Mid-Week Market Minute 09.21.22

Federal Reserve Enacts Another 0.75% Interest-Rate Increase

Stocks seesawed this week as investors anxiously awaited the conclusion of the Federal Reserve’s meeting on Wednesday. Against the backdrop of persistently high inflation, the Federal Reserve enacted its third consecutive 0.75% interest rate increase on Wednesday. With the benchmark overnight borrowing rate now up to a range of 3.0%-3.25%, recent hikes represent the largest consecutive moves since the Fed began to rely on the overnight funds rate as a primary monetary policy tool in the early 1990’s.

Bond yields moved higher on the week with the 2-year Treasury yield reaching 4% for the first time since 2007. Markets remain focused in on longer-term projections, paying close attention to the terminal Fed funds’ rate last projected in June to hit 3.8% in 2023. The terminal rate is the level where the central bank will take rates before it ultimately stops tightening. Following today’s meeting, forecasts now are anticipating a terminal rate of 4.6% in 2023. The federal funds rate projected for the end of this year signals total rate hikes of another 1.25% to come in the Fed's two remaining policy meetings in 2022, a level that implies another 75-basis-point hike at the next meeting in November.

In their quarterly updates of estimates for rates and economic data, officials project the economy slowing to a crawl in 2022, with year-end growth at 0.2%, rising to 1.2% in 2023. The unemployment rate is projected to rise to 3.8% this year and 4.4% in 2023, while inflation is seen slowly returning to the Fed's 2% target in 2025.

Source: GSAM, CNBC, JPMorgan

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