The Federal Reserve is expected to raise the federal funds rate several times this year. Here’s when to expect the first increase. (iStock)
The likelihood of the Federal Reserve hiking the federal funds rate in the first few months of 2022 jumped to more than 50% after the new year, as traders watch the economy and the Fed’s reaction.
The chance of a rate hike as soon as March increased to 57.6% in the first week of January, according to the CME Group’s FedWatch Tool. This comes as the Federal Open Market Committee (FOMC) decided at the Fed’s December meeting to amp up its taper schedule, which would bring the economic stimulus to an end in March.
“I believe an increase in the target range for the federal funds rate will be warranted shortly after our asset purchases end,” Federal Reserve Gov. Christopher Waller said after the December meeting in a speech to the Forecasters Club of New York.
Fed prepares to hike rates for first time since 2018
At its December 2018 meeting, the Federal Reserve elected to increase the federal funds rate for the fourth time that year by 25 basis points to a targeted range of 2.25% to 2.5%. The Fed had also raised rates that year in March, June and September. December 2018 was the last time the central bank increased rates, and even began cutting rates once again the following year.
Now, exactly two years later, the Fed could begin to raise rates once again.
“March is a live meeting for the first rate hike,” Wallace said during the question and answer session of his speech.
Fed eyes three rate hikes in 2022
As inflation continues to soar, with the Consumer Price Index (CPI) hitting 6.8% annually in November, the Fed is considering raising rates up to three times in the year ahead. This is in an effort to slow down the rate of inflation, which could lead to interest rate increases.
“The Fed recently acknowledged that inflation is unlikely to be transitory, and it will now attempt to engineer a soft landing, one in which inflation moderates to acceptable levels and economic growth decelerates but doesn’t contract,” Doug Duncan, Fannie Mae senior vice president and chief economist, said in the company’s 2022 economic outlook. “Whether the Fed is able to thread this historically difficult policy needle is shaping up to be one of the most consequential economic storylines of 2022.”