The FED Raises its Benchmark Federal Funds Rate

The Federal Reserve approved an increase to the benchmark federal funds rate by a quarter percentage point to a range between 0.25% and 0.5%, the first rate increase since 2018.

The combination of higher inflation with slower growth poses a dilemma for the Federal Reserve. With this hike, the Fed signaled greater concern that higher inflation might persist due to a tight job market with record job openings and wages up at their fastest pace in years.?On balance, we think slower growth is not necessarily a problem as long as it remains near its long-run potential of 2% or so, particularly at a time when the labor market is near or at full employment.?

We expect a series of rate hikes taking place over the coming months. With the economy showing no signs of ebbing and inflation at multi-decade highs, there is considerable pressure on the Fed to get rates up to a level that can break the current inflation trend.?The Fed now expects to lift the rate at each of the six remaining meetings in 2022 reaching nearly 2% by the end of the year.