In a significant move today, the Federal Reserve announced that it will increase the target range for the federal funds rate to 0.75 to 1%, and signaled that “ongoing increases in the target range will be appropriate.”
Real yields on treasury bonds have soared into near-positive territory on the back of Fed tightening. In the last month alone, five-year treasury yields increased nearly 1 percentage point. Fed Chairman Jerome Powell signaled on Thursday that a 50 basis point hike is likely in the May FOMC meeting.
Federal Open Market Committee members said monthly reductions in securities holdings should be capped at about $60 billion for Treasury securities and about $35 billion for mortgage backed securities.
With the U.S. economy experiencing a period of high inflation and with new economic uncertainties prompted by the Russian invasion of Ukraine, Federal Reserve Chairman Jerome Powell today warned that these conditions could push the Federal Open Market Committee’s longer-term expectations “uncomfortably higher,” underscoring a need for the FOMC “to move expeditiously” to raise interest rates.
According to the Federal Open Market Committee dot plot, the Federal Reserve expects to increase rates six more times this year, which would take the federal funds rate from its current position, 25-50 basis points, up to 175-200 basis points.
The Federal Reserve will raise the interest rates by a quarter of a percentage point to a target range of 0.25% to 0.5%, according to the latest Federal Open Market Committee statement issued today.
Federal Reserve Chairman Jerome Powell told members of the House Committee on Financial Services today that he expects the Fed to raise interest rates at the next meeting of the Federal Open Market Committee on March 15-16.
While the Federal Reserve seeks public comment on the benefits and risks of creating a central bank digital currency, Fed Governor Michelle Bowman said today that she “intends to keep an open mind” about a CBDC but that the use case for it is not readily apparent to her.
If the omicron wave of the COVID-19 pandemic dissipates quickly, economic activity will likely strengthen rapidly and economic growth will be robust in 2022, according to members of the Federal Open Market Committee.
The Federal Reserve will continue to reduce the monthly pace of asset purchases and bring them to an end in early March, according to the latest Federal Open Market Committee statement issued today.