FOMC Meets: Higher for Longer

The Federal Open Market Committee (FOMC) met on September 21, 2022, for the sixth time this year to assess the state of the U.S. economy and 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 3.00-3.25%. Like the July FOMC meeting, this move had been largely anticipated, although following yet another stronger than expected CPI release some market participants leaned toward a 100 bps increase.

- The market now reflects a high probability of another 75 bps increase at the next meeting (November 2) and another 50 bps for the final FOMC meeting of 2022 (December 14).

- The market currently anticipates a fed funds range of 4.25-4.50% at year end, with the peak fed funds rate between 4.5%-4.75% in early 2023.

- The Fed is now normalizing its balance sheet via Quantitative Tightening (QT) at the previously stated maximum monthly cap of $60 billion of U.S. Treasury securities and $35 billion of agency mortgage-backed securities. QT reduces excess money supply and excess market liquidity.

Following the hawkish message presented at the Jackson Hole Symposium, Chair Powell maintained this policy stance today. From Chair Powell’s press conference statement, “The FOMC is aware inflation imposes significant hardship. We are strongly committed to bringing inflation to the 2% goal. The main message has not changed at all since Jackson Hole. The Fed will keep at it until it feels the job is done.”

The release of the Fed’s “Dot Plot” conveys a similar message. The median projection for the fed funds rate in 2023 is now projected to be 4.625%, up from the 3.75% June forecast.

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