by Calculated Risk on 3/13/2022 10:11:00 AM
Expectations are the FOMC will announce a 25bps rate hike at the meeting this week. In addition, the FOMC will hint at balance sheet reduction (runoff of assets / not reinvesting) and indicate further rate hikes at upcoming meetings.
meeting with a 25bp increase in the fed funds target range to 0.25-0.50%. In addition,
the Fed is likely to release an addendum to their “Principles for Reducing the Size of the
Federal Reserve’s Balance Sheet”, with specifics on caps for the unwinding of their
holdings of Treasuries and agency securities. This will provide a strong signal that the
Fed is ready to commence Quantitative Tightening (QT) as early as the following
meeting in May …These actions would be in line with Chair Powell’s messaging at the
semi-annual monetary policy testimony in early March, in which he explicitly stated that
he would propose and support a 25bp hike and that he expects the Committee to set the
pace of balance sheet runoff at the next meeting.”
From Goldman last month:
And from Merrill:
Wall Street forecasts are for GDP to barely increase in Q1 2022, and to be in the 2% to 3% range for 2022. This is a sharp reduction in Wall Street growth forecasts, and the FOMC will probably lower their 2022 forecast down to 3% or so.
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.
The unemployment rate was at 3.8% in February. There will likely be a slight reduction in the unemployment rate forecast for Q4 2022.
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.
As of January 2022, PCE inflation was up 6.1% from January 2021. It seems like the FOMC will revise up their inflation projections for 2022.
PCE core inflation was up 5.2% in January year-over-year.