WASHINGTON — On March 16, 2022, after more than three years parked near zero, the Federal Reserve finally moved. Four years on, that Wednesday afternoon reads as day one of the long fight against the pandemic-era inflation surge: a quarter-point hike, the first since December 2018, delivered with an unusually blunt map of what was meant to follow.
The scene that day was one part ceremony, one part confession. The Federal Open Market Committee raised its benchmark a quarter point (25 basis points), taking the target range to 0.25%-0.5%, and penciled in a hike at every one of 2022’s six remaining meetings, with the dots converging on a 1.9% funds rate by year’s end — a full percentage point above what members had indicated just three months earlier. Three more hikes were projected for 2023, then none the year after.
The vote carried one dissent: James Bullard, the St. Louis Fed president, wanted twice the size, a 50 basis point move. The day’s internal tally showed how contested the pace was, with eight members expecting more than seven hikes in 2022 and 10 judging seven enough.
The statement itself was unambiguous about the road ahead, saying the committee “anticipates that ongoing increases in the target range will be appropriate” and that “In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.”
At his news conference afterward, Chair Jerome Powell hinted the balance-sheet runoff could start as soon as May and framed it as the equivalent of another rate hike by itself. The nearly $9 trillion portfolio of Treasurys and mortgage-backed securities, built over years of purchases, had become a second front. We are attentive to the risks of further upward pressure on inflation and inflation expectations, Powell said. The committee is determined to take the measures necessary to restore price stability. The U.S. economy is very strong and well-positioned to handle tighter monetary policy.
Behind the tightening sat a price problem the Fed had spent a year calling “transitory” before capitulating. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the statement acknowledged. CPI inflation was running at 7.9% year over year, then the fastest 12-month pace in four decades: gasoline up 38%, airline fares 12.7%, clothing 6.6%, motor vehicle repair 6.3%, shelter costs 4.8% and climbing. The Fed’s own preferred gauge was marked up sharply, with core PCE projected at 4.1% for 2022 against 2.7% forecast in December 2021. Officials simultaneously cut their 2022 GDP outlook from 4% to 2.8%.
The world intruded, too. “The invasion of Ukraine by Russia is causing tremendous human and economic hardship,” the statement said, adding: “The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”
Markets had priced roughly seven quarter-point hikes for the year and were split 50-50 on a half-point move in May; the 10-year Treasury touched 2.22% on the news before receding. “Ultimately, they’ve come through with a clear message, that the Fed has a path forward to continue to tighten in response to this overwhelming concern around inflation,” said Plante Moran Financial Advisors chief investment officer Jim Baird.
What that day settled, in hindsight: the admission itself. After $10 trillion in pandemic-era stimulus, 22 million jobs lost in the shutdown’s first weeks and supply chains still clogged, the central bank that had spent 2021 expecting the problem to fade chose, on the record, to fight it.
