FOMC meeting update

Gary Pzegeo, CFA

May 05, 2022

The Federal Reserve raised interest rates by 0.50%. Read on to learn about current conditions, forward guidance and market reaction.

The Federal Reserve raised interest rates by 0.50% and announced the beginning of its balance sheet reduction program.  The rate increase was largely expected by markets given the Fed’s recognition of inflation risks over the last several months.

Current Conditions – The Fed noted continued strength in household spending and business fixed investment despite a reduction in headline growth in the recently released GDP report.  Chairman Powell repeated his characterization of the US labor market as “extremely tight” and inflation as “much too high”.  Powell noted the FOMC’s sensitivity to price increases and the hardships caused by inflation.

Forward Guidance – The FOMC repeated its expectation that ongoing increases in the policy rate would be appropriate.  Powell noted that they would like to get to more normal levels expeditiously, but an increase of 0.75% was not under active consideration.  Consensus on the FOMC is for further increases in increments of 0.50%. 

Policy/Market Reaction – An increase in the Fed’s target range to 0.75% to 1.00% was discounted in short-term rates and market reactions were muted following the release.  Balance sheet reduction details were marginally less aggressive than expected and the Chairman’s elimination of a 0.75% hike from potential outcomes drove short-term yields lower and supported a rally in riskier assets.  Quantitative tightening will begin on June 1 with 3 monthly reductions capped at $47.5 billion followed by an increase in the monthly cap to $95 billion. 


Gary Pzegeo is a managing director for CIBC Private Wealth, US, with more than 25 years of industry experience. He joined the firm in 2007 as head of fixed income, focusing on portfolio management, trading, policy formulation and client service.