Fed begins hiking cycle with first 25bp rate increase since 2018

The FOMC raised the federal funds target range to 0.25-0.50% on March 16 2022, the first rate hike since December 2018. The decision was unanimous except for James Bullard, who dissented in favor of a larger 50 bp move. The Summary of Economic Projections implied six additional hikes by year-end, bringing the terminal rate near 2% for 2022 and above 2.5% for 2023.

Markets initially rallied on the announcement despite the hawkish dot plot. The S&P 500 gained 2.24% and Nasdaq 100 gained 3.77% as algorithmic trading interpreted Powell's press conference as less hawkish than feared. The counterintuitive rally reflected short positioning going into the meeting and a narrow window of "bad news is priced in" sentiment.

The rally proved short-lived. Over the following months, the Fed accelerated the pace to 50 bp in May and 75 bp in June. The terminal rate projection climbed repeatedly through 2022, eventually reaching 5.25-5.50% by mid-2023. The March 16 session marked the start of a hiking cycle that would compress equity multiples, crater bonds, and trigger the fastest bear market repricing since the 1970s.