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The Fed’s Decision and What It May Mean for Investors

Wells Fargo Investment Institute – September 21, 2022

Policy announcement

The Federal Open Market Committee (FOMC) increased the federal funds rate by .75% (matching the 75-basis-point ((100 basis points equals 1%)) increase from the June and July meetings), to 3.00% – 3.25%. The Federal Reserve (Fed) expects ongoing increases to the federal funds rate. The FOMC will continue reducing its holdings of Treasury securities, agency debt, and agency mortgage-backed securities in accordance with its statement released last May.

Download the Key Takeaways (PDF)

Stated reasons

  • Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low.
  • Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.

Looking forward

  • The Russia-Ukraine war is creating tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation, and are weighing on global economic activity.
  • The FOMC seeks to achieve maximum employment and inflation at a rate of 2.0% over the longer term, but for now remains highly attentive to inflation risks.
  • In support of these goals, the FOMC anticipates that ongoing increases in the target range will be appropriate; however, the Fed is leaving its options open as to the magnitude of future hikes and remains dependent on incoming data.

What else?

  • The median FOMC projection for the terminal federal funds rate during this cycle is now 4.6%. This is above the longer-term neutral rate expectation of 2.5%. The new terminal rate expectation assumes several 50- or 75-basis-point rate hikes for the remainder of 2022 and throughout 2023.
  • The FOMC median projections increase inflation expectations for this year from 5.2% at the June meeting to 5.4%, while also decreasing the FOMC’s expectation for real economic growth for the year from 1.7% in June to 0.2%.
  • The vote in favor of the Fed action was unanimous.

Upcoming meeting schedule

November 2 | December 14* | February 1 | March 22*

*Indicates the meeting is associated with a summary of economic projections. In addition, every meeting will be accompanied by a press conference.