Federal Reserve Meeting Recap: We Have Liftoff - Mint Wealth Advisors
Mint Wealth Advisor offices are available for appointment.Schedule an Appointment

Federal Reserve Meeting Recap: We Have Liftoff

The Federal Reserve (Fed) ended its two-day Federal Open Market Committee (FOMC) meeting yesterday and, as expected, the Committee voted (not unanimously however) to increase the fed funds rate by 25 basis points (0.25%) and signaled further rate increases were appropriate. Highlighting the disparate views on the Committee (also seen on the dot plot below), there was one dissenting vote (St. Louis Fed President Jim Bullard) who wanted a 50 basis point rate hike. Today’s rate hike was the first since 2018 and launches the first new rate hiking campaign since 2015.

“While the rate hike was expected, the revised dot plot showed the Committee is serious about bringing inflationary pressures back down,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “The Fed’s job, especially from this point forward though, is to prove that it can manage the removal of monetary accommodation without slowing the economy too much. It’s a tall order given the number of expected interest rate hikes this year.”

Also released was the updated “dot plot”, which provides the individual member’s projections on the future path of interest rates. As shown in the LPL Research Chart of the Day, there were some notable changes from the previous version. Now, the median dot of the Committee, in aggregate, reflects seven interest rate hikes in 2022, bringing the policy rate up to 1.9%. Three months ago, the Committee was expecting three rate hikes this year and a policy rate below 1%.

During the press conference Fed Chairman Jerome Powell mentioned that each meeting was “live” and a 50 basis point hike could be appropriate, depending on the path of inflationary pressures. Also, interestingly, the Committee expects to hike interest rates above its long-term neutral rate in 2023, holding rates steady in 2024 and then cutting rates thereafter.

View enlarged chart.

Also of note, four times a year, the Fed updates its economic projections for the next several years as well as its longer-term forecasts. The Fed now sees 2.8% GDP growth in 2022 (down from 4.0% in December), and higher inflation expectations with PCE headline and core metrics, their preferred inflation measures, at 4.3% and 4.1% (up from 2.6% and 2.7% in December), respectively. The Committee sees inflation falling back to 2.7% headline and 2.6% core in 2023. The conflict in Eastern Europe was cited as providing uncertainty to the near term outlook for inflation and growth expectations but “the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity”.

Finally, Powell noted, during the press conference, that the Committee made good progress on a plan to cut bond holdings and expects to start to reduce the size of the Fed’s nearly $9 trillion balance sheet in the coming months—with an announcement potentially coming as early as May. According to Powell, balance sheet runoff, depending on how it’s structured, could act as an additional rate hike. Powell also hinted that additional details for balance sheet runoff will be outlined in the meeting minutes, set to be released in three weeks.

 

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value