Here’s everything the Fed is expected to announce, including the biggest rate hike in 28 years

CNBC ^ | June 15, 2022 | Jeff Cox

[John W]

The Federal Reserve on Wednesday is expected to do something it hasn’t done in 28 years — increase interest rates by three quarters of a percentage point.

In response to soaring inflation and volatile financial markets, the central bank will hike the rate that banks charge each other for overnight borrowing to a range of 1.5%-1.75%, where it hasn’t been since before the pandemic crisis began.

That rate feeds through to consumer borrowing, impacting virtually all adjustable-rate products such as credit cards and home equity loans.

Along with the rate increase, here’s a quick look at what the Fed also likely will do:

Adjust its future outlook for interest rates via its “dot plot” of individual members’ expectations.

Update its outlook for gross domestic product, inflation and unemployment. Economists figure the Fed will decrease its expectations for GDP this year while raising forecasts for inflation and the unemployment rate.

Change the language in its post-meeting statement to reflect current conditions, namely that inflation is running at a faster pace than anticipated, requiring more aggressive actions to contain price increases running at their fastest level since December 1981.

Goldman Sachs said new language in the statement could indicate that the rate-setting Federal Open Market Committee “anticipates that raising the target range expeditiously will be appropriate until it sees clear and convincing evidence that inflation is moderating,” implying a high bar for reverting to [25 basis point] hikes.”

[Repealthe17thAmendment]

I believe they intend to reduce their balance sheet by as much as $95B per month until they drop about $1.5 Trillion.

Starting on Wednesday, the Fed will begin reducing its holdings of Treasury securities, agency debt, and agency mortgage-backed securities by a combined $47.5 billion per month for the first three months. After this, the total amount to be reduced goes up to $95 billion a month, with policy makers prepared to adjust their approach as the economy and financial markets evolve.

The reduction will occur as maturing securities roll off the Fed’s portfolio and proceeds are no longer reinvested. As of September, the rolloffs will be occurring at “a substantially faster and more aggressive” pace than the process which started in 2017, according to the Wells Fargo Investment Institute.

By the institute’s calculations, the Fed’s balance sheet could shrink by almost $1.5 trillion by the end of 2023, taking it down to around $7.5 trillion. And if QT continues as expected, “this $1.5 trillion reduction in the balance sheet could be equivalent to another 75 – 100 basis points of tightening,” at a time when the fed-funds rate is expected to be around 3.25% to 3.5%, the institute said.

Fed to begin quantitative tightening: What that means for financial markets