< Back to Topic
March fed meeting

March Fed Meeting and Rising Rate Expectations

Tom Wald, CFA®, Chief Investment Officer, Transamerica Asset Management, Inc.

The Federal Reserve has officially hit liftoff on short-term interest rates, and the ship could be moving faster and higher than previously expected.

The Fed’s decision on March 16 to raise the federal funds rate to a target range of 0.25%–0.50% represented its first rate hike in more than three years and while this policy was widely expected, we believe investors should take the following into account:

Fed members see higher than previously anticipated rates ahead. The Committee’s decision came accompanied by its highly anticipated quarterly dot plot, in which median Fed member expectations now convey federal funds rates of 1.9% by the end of 2022 and 2.8% by the end of 2023. This outlook represented a noticeably more hawkish tone from the Fed versus the most recent December 2021 dot plot when median year-end 2022 and 2023 expectations were materially lower at 0.75% and 1.50% respectively. In essence, this means the Fed has now pulled forward its rate-tightening cycle by more than a full year. 

Balance sheet reduction could be fast tracked. In the post-meeting press conference, Federal Reserve Chair Jay Powell also indicated the Committee could begin reducing its nearly $9 trillion balance sheet of Treasury and mortgage-backed securities as soon as the upcoming May meeting. While precise details are not yet known, we expect the Fed to begin reducing holdings at a monthly pace of about $75–$100 billion, equating to approximately $1 trillion annually. Such balance sheet reduction should have a further financial tightening impact and will likely influence a continued rising path for longer-term bond yields. We also expect Fed balance sheet reduction to be implemented originally through maturing bond principal roll off before that of selling bonds in the open market. 

Stocks react favorably. Anxiety over when and by how much the Fed would begin raising rates has plagued markets in recent months, however stocks rallied strongly following the Fed’s meeting. We mostly attribute this to the Fed’s hawkish tone representing a more urgent approach to fighting inflation, now at 40-year highs. It is our judgment at this point that the market is now more concerned about potentially runaway inflation than with a faster pace of rate hikes slowing economic growth.

Our judgment is the economy can absorb higher interest rates. While fears of recession are now being commonly expressed throughout the investment world, we believe the economy will likely be able to absorb the expected upward interest rate trajectory into CY 2023 and that gross domestic product growth can remain above 2% into next year as declining case trends of COVID-19 should spur pent-up consumer demand beginning in 2H 2022. 

Inflation likely to remain hot. We expect inflation reports such as the consumer price index and the Fed’s preferred measure, personal consumption expenditures, to continue increasing into the summer months with headline readings on these metrics impacted by the ongoing war in Ukraine and rising energy prices following the U.S. ban on Russian oil purchases. We believe inflation could ultimately moderate to below 4% by year end given the Fed’s more aggressive tightening schedule and the potential improvement of global supply chain constraints resulting from an easing of worker shortages driven by recent trends in the labor market and the transition of COVID-19 from pandemic to endemic status.

In summary, we now believe the Fed will likely raise rates by 0.25% at five of its remaining six meetings this year, with a 0.50% increase at one of them, concluding CY 2022 with a federal funds target range of 2.00%–2.25%. We also now believe a realistic year-end range on the 10-year Treasury yield to be 2.50%–2.75%. 


Investments are subject to market risk, including the loss of principal. Asset classes or investment strategies described may not be suitable for all investors.

Past performance does not guarantee future results. Indexes are unmanaged and an investor cannot invest directly in an index.

Equities are subject to market risk meaning that stock prices in general may decline over short or extended periods of time.

Fixed income investing is subject to credit rate risk, interest rate risk, and inflation risk. Credit risk is the risk that the issuer of a bond won’t meet their payments. Inflation risk is the risk that inflation could outpace a bond’s interest income. Interest rate risk is the risk that fluctuations in interest rates will affect the price of a bond. Investing in floating rate loans may be subject to greater volatility and increased risks.

Growth stocks typically are particularly sensitive to market movements and may involve larger price swings because their market prices tend to reflect future expectations. Growth stocks as a group may be out of favor and underperform the overall equity market for a long period of time, for example, while the market favors “value” stocks. Value investing carries the risk that the market will not recognize a security’s intrinsic value for a long time or that an undervalued stock is actually appropriately priced.

Investments in global/international markets involve risks not associated with U.S. markets, such as currency fluctuations, adverse social and political developments, and the relatively small size and lesser liquidity of some markets. These risks may be greater in emerging markets.

The COVID-19 pandemic has caused substantial market disruption and dislocation around the world including the U.S. Economies and financial markets throughout the world are increasingly interconnected. Economic, financial, or political events, trading and tariff arrangements, terrorism, technology and data interruptions, natural disasters, and other circumstances in one or more countries or regions could be highly disruptive to, and have profound impacts on, global economies or markets.

The information included in this document should not be construed as investment advice or a recommendation for the purchase or sale of any security. This material contains general information only on investment matters; it should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The information does not take into account any investor’s investment objectives, particular needs, or financial situation. The value of any investment may fluctuate. This information has been developed by Transamerica Asset Management, Inc. and may incorporate third-party data, text, images, and other content to be deemed reliable.

Comments and general market-related projections are based on information available at the time of writing and believed to be accurate; are for informational purposes only, are not intended as individual or specific advice, may not represent the opinions of the entire firm, and may not be relied upon for future investing. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decisions.

Transamerica Asset Management, Inc. is an SEC-registered investment adviser. The funds advised and sponsored by Transamerica Asset Management, Inc. include Transamerica Funds, Transamerica Series Trust and DeltaShares® exchange-traded funds. Transamerica Asset Management, Inc., is an indirect wholly owned subsidiary of Aegon N.V., an international life insurance, pension, and asset management company. 1801 California Street, Denver, CO 80202, USA.