Fed hikes rates for first time since 2018, expects six more hikes this year

At 11 a.m. ET on Wednesday, the US Federal Open Market Committee (FOMC) released its monetary policy statement, and the Fed raised its benchmark interest rate by 25 basis points to a range of 0.25%-0.50%, the first rate hike since December 2018. Federal Reserve Chairman Jerome Powell held a news conference after the meeting, and the newsroom compiled the meeting and Powell's speech points.

In addition to this rate hike, the committee also expects six more rate hikes this year to fight inflation, and three more in 2023, far exceeding consensus expectations. Only one person disagreed with this rate hike, with St. Louis Fed President James Bullard wanting a 50 basis point hike.

Fed raises rates for first time in three years

The Fed raised its benchmark interest rate by 25 basis points to a range of 0.25%-0.50%, the first rate hike since December 2018. The Fed signaled growing concerns about inflationary pressures and expects a continued upward revision of the target range to be appropriate. Inflation has been high due to "broader price pressures," and the war in Ukraine and "related events may create additional upward pressure on inflation," an FOMC statement released Wednesday said.

Fed officials see inflation and economic growth in 2022 lower than in December, according to new economic forecasts released by the Federal Open Market Committee on Wednesday. The Fed now expects personal consumption expenditures (PCE) inflation to come in at 4.3% in 2022, up from 2.6% in December, before falling to 2.7% in 2023 and 2.3% in 2024, but also higher than the December forecast. For economic growth, the Fed now expects 2.8% GDP growth in 2022, down from its previous forecast of 4.0%.

In its post-meeting statement, the FOMC said that in response to the Fed's nearly $9 trillion balance sheet, "the Committee expects to begin reducing its holdings of Treasuries, agency debt, and agency mortgage-backed securities at its upcoming meeting." Fed Chair Jeroy Powell said at a post-meeting news conference that the balance sheet reduction could begin in May, a process that could amount to another rate hike this year.

"We are concerned about the risk of further upward pressure on inflation and inflation expectations," Powell said at a news conference. "The Committee is determined to take the necessary steps to restore price stability. The U.S. economy is very strong and well positioned to respond to tighter monetary policy."

"Inflation remains high, reflecting supply-demand imbalances related to the pandemic, higher energy prices, and broader price pressures," the statement said.

The committee still expects the unemployment rate to hit 3.5% by the end of the year. The statement said that the Russian-Ukrainian war is causing enormous human and economic difficulties. The impact on the U.S. economy is highly uncertain, but in the short term, the invasion and related events could put additional upward pressure on inflation and weigh on economic activity.

Powell speech points

1. The Fed will announce balance sheet shrinkage at future policy meetings

Federal Reserve Chairman Jerome Powell said in a news conference after Wednesday's meeting on interest rates that the central bank will begin reducing its asset holdings on its nearly $9 trillion balance sheet at future policy meetings: The meeting announced the beginning of the reduction of the balance sheet ... In making decisions about interest rates and the balance sheet, we will focus on the broader context of the market and the economy, and we will use our tools to support financial and macroeconomic stability."

2. The Fed generally sees inflation risks 'biased to the upside'

Powell said acknowledging the sharp rise in Fed officials' inflation expectations, saying "inflation may take longer than previously expected to return to our price stability goal." "Participants continue to see risks as inflation skews to the upside," Powell added.

3. The probability of a recession is not 'particularly high'

Powell said that despite multiple market watchers seeing risks to the U.S. economy, including a sharp spike in inflation, Powell still sees a low chance of a recession. "The odds of a recession next year are not particularly high, and aggregate demand is strong right now, and most forecasters expect it to remain so...all signs point to a strong [U.S.] Economy"