Economy · June 24, 2022

United States Monetary Policy June 2022

At its June 14-15 meeting, the Federal Open Market Committee (FOMC) decided to raise the target range for the Federal Funds Rate by 75 basis points to 1.50-1.75%, the first 75 basis point increase. basis points since the 1990s. The Fed also said it would continue to reduce the size of its balance sheet.

The Fed’s decision to hike rates so aggressively was driven by a desire to tame inflation, which resumed an uptrend in May after a brief lull in April. Rising international commodity prices and an extremely tight domestic labor market have fueled price pressures recently, with the strong economy providing room for the Fed to rally.

Looking ahead, the Fed reiterated that “continued increases in the target range will be appropriate”. According to the Fed’s own projections, the official rate will rise to 3.1–3.6% by the end of 2022, in line with our speakers’ forecasts.

On the outlook, Goldman Sachs analysts said:

“While there is more than one way to get there, we believe the most likely path is our forecast of another 75bp hike in July, a 50bp hike in September, and 25bp hikes in both November and November. in December”.

On the economic impact of rate hikes, ANZ analysts said:

“The quick move into the FFR [..] from the zero lower bound in March is the most aggressive start of all recent tightening cycles. It is also easily the more aggressive tightening than the prevailing neutral rate. The restrictive monetary policy should lead to below-potential GDP growth and therefore to an increase in the unemployment rate “.

The next FOMC meeting is scheduled for July 26-27.