After its latest rate-setting meeting ends Wednesday, the Fed will almost certainly announce that it’s raising its benchmark short-term interest rate by a half-percentage point — the sharpest rate hike since 2000.
The Fed will likely carry out another half-point rate hike at its next meeting in June and possibly at the next one after that, in July. Economists foresee still further rate hikes in the months to follow.
If, as most economists expect, the Fed this year carries out three half-point rate hikes and then follows with three quarter-point hikes, its rate would reach roughly neutral by year’s end. Those increases would amount to the fastest pace of rate hikes since 1989, noted Roberto Perli, an economist at Piper Sandler.
Steinsson, who in early January had called for a quarter-point increase at every meeting this year, said last week, “It is appropriate to do things fast to send the signal that a pretty significant amount of tightening is needed.” Shrinking the Fed’s balance sheet adds another uncertainty. That is particularly true given that the Fed is expected to let $95 billion of securities roll off each month as they mature. That’s nearly double the $50 billion pace it maintained before the pandemic, the last time it reduced its bond holdings.
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