Fed Presses Policy Brake Harder

The Federal Open Market Committee (FOMC) met on June 15, 2022 for the fourth time this year to update the public on the state of the U.S. economy and the Committee’s decision on monetary policy.

What We Learned

The FOMC decided to raise the Federal Funds Target Rate (fed funds) by 75 basis points (bps). The target band now stands at 1.5-1.75%. This move is higher than had been anticipated by market participants prior to last week, although telegraphed indirectly following the most recent CPI data release.

- The market now reflects a high probability of an additional 75 bps increase at the next meeting (July 27) and 50 bps at the following meeting (September 21).

- The market currently anticipates a fed funds range of 3.25-3.5% at year end, with an additional 25-50 bps of hikes priced into early 2023.

- Beginning this month, the balance sheet will run down over a phased in period and max out at a monthly cap in September of $60 billion of U.S. Treasury securities and $35 billion of agency mortgage-backed securities.

In the statement released, the FOMC “anticipates that ongoing increases in the target range will be appropriate,” and the committee is “strongly committed to returning inflation to its 2% objective.”

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