How Many Times Will The Fed Raise Rates In 2022?

The rate was hiked by 0.5%, as was expected. The Fed also announced the beginning of efforts designed to reduce the burden on the Fed’s balance sheet. The spotlight of the session was on Fed Chair Jerome Powell’s post-FOMC meeting press conference.

Here is what Mr. Powell revealed about the Fed’s plan to raise rates throughout 2022 and beyond and how that might impact markets in the months ahead.

How Is The Fed Preparing To Fight Record Inflation Rates?

In the context of tightening monetary policy, Powell’s rhetoric was relatively soft and positive. Markets responded positively to the Fed’s tone. The Fed plans to lay down an additional five to six rate hikes throughout 2022, but Powell added that the Fed would only act so aggressively if inflation continues to spike.

Inflation rates in the US have reached a 40-year high. Powell predicts a gradual decline in inflation as early as the second half of the year, but that remains to be seen. Inflation was already a challenge in the US and abroad, but the problematic situation surrounding Ukraine has put added pressure on the price of important geopolitical assets and increased inflation rates further.

The US GDP forecast was reduced to 2.8% in annual terms. However, the US economy remains resilient, the labor market is strong, so there is little immediate threat to the US stock market at the moment despite the onset of the Fed’s tightening monetary policy.

The Fed Meeting: Powell’s Speech Explained

Simply put, Powell’s entire speech centered around how although consumer inflation rates are much higher than the target 2%, and how the Fed has the tools and ability to curb it and get it back on track. Any threats to markets prior to the meeting appear to be overblown.

“The Fed is not planning to act on emotion. We will act on data,” Powell said. But what exactly does this mean? The most probable scenario involves the Fed scaling back its planned five to six rate hikes, leaving a one-meeting break in between each rate increase to further assess the situation with new data based on how the market reacts and absorbs the information.

With only six more FOMC meetings left in 2022, it is likely that the Fed only ends up raising rates three times, or possibly four at the most. This is beyond the projected amount of rate hikes suggested at the end of 2021, but less than the five to six increases that the Fed was considering.

Risk Versus Reward: What Will Happen With Stocks And Crypto?

The more dovish tone from Powell in the context of current monetary policy tightening measures could increase the chances of risk assets performing well. Most major stock indices saw a strong recovery and bounce after the meeting and spech, and emerging markets saw a return to positivity.

A glimmer of positive sentiment has also returned to the crypto market in a major way, with Bitcoin revisiting above $40,000 and currently holding. If Bitcoin’s positive correlation with the stock market can continue, further growth could be expected in the coming months.

Less risky assets like gold, oil, and other commodities also rebounded after a pre-meeting selloff. Volatility was expected surrounding the meeting in the days before and after. The dollar weakened as a result.

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