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News & Views

Provided by the Investment Professionals of Frost Investment Advisors | March 21 , 2022

Fed Joins the Global Tightening Wave

Fed Raises Benchmark Rate 25 bps, Forecasts Six More Rate Hikes in 2022

The Fed raised its benchmark interest rate by 25 basis points last week, the first increase since 2018. The Fed’s Summary of Economic Projections shed some light on the expected future path of rates and the economy, implying six more rate hikes and inflation over 4% for 2022, both significant increases over earlier estimates. The chart below (called the dot plot) shows where the various members of the FOMC expect rates to be. The members have moved their projected median rate (green line) to 1.9 for the end of 2022 and to 2.8 for the end of 2023. They are also projecting the same rate for the end of 2024, indicating that they currently expect rate hikes will end in 2023. These forecasts are higher than the Fed’s expected long-run rate, suggesting that the 2.8 rate is expected to be temporary.

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