On the March FOMC

Liftoff after two years of near-zero policy rates, despite a sharp downgrade to 2022 growth expectations. Bullard made the first dissent in 18 months, wanting a double-hike. The “dot plots” for 2022 upgrade the optimal funds rate to 1.88%, a full percentage point higher than at the December meeting. The yield curve is, and has been, in perfect synch with this large change. The characterization of inflation has been augmented to cite “broader price pressures” as a cause – which is, in fact, a tautology – yet it is likely a token of the Fed’s commitment to keep inflation expectations anchored. We still think inflation will be transitory, but liftoff is appropriate nevertheless based on all the other economic variables. Balance sheet run-off was elevated to the statement itself, as beginning at “a coming meeting.” We welcome this low-impact form of normalization as a benign substitute for what might otherwise be a steeper and more growth-unfriendly path of rate hikes.