The Federal Reserve lifted short-term interest rates for the first time in three years, bringing a huge sigh of relief to the money market mutual fund industry, which had been waiving a big percentage of their fees to keep yields above zero. A release entitled, "Federal Reserve issues FOMC statement," tells us, "Indicators of economic activity and employment have continued to strengthen. Job gains have been strong in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures. The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity." The Fed explains, "The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting." They add, "In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." A separate posting, entitled, "Federal Reserve Board and Federal Open Market Committee release economic projections from the March 15-16 FOMC meeting," comments, "In conjunction with the Federal Open Market Committee (FOMC) meeting held on March 15–16, 2022, meeting participants submitted their projections of the most likely outcomes for real gross domestic product (GDP) growth, the unemployment rate, and inflation for each year from 2022 to 2024 and over the longer run. Each participant's projections were based on information available at the time of the meeting, together with her or his assessment of appropriate monetary policy -- including a path for the federal funds rate and its longer-run value -- and assumptions about other factors likely to affect economic outcomes." The median Fed funds rate projections are 0.9% for December 2022, 1.6% for December 2023, 2.1% for December 2024 and 2.5% over the longer run. We should see money market mutual fund yields begin rising tomorrow, though the increase in net yields will no doubt be muted by the unwinding of temporary fee waivers.
