The FOMC hikes the fed funds target range by 25 basis points at the end of the March 21-22 meeting. The meeting statement was slightly altered in its assessment of economic conditions. Job gains"picked up" since the last meeting from the"robust" in the prior meeting statement. The statement on inflation is a bare"Inflation remains elevated," excising the"eased somewhat" from the last meeting's language. In other words, the labor market remains tight and inflation well above target, which means more restrictive monetary policy is needed. Nonetheless, the statement offers that the end of the tightening cycle may be approaching.

Also changed is that the reference to the war in Ukraine and its impact on global uncertainty was replaced by,"The U.S. banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks."

Most importantly, the language around the rate decision was updated. It was added,"The Committee will closely monitor incoming information and assess the implications for monetary policy." And then the guidance about"ongoing increases" in the prior statement was revised to"some additional policy firming."

When read in combination with the summary of economic projections which puts the midpoint of the fed funds target range at 5.1 percent at the end of 2023, there is really only room for one more 25 basis point increase in light of this forecast. However, while rates are expected to come down in 2024, the decline is lower than in the last forecast. The March update is for a midpoint of 4.3 percent (previously 4.1 percent) while 2025 is unchanged at 3.1 percent.

It looks like the FOMC will finish the current tightening cycle at the May 2-3 meeting or perhaps wait until June 13-14 when the next update to the FOMC forecasts takes place.

Most of the rest of the forecast reflects only minor changes. GDP in revised down to up 0.4 percent for 2023 (previously 0.5 percent), and down to up 1.2 percent in 2024 (previously 1.6 percent), while 2025 is expected to be up 1.9 percent (previously up 1.8 percent).

The unemployment rate forecast was revised down a tenth to 4.5 percent for 2023 (previously 4.6 percent), unchanged at 4.6 percent in 2024, and up slightly to 4.6 percent in 2025 (previously 4.5 percent).

PCE inflation is expected to run a bit hotter at 3.3 percent in 2023 (previously 3.1 percent), while the pace for 2024 and 2045 is unchanged at 2.5 percent and 2.1 percent, respectively. Core PCE inflation was revised up slightly to 3.6 percent in 2023 (previously 3.5 percent) and 2.6 percent in 2024 (previously 2.5 percent), but unchanged at 2.1 percent in 2025.

After slowing the pace of rate hikes to 25 basis points from 50 points at their meeting six weeks ago, the Fed is expected to raise rates by another 25 points at the March meeting. Yet some forecasters see no move and no forecasters in Econoday's sample see a 50-point move.

The FOMC meeting announcement is a policy statement issued at the conclusion of each meeting of the Federal Open Market Committee. It offers updates on economic conditions with special focus on the health of the labor market and the latest on inflation. It also updates the status of the federal funds target which is the FOMC's official policy interest rate. This rate is expressed within a range, such as 1.75 to 2.00 percent. The center of this range is the implied target. The higher this target, the more restrictive monetary policy becomes, the lower this target, the more accommodative policy becomes. Other policy tools are also discussed in the meeting announcement including updates on direct purchases of Treasuries and mortgage-backed securities. Debate is not offered in the statement, just the consensus view is expressed, though the statement does list the total committee vote and how each member voted.

The Fed determines interest rate policy at FOMC meetings. These occur roughly every six weeks and are the single most influential event for the markets. For weeks in advance, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.

The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars. When bonds yield 5 percent, they will attract more money away from stocks than when they only yield 3 percent.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, fewer homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish.

The Fed also began quantitative easing during the past recession and, through direct purchases in the market, steadily increased its holdings of Treasuries and mortgage-back securities before pulling back from the program beginning in late 2017. Along with lowering its bond holdings, the Fed began to gradually raise its federal funds target until mid-2019 when, facing slowing global growth, it began to lower its target.

Frequency
Eight times a year.