The Federal Reserve raised the Fed Funds Rate 3/4 point at the conclusion of their FOMC meeting today. The rate will now be a target range of 2.25% to 2.50% effective tomorrow. They also anticipate raising the Fed Fund Rate more in the future.
Banks are expected to raise the Prime Rate to 5.50% effective tomorrow.
The Federal Reserve will continue to reduce its holdings of mortgage and treasury securities according to the same plan it announced in May. This tapering of its balance sheet has been eased into over the summer, with mortgage securities it holds targeted being reduced by $17.5 billion per month and treasury securities reduction targeted at $30 billion per month. Starting in September, they expect to reduce mortgage securities by $35 billion per month and treasury securities by $60 billion per month.
As mentioned in previous articles, they don’t seem to be keeping with the plan and continue to maintain a higher balance sheet than expected. (Update: Chair Powell explained at today’s press conference that they tapered into tapering and that asset sales are “broadly on track” but “slow to get going because some of these trades take time to settle.”)
July 27, 2022
Federal Reserve issues FOMC statement
For release at 2:00 p.m. EDT
Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.
Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2-1/2 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.
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; Michael S. Barr; Michelle W. Bowman; Lael Brainard; James Bullard; Susan M. Collins; Lisa D. Cook; Esther L. George; Philip N. Jefferson; Loretta J. Mester; and Christopher J. Waller.