No Curveballs Or Surprises In Fed’s March Meeting
March 16, 2022—For the first time in three years, the U.S. Federal Reserve raised its Fed Funds Rate. The 0.25 percent change is the minimal increase it could take. Moreover, it comes as no surprise to the public or to financial markets, That’s because the Fed previously announced its plans to begin increasing rates.
Since the U.S. economy emerged from the pandemic with strong growth, many analysts criticized the Fed for moving too slow to raise rates as the U.S. prices rose. As the economy reopened from the pandemic, the inflation rate increased steadily to nearly 8 percent a year.
“The time for rate increases has clearly come,” Fed Chair Jerome Powell said in his video meeting with reporters today. “We have to restore price stability.”
Inflation Climbing Higher
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”
-Federal Reserve policy statement on March 16, 2022
Part of the rise in prices is due to geopolitical events and supply bottlenecks. Moreover, the rise in commodity prices contributes to increases in consumer prices in general.
But one area where the Fed’s policies have a significant impact is housing. And those prices continue to soar. Rents, in particular, are climbing at an annualized adjusted rate of 4.2 percent, according to the Bureau of Labor Statistics.
Rate Increases
So today the U.S. Central Bank started raising its Fed Funds rate. That began with a very modest quarter of a percentage point. But Powell said he anticipates the Fed raising it up to a total of 1.9 percent by the end of the year. Furthermore, he said the Federal Reserve Board would use its tools to move interest rates to “neutral levels” and beyond if needed.
U.S. Economy Still Strong
Powell also noted the following:
- The U.S. economy is growing at a rate of 2.9 percent this year.
- The labor market is “extremely tight” with an unemployment rate of 3.8 percent.
- Inflation: “Remains well above” our 2 percent target.
Economic Effects of Russia’s Invasion
The one new thing that came from today’s meeting is a brief analysis of the economic impact of Russia’s invasion of Ukraine. According to Powell, these include:
- An uptick, or slight upward change, in the U.S. inflation rate.
- Higher commodity prices.
- More “tangled” supply chains as a result on sanctions on Russian exports.
- And a “highly uncertain environment.
Despite the uncertainty, things at the U.S. central bank appear to be getting back to normal.
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