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Fed sees three interest rate hikes in 2022 as inflation fight begins

Fed sees three interest rate hikes in 2022 as inflation fight begins

WASHINGTON: The Federal Reserve, signaling its inflation target has been met, on Wednesday said it would end its pandemic-era bond purchases in March, paving the way for three quarter-percentage-point interest rate increases by the end of 2022 as it exits from policies enacted at the start of the health crisis.

In new economic projections released following the end of a two-day policy meeting, officials forecast that inflation would run at 2.6% next year, compared to the 2.2% projected as of September, and the unemployment rate would fall to 3.5%.

US Fed poised to face down inflation dragon

As a result, officials at the median projected the Fed’s benchmark overnight interest rate would need to rise from its current near-zero level to 0.90% by the end of 2022, with continued increases in 2023 to 1.6% and in 2024 to 2.1% required to pull inflation back to the central bank’s 2% target.

Eventual rate hikes, the Fed said, would now hinge solely on the path of the job market.

“With inflation having exceeded 2 percent for some time, the Committee expects it will be appropriate to maintain” the current near-zero interest rates until labor markets have returned to full employment, the Fed said in a statement that began to pin down more thoroughly the central bank’s “normalization” of monetary policy following nearly two years of extraordinary efforts to nurse the economy through the fallout of the pandemic.

That is still underway, with the new Omicron coronavirus variant adding to uncertainty about the course of the economy.

But the Fed, at this point, said economic growth is expected to be 4.0% next year, an increase over the 3.8% projected in September.

Fed Chair Jerome Powell is scheduled to hold a news conference at 2:30 p.m. EST (1930 GMT) to elaborate on the new policy statement and answer questions about the central bank’s economic outlook.

Source: Business Recorder

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