APRIL 11, 2022 – THE FED IS POISED TO RAISE RATES 0.5 PERCENT
Investors are anticipating a half percentage point increase in rates at the Fed’s May 3-4 meeting and at the following meeting in June. They are prepared to start shrinking their asset portfolio as soon as the May meeting. The Fed bought nearly $1.5 trillion in government debt in March and April 2020 to stop a further financial meltdown, then bought $120 billion a month in treasuries and mortgage-backed securities to provide more economic stimulus to the economy.
The Fed started reducing asset purchases in the fall and stopped completely a month ago. They have agreed to allow a fixed amount of securities to run off their portfolio every month without being reinvested. Fed Chair Powell stated the runoff would be equivalent to another quarter-percentage point increase this year.
Some economists are anticipating the Fed’s strong response will bring on a recession in the next 12 months, but the majority are still expecting a “soft landing”, with the Fed reining in inflation without triggering a recession. Economists have reduced their growth forecast for this year with GDP rising 2.6 percent in Q4 year-over-year, down one-percent from their predictions 6 months ago. Expectations are for interest rates to rise to 2.125% by the end of 2022 and 2.875% by the end of 2023.