Fed Hikes Rates 25bps, Maintains QT, Removes Hawkish Guidance

March 22, 2023

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Tl;dr: Fed hiked 25bps and maintains QT (as expected), and left the terminal rate (via the DotPlot) unchanged. However, it shifted a slightly more dovish guidance on future policy hikes and an admission that the impact of its monetary policy could impact banks.

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A lot has changed since The Fed last met on February 1st and decided to hike 25bps. Between Powell's hawkish hearings with Congress and the dovish-inference of a global financial system crisis, the market's expectations for The Fed's actions today have swung wildly - but ironically, are basically unchanged since the Feb 1st meeting.

At its most hawkish the market priced in a 75% chance of a 50bps hike (after Powell's hearings). That then collapsed to a 63% chance of a 'pause' by The Fed following the collapse of SVB and CS. The last week has seen expectations rise back to 80% or so of a 25bps hike...

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