FOMC hikes rates, but end of tightening cycle coming into view

Summary

• The FOMC raised its target range for the federal funds rate by 25 bps at today's policy meeting. Fed policymakers have raised rates by 475 bps over the course of the past 12 months, the fastest pace of tightening since the early 1980s.

• The FOMC continues to have a relatively upbeat assessment of the current state of the economy. That said, it noted that "recent developments are likely to result in tighter credit conditions." This credit tightening likely will "weigh on economic activity," although "the extent of these effects is uncertain."

• Previously, the FOMC thought that "ongoing increases" in the fed funds rate would be needed to bring inflation back to the Committee's 2% target. Now the FOMC thinks that "some additional policy firming may be appropriate." In short, it appears that the end of the current tightening cycle is coming into view.

• The median 2023 dot in the "dot plot" lies between 5.00% and 5.25%, which is only 25 bps higher than the current target range for the federal funds rate. We look for the FOMC to hike rates by 25 bps at its May 3 before going on an extended pause in future meetings in 2023.