Fed to Increase Interest Rates Three Times in 2022

by Wall Street Rebel | Michael London | 12/15/2021 2:34 PM
Fed to Increase Interest Rates Three Times in 2022

The Federal Reserve announced Wednesday that it will increase its monthly purchases of Treasury bonds and mortgage-backed securities to $30 billion, bringing the program's completion date to early 2022 from mid-year.

 

To combat the fastest-rising inflation in a generation, Federal Reserve policymakers said that they would conclude their asset-buying program sooner than expected and that they would raise interest rates in 2022 at a quicker pace than experts had predicted.

Following one of the most hawkish policy shifts in recent memory, the central bank announced Wednesday that it will double the rate at which it is winding down its purchases of Treasury bonds and mortgage-backed securities to $30 billion per month, putting it on track to complete the program in early 2022 rather than mid-year as previously planned.

The Fed Chair, Jerome Powell, will be better positioned to increase interest rates sooner than initially anticipated to fight price pressures if required, even though the epidemic continues to represent a significant threat to the economic recovery.

When it comes to the new omicron strain, the Federal Reserve expressed alarm, noting that "risks to the economic outlook persist, notably from new variations of the virus."

Officials anticipate three quarter-point hikes in the benchmark federal funds rate to be appropriate next year, according to the median estimate, after keeping borrowing rates around zero since March 2020, according to projections released accompanied the announcement.

In September, when the committee revised its estimates, it was equally divided on whether or not any rate hikes would be necessary for 2022. This represents a significant change from that time.

In addition, according to the new predictions, policymakers expect further three rate rises in 2023 and two more in 2024, bringing the federal funds rate to 2.1 percent by the end of that year, according to the new projections.

The dramatic adjustment in the taper rate is due to "inflation trends as well as the continued strengthening in the labor market," according to a statement released by the policy-setting Federal Open Market Committee after a two-day meeting in Washington.

According to the statement, the Federal Reserve reaffirmed that it "is prepared to modify the pace of purchases if warranted by changes in the economic outlook," according to the statement.

As a result, the yield on 10-year Treasury bonds increased while the yield curve flattened dramatically.

Meanwhile, the S&P 500 index continued a modest dip from earlier in the day, as the dollar rose in value against the euro.

Traders increased their expectations for the interest rate rises the Fed would implement in 2022 to around 75 basis points.

Federal Reserve officials were surprised by the pricing pressures, which they assumed would subside as the globe became acclimated to Covid 19.

On the contrary, the epidemic has persisted, with inflation surging in response to supply-chain constraints and high demand in the face of unprecedented fiscal and monetary policy assistance.

 

Officials omitted a previous reference to inflation based on factors that were "anticipated to be temporary" from the FOMC statement.

Earlier this month, Powell told legislators that it was time to "retire" the Federal Reserve's designation of rising inflation as "transitory," a position it had maintained for most of the year 2021.

During the year ending in November, consumer prices increased by 6.8 percent, marking the highest growth rate since the year 1982.

Rising food and energy costs, together with increasing rental inflation, had contributed more to total inflation in recent months than they did earlier in the year when substantial price hikes were centered mostly in the used-car market and a reopened leisure and hospitality industry.

 

                      Fed: Tighter labor market will cause three interest rate hikes in 2022

 

 

 

[Strategic Investment: The Post WWII World Order is About to Collapse]

 

         

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