Fed “Wordsmithing” and a 0.75 Percentage Point Hike, Largest Increase Since 1994

by Mish Shedlock, Mish Talk:

The Fed chose to hike its base rate by three quarters of a point to a range of 1.50 to 1.75 percent. This is the biggest jump since 1994.

GDP projection chart from Fed’s FOMC material on June 15, 2022.

FOMC Statement 

Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.

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The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent and anticipates that ongoing increases in the target range will be appropriate.

In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments

Statements above are excerpts from the Federal Reserve Press Release.

Largest Hike Since 1994

The hike today was the largest since 1994 and the biggest percentage increase  in history.

The Fed went from 0.75 to 1.00 percent to 1.50 to 1.75 percent, doubling the low end of the range in one big leap.

Dot Plot Projections

FOMC Rate Hike Projections

FOMC Rate Hike Projections

Dot Plot Notes

  • Each member of the FOMC projects where they think interest rates will be looking ahead.
  • For December 2022, the median projection is 3.25 to 3.50 percent.
  • The median expectation for 2023 is just one additional hike to 3.50 to 3.75 percent.

Color Me Skeptical 

Color me totally skeptical the Fed gets to those targets.

Why?

The opening paragraph is questionable at best: “Overall economic activity appears to have picked up after edging down in the first quarter.

Fed Wordsmithing

Bear in mind the Fed had to say what it did to justify it’s 0.75 point hike. Otherwise it would be admitting it was hiking into a recession.

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