the economy into recession.

Crypto hits the mainstream

Latest News

Merrill to pay $39 million in cash sweep settlement
Merrill to pay $39 million in cash sweep settlement

The financial advice industry has been facing inquiries into its cash sweep programs for years now.

SEC accuses fund advisor of defrauding SpaceX, OpenAI investors
SEC accuses fund advisor of defrauding SpaceX, OpenAI investors

Investor money allegedly went to strip clubs, exotic cars, and landscaping

RIA moves: Savant enters Thousand Oaks as Procyon lands in New Jersey
RIA moves: Savant enters Thousand Oaks as Procyon lands in New Jersey

Procyon adds $415 million in assets under management in New Jersey while Savant picks up a $213 million Southern California planning firm

Beyond sell or inherit: A third exit for appreciated property
Beyond sell or inherit: A third exit for appreciated property

With a growing number of real estate-rich Baby Boomers aging into retirement, some advisors may be failing to consider all the options available for those clients' assets.

AI marketing adoption gap costs financial firms revenue
AI marketing adoption gap costs financial firms revenue

Cornerstone Advisors study reveals compliance bottlenecks stall campaigns weeks after customer opportunities close.

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains