As the market expected, under the pressure of high inflation, the Fed began to raise interest rates for the first time in more than three years.

On Wednesday, march 16, us eastern time, the fed announced after its meeting that the committee of the fed's monetary policy committee FOMC had voted to raise the target range of the policy rate, the federal funds rate, by 25 basis points to 0.25 to 0.5 per cent. This time, a member of the FOMC committee voted against the decision, while Brad, chairman of the St. Louis Federal Reserve, advocated a 50 basis point increase in interest rates. This is the first time in a year and a half that the Fed has voted against a resolution. In the statement of the resolution, the Fed shifted its attention from the epidemic to the situation in Russia and Ukraine, deleted all economic comments related to the epidemic, and increased the impact of the situation in Russia and Ukraine on the economy and inflation.

The timing and extent of the interest rate hike are in line with market expectations. Powell, chairman of the Federal Reserve, made it clear at a congressional hearing last week that he would propose to raise interest rates by 25 basis points this month and be open to a series of subsequent rate increases. A day before the Fed's decision, an analysis on the front page of the Wall Street Journal on Tuesday said that several FOMC members may predict that all seven meetings from March to December this year will raise interest rates.

This is the first time that the Fed has raised interest rates since December 2018. After the meeting, the Fed predicted that the action would start the process of raising interest rates several times this year, and hinted that the next meeting in May at the earliest would begin to reduce the size of the balance sheet. At this meeting, Fed policy makers are generally expected to raise interest rates more aggressively than they did in December, and most Fed policy makers expect the Fed to raise interest rates a total of six times in the remaining six meetings after March. Another three interest rates are likely to be raised next year.

75% of officials expect to raise interest rates six times this year, if there are seven increases this year, nearly 70% of officials expect to raise interest rates three times next year.

The bitmap of Fed officials' expectations for future interest rates released after the meeting showed that Fed policy makers' forecasts for a rate rise were more aggressive than the last bitmap released in December.

Based on a 25 basis point increase in interest rates, all Fed officials expect interest rates to rise at least four times this year, in addition to this month, because all 16 officials who provide expectations expect interest rates to exceed 1.25% this year. Except one, the other 15 officials expect interest rates to exceed 1.5% this year, and a total of 12 people expect interest rates to exceed 1.75% this year, that is, the total number of people.75% of officials expect to raise interest rates six times this year.A total of seven people expect interest rates to exceed 2% this year.More than 40% of officials expect interest rates to rise seven more times this year.Last time, 12 people expected the interest rate to be above 0.75 this year, that is,2/3 of officials will raise interest rates three times this year.

The bitmap also shows that a total of 11 of the 16 officials, accounting for nearly 70% of the officials, expect interest rates to exceed 2.5% in 2023. This means that if interest rates are raised seven times this year and rise to 1.75 per cent at the end of the year, most officials expect three more increases next year.

The Fed also announced that the median interest rate expectations for Fed officials this year and next are 1.9% and 2.8% respectively, up 1.0 and 1.2 percentage points from the 0.9% and 1.6% expected last December, respectively, and the median expected interest rate for 2024 is 2.8%. 0.7 percentage points higher than in December. Judging from the median expected interest rate, interest rates will be raised more than seven times this year and more than three times next year.

Revise the forward guidance again and it is suitable to continue to raise interest rates in the future.

In its interest rate guidance at the last meeting, the fed said that given inflation well above the fed's long-term target of 2% and a strong labor market, FOMC expects it will soon be appropriate to raise interest rates. The statement of the meeting continued to revise this forward-looking guidance, saying

With an appropriately firm [tightened] monetary policy stance, the FOMC committee expects inflation to return to its long-term 2 per cent inflation target and that the labour market will remain strong. "in order to support the Fed's full employment and long-term inflation targets, the FOMC decided to raise interest rates by 25 basis points this time," and expectedIt would be appropriate to continue to raise the target interest rate range.」

Or shrink the table at the beginning of the meeting in May

In the forward-looking guidelines on bond purchases, it was stated at the last meeting that by early March this year, COVID-19 's $120 billion monthly bond purchases since the QE after the outbreak of the epidemic will be over. The statement of the meeting deleted all these statements, saying

The FOMC committee expects to begin reducing its positions in Treasury securities, agency bonds and agency MBS at a coming meeting (a coming meeting).

That means the Fed is likely to start shrinking its balance sheet at its next meeting in May.

After the last meeting, the Fed announced the shrinking principle, saying that the Fed's preferred way of reducing Treasury holdings is to adjust the amount of principal received from securities held in the open market accounts of the reinvestment system (SOMA), that is, not to actively sell bonds. The revision of this principle was not mentioned after this meeting.

The new situation in Russia and Ukraine may increase the upward pressure on inflation in the near future.

Compared with the previous meeting and the statement after the monetary policy meeting in January this year, the Fed added words about the situation in Russia and Ukraine when commenting on economic-related events, saying:

Russia's actions against Ukraine "caused great" economic difficulties"there is a high degree of uncertainty about the impact on the US economy, and in the near term, the attack and related events may have created new upward pressure on inflation and may also put pressure on economic activity. "

Delete the economic comments related to the epidemic, saying that high inflation reflects rising energy prices

The statement's assessment of the economy has changed, mainly in terms of inflation and the epidemic. With regard to the COVID-19 epidemic, it was mentioned in the last statement that the economic development path continues to depend on changes in the epidemic; progress in vaccination and relief from supply constraints will support sustained growth in economic activity and employment, as well as falling inflation; risks to the economic outlook remain, including from new variants of the virus. In this statement, all these statements have been deleted.

The last statement reiterated that the imbalance between supply and demand related to the epidemic and the resumption of economic work have continued to contribute to high levels of inflation. This assessment of inflation explicitly refers to the influencing factor of rising energy prices, which is changed to:

Inflation remains high, reflecting the imbalance between supply and demand associated with the epidemic, rising energy prices and broader price pressures. "

The last statement mentioned that the industries most affected by the epidemic had improved in recent months, but were still affected by the recent surge in COVID-19 cases. This time, they deleted these remarks, reiterated that indicators of economic activity and employment continued to be strong, and reiterated that the unemployment rate had dropped significantly. It was said last time that "employment growth has been solid in recent months", but this time it has been changed to "strong employment growth in recent months." The last time it was mentioned that the financial environment is still loose, partly reflecting policy measures to support the economy and the credit flow of US households and businesses, will be deleted this time.

Lower this year's GDP expectations and raise this year's PCE inflation expectations

The updated economic outlook data released after the meeting showed that the Federal Reserve sharply lowered its GDP growth forecast for this year and sharply raised its personal consumption Expenditure Price Index (PCE) and core PCE inflation expectations for this year.

The median expected by Fed officials is:

• GDP is expected to grow 2.8 per cent in 2022, 1.2 percentage points lower than the last forecast of 4.0 per cent announced in December, and GDP growth is expected to remain unchanged at 2.2 per cent in 2023 and 2.0 per cent in 2024.

• The unemployment rate is expected to be 3.5% in both 2022 and 2023, unchanged in December, and the unemployment rate is expected to rise 0.1 percentage point to 3.6% in 2024.

• PCE inflation expectations for 2022 are 4.3 per cent, 1.7 percentage points higher than December expectations of 2.6 per cent, PCE inflation expectations for 2023 0.4 percentage points to 2.7 per cent, and PCE inflation expectations for 2024 0.2 percentage points higher to 2.3 per cent.

• Core PCE inflation expectations for 2022 are 4.1 per cent, up 1.4 percentage points from 2.7 per cent expected in December, and core PCE forecasts for 2023 and 2024 are 2.6 per cent and 2.3 per cent respectively, up 0.3 and 0.2 percentage points respectively.