Here’s when to expect the first interest rate hike of 2022

The Federal Reserve is expected to raise the federal funds rate several times this year. Here’s when to expect the first raise. (iStock)

The likelihood that the Federal Reserve will hike the fed funds rate in the first few months of 2022 has risen to over 50% after the new year, as traders monitor the economy and the Fed’s reaction.

The probability of a rate hike as early as March rose to 57.6% in the first week of January, according to the CME Group FedWatch Tool. It comes as the Federal Open Market Committee (FOMC) decided at the December Fed meeting to amplifies its taper which would end the economic recovery in March.

“I think an increase in the target range for the federal funds rate will be warranted soon after we end our asset purchases,” Federal Reserve Governor Christopher Waller said after the December meeting. in a speech at the Forecasters Club of New York.

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Fed set to hike rates for the first time since 2018

At its December 2018 meeting, the Federal Reserve decided to increase the fed funds rate for the fourth time that year by 25 basis points to reach a target range of 2.25% to 2.5%. The Fed also hiked rates that year in March, June and September. December 2018 was the last time the central bank raised rates and even started cutting rates once again the following year.

In July 2019, the Fed cut rates by 25 basis points to reach a target range of 2% to 2.25%. This reduction was followed by another in September 2019. In March 2020, as the COVID-19 virus spreads, the Fed issued an emergency rate cut, lowering the fed funds rate to a target range of 1% to 1.25%. Later this month, the Fed again another emergency meeting, reducing rates to zero.

Now, exactly two years later, the Fed could start raising rates again.

“March is a live meeting for the first rate hike,” Wallace said during the question-and-answer session of his speech.

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Fed plans three rate hikes in 2022

As inflation continues to skyrocket, with the Consumer Price Index (CPI) reaching 6.8% per year in november, the Fed plans to hike its rates up to three times in the coming year. This is an effort to slow the rate of inflation, which could lead to higher interest rates.

“The Fed recently recognized that inflation is unlikely to be transitory, and will now attempt to stage a soft landing, in which inflation moderates to acceptable levels and economic growth decelerates but does not. not contract, ”said Doug Duncan, vice president of Fannie Mae. president and chief economist, said in the Economic outlook 2022. “Is the Fed capable of threading this historically difficult political needle promises to be one of the most important economic scenarios of 2022.”

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Stephen V. Lee