A Fast and Furious Year by the Fed That Blindsided Everyone

It was March 16, 2022, when Federal Reserve Chair Jerome Powell and his colleagues finally began to take on the surge in inflation they had thought would fade, eventually moving faster and more furiously than anybody expected.

(Bloomberg) — It was March 16, 2022, when Federal Reserve Chair Jerome Powell and his colleagues finally began to take on the surge in inflation they had thought would fade, eventually moving faster and more furiously than anybody expected.

It was a slow start with a quarter-point hike.

But that would become the first shot in a series of increases which has so far totaled 4.5 percentage points and included four 0.75 percentage-point salvos. The benchmark is now in a range of 4.5% to 4.75%.

It’s hard, if not impossible, to find anyone who saw that coming and the experience serves as a reminder of how tricky it’s been to forecast monetary policy just as Powell faces another tough call next week.

Prior to the debut hike a year ago:

Rates traders were pricing a little over a percentage point of rate hikes
The median forecast of economists surveyed by Bloomberg was for the Fed’s main rate to reach 1.75% at the end of this quarter and for it to be at 2.25% a year later. Not one economist of the 56 analysts who responded anticipated that rates would be where they are now.
The most aggressive prediction, by Stephen Stanley of Santander US Capital Markets, was for rates to reach 3.75% by mid-2024.

And as the Fed raised rates, the median of its so-called dot plot was for the benchmark to be sub-2% by the end of last year and below 3% at the end of this year.

One year on, markets are again whipsawing and economists are again split. As recently as last week, some wondered whether the Fed would resume half-point increases. The subsequent banking turmoil put paid to that wager.

Still, economists at Goldman Sachs Group Inc. see a pause next week, while those at JPMorgan Chase & Co. expect a quarter-point increase and peers at Nomura Holdings Inc. predict a cut.

More stories like this are available on bloomberg.com