Fed Delivers Liftoff, Signals Seven 2022 Hikes

The Fed raised rates by 25bps and signaled seven hikes for 2022 following March's policy meeting. Jim Bullard dissented in favor of a 50bps move. "Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures," the new statement said, of the highest US inflation in a generation. The new dots suggested policy will eventually move into restrictive territory, a view not necessarily shared by all market participants. S

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16 thoughts on “Fed Delivers Liftoff, Signals Seven 2022 Hikes

  1. “The Committee has rapidly coalesced around getting rates to a more neutral setting soon,….”

    Do we know what level is a more neutral setting? Or is ANY move in that direction considered a more neutral setting?

  2. That won’t be a smooth journey, and the economy could well fall into a technical recession along the way. That’s what happens when you wait too long to embark.

    That said, two things are straightforward. First, rates need to rise. Irrespective of whether monetary policy can actually do much to address the shortages and myriad supply-side frictions pushing prices higher, keeping rates at zero and flooding the system with liquidity when inflation is the hottest in 40 years and nominal growth is (or at least was) elevated, is nonsensical. If that’s an appropriate approach to policy, then everything we’ve ever professed to know about economics is wrong.

    Three sentences after saying that raising rates could likely cause a recession, you say to keep rates low would be nonsensical “because it would mean everything we know about economics is wrong.” That’s some serious cognitive dissonance. I’m not trying to make this a personal attack, I appreciate your analysis and I know this is an opinion shared by lots of respectable folks, but listen to what you’re saying. “It’ll probably cause a recession, but to do otherwise would mean admitting we’ve been wrong for a long time.” WTF, man?

    Second, the Fed’s credibility is in jeopardy, and not necessarily because their forecasts were disastrously wrong or even because their best efforts to rein in inflation might ultimately come to nothing considering the nature of the problem. Rather, their credibility is in jeopardy because until Wednesday, they hadn’t taken any meaningful action in pursuit of their price stability mandate despite publicly recognizing the severity of the inflation problem.

    Why isn’t their credibility in jeopardy for doing the same thing they always do, to predictable results? Are we seriously supposed to applaud the Fed for “taking action” that you (and most, I imagine) are predicting will lead to a recession? I mean, look at the Fed’s refusal to talk about the more arcane aspect of a runoff — near silence! The Fed itself knows this is a fool’s errand. So when we talk about “credibility,” do we really mean we don’t want the general public to take a peak behind the curtain? Much like the Supreme Court, this is all about optics? Can’t let people know that the court doesn’t actually just call balls and strikes; can’t let the general public know that monetary policy is mostly inept without adequate fiscal policy. This is all just pure showmanship.

    1. The slower they go the more permanent the inflation the faster the dollar ceases to be the reserve currency.

      Powell is saying one thing and doing another. Haven’t we learned yet that you judge people by what they do and not by what they say? This guy is going to hand the Republicans the keys to every level of government.

  3. No surprises in FOMC today. Curve inversion imminent. Fed under unrelenting pressure, Ukraine not a hall pass. No FOMC meeting in April. Is today’s 25bp all the inflation-fighting action they plan to deliver for the next two months? That might look like dereliction. The commodities pullback is likely to be offset by worsening supply chain disruption, surging services demand, and roaring shelter prices. I’m thinking an intra-meeting hike and/or 50 bp in May, and that if QT doesn’t include targeted sales, it will at least include targeted reinvestment and/or coordination with Treasury on issuance.

    1. Yes. Come May it will be Since about 5 months since the fed acknowledged the “problem. In those intervening 5 months they will have delivered 25 basis points of hikes and a balance sheet that’s larger than it was when they removed transitory from their language.

      0 credibility. Cancel the fed.

    2. At this point, Powell has only been approved by the Senate Banking Committee- he has not been confirmed for his second term. I believe his words and his actions will tilt towards appeasing Biden/Congress until the confirmation process is finalized.

  4. I was interested to see the comment section here almost as much as the article. What Powell said was entirely reasonable. They will raise rates to meet their dual mandate- and will be flexible. Inflation has persisted so they will continue to raise rates as necessary. Personally I doubt that they are going to have to raise rates 7 times. A look at the yield curve will tell you that the market is in agreement here despite many commentators critiques. The 2 year is now almost 2% and 10s are only about 20 bps higher. If the Fed goes 6 more times you will almost certainly have a whopper of an inversion. A look at the value of the dollar, or the recent price action in energy and some commodities are a clue that all that is not as it appears. When markets turn they turn fast. Performance of energy stocks is almost always a late cycle event. We have all gotten used to long economic cycles, but this time around my bet is that the cycle is going to come to an end a lot shorter than we have become accustomed to….(2023…)

  5. Central Banks, CB apologists and MMT folk pushing the boundaries of irrationality to a whole new level.

    The current situation has been 15 years in the making. Consistent warning signs all over the economy and financial markets pointing towards the obvious, yet here we are.

NEWSROOM crewneck & prints