Fed Statement Side-by-Side: https://file.ac/QLp-SuA66f8/

Fed raises interest rates by 0.50%, bringing the Fed Funds Rate range to 0.75-1.00%. The market is pricing in a year-end range of 2.75%-3.00%.

At its meeting today the FOMC voted unanimously to raise the Federal Funds rate to 0.75-1.00%.

We also received clarity on the pace of quantitative tightening. Beginning June 1, the Fed will allow $47.5bn to roll off the balance sheet. This amount will increase over 3 months to $95bn per month, at which point QT will be capped at $95bn per month.

Messaging at the press conference:

At the press conference, Chair Powell was quick to note that inflation is too high and that it is causing challenges for many American families.

Both the statement and the press conference noted the Russia/Ukraine conflict and COVID lockdowns in China as contributing to inflationary pressures.

The Fed noted the additional 0.50% rate increases should be on the table for the next couple of meetings.

It was noted that making policy during this highly uncertain environment requires nimbleness and responsiveness to incoming data.

Market reaction:
The market gained slightly upon the release of the statement, drifted lower, then increased moderately during the press conference.

Bond yields drifted lower upon the release, popped higher at the start of the commentary, and then fell throughout press conference.
The dollar weakened slightly during the press conference. Gold fell. Oil is up today, but largely due to news out of Europe, not the Fed.


Prev. Close Open 2pm 2:45pm % change Prev Close % change Open % change 2pm-2:45pm
S&P 500 $    4,175.48  $        4,181.18  $        4,198.81  $           4,213.72 0.92% 0.78% 0.36%
Dow Jones Industrial Average $ 33,128.79  $     33,171.80  $     33,304.42 33456.48 0.99% 0.86% 0.46%
Nasdaq $ 12,563.76  $     12,574.73  $     12,618.52 12627.99 0.51% 0.42% 0.08%
10 Year Treasury Rate (%) 2.96% 3.00% 2.95% 2.98% 0.02% -0.02% 0.03%
US Dollar $       103.47  $           103.46  $           103.23  $               102.99 -0.46% -0.45% -0.23%
Gold $    1,867.79  $        1,867.78  $        1,872.89  $           1,875.28 0.40% 0.40% 0.13%
Oil $       102.41  $           103.50  $           107.88  $               108.16 5.61% 4.50% 0.26%

Our takeaways:
The outlook for inflation and the economy remains highly uncertain and dependent on many factors outside of the Fed’s control (Russia/Ukraine, China lockdowns, etc.).
Once again, the market priced in this policy action in advance of the meeting today.

The market reaction today has been generally positive for both stocks and bonds, so far.

In Q&A, Chair Powell noted that 0.50% rate increases are on the table for the next few meetings, but that 0.75% rate increases haven’t been contemplated by the Fed.

Overall, policy rates will indeed be moving higher, but may already be priced into the markets.

The market is pricing in a 3.00% policy rate for the end of the year. That was mostly unchanged today. The Fed communicated a year-end rate target of 2.00% at its meeting in March. This divergence allows the Fed to hike faster-than-previously-communicated without generating additional hawkish surprises.