Fed Begins Rate Liftoff With 25 bps
What Happened
On March 16 the FOMC lifted the fed funds target by 25 bps, ending the zero-rate era that began in 2020. The median dot pointed to six additional hikes in 2022 and signaled balance-sheet reduction would start soon.
What It Means
Policy finally joined the inflation fight after months of debate about transience. Markets repriced the front end sharply higher while the curve flattened, reflecting confidence in near-term hikes but doubts about the terminal level given growth risks.
What I Think
This was a necessary but belated pivot. The Fed is chasing inflation now, so volatility at the front end stays elevated. I’m watching how quickly QT arrives and whether wage data cooperates; the risk is the Fed has to move faster than its own dots.
Market Terms
- Quarter-point liftoff – First hike since 2018 ending the zero-rate era.
- Seven-hike dot path – Median outlook mapping six more moves in 2022.
- Curve flattening – Front-end repricing faster than long yields on growth worries.
- QT countdown – Balance-sheet reduction flagged as the next tightening step.
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