The Dot Plot for March 2022 shows the median rate at the end of 2022 at 1.9% vs 0.9% in December. That is seven hikes in 2022 which is congruent with the market but above expectations from the Fed.
In 2023 the expectations are for 2.8% vs 1.6% median (and 11 of 18 at 1.9%) in December.. They also see 2.8% in 2024.
The Dot Plot in December showed:
The table of the central tendencies from March 2022 now shows:
Indicators of economic activity and employment have continued to strengthen. Job gains have been strong in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.
The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Esther L. George; Patrick Harker; Loretta J. Mester; and Christopher J. Waller. Voting against this action was James Bullard, who preferred at this meeting to raise the target range for the federal funds rate by 0.5 percentage point to 1/2 to 3/4 percent. Patrick Harker voted as an alternate member at this meeting.
The drop in Russian exports and demand if offset somewhat by slowing economies, with the lockdowns in China definitely not helping with the outlook either. It is going to take a few months for the oil market to sort itself out and for traders to get a grip on the geopolitical situation, so headline risks are still going to be key during the interim.
That will consequently also make it tougher than it already is for central banks to gauge the inflation outlook, with elevated energy prices proving to be a massive thorn in the side.
This relates to the earlier report here. It looks like geopolitical tensions are back on the menu when it comes to North Korea but it shouldn’t be of much significance unless things escalate dramatically.
1. The Dots: … The median projections only began to anticipate rate hikes years down the road starting in December 2020 and have since been progressively brought forward and raised… Markets will pay keen attention to how much higher they go and how much sooner. The common expectation is that the FOMC will tread carefully and maybe add a couple more hikes to this year, but the risk could very well slant toward both higher and earlier than previously anticipated.
2. Projections: … For some time now there have been more and more FOMC members getting increasingly worried about upside risk to inflation … and they are likely to further translate such concerns into a material upgrade of inflation forecasts at this meeting. Projections regarding how high and for how long on inflation plus how long and how durably they foresee lower unemployment will help to inform the committee’s stance.
3. Press conference: Chair Powell has freer rein to guide the direction of risks on important matters such as pace and level of rate hikes over time, as well as revealing further colour on the committee’s discussions around roll-off caps that would inform expectations for how quickly they may shrink the SOMA portfolio of Treasury and MBS holdings. To date he has said that the nature of the pandemic versus the aftermath of the Global Financial Crisis merits shrinking the balance sheet more rapidly. Watch for reference to how rapidly
