Once rates are raised, the next challenge for the Fed will be reducing its enormous balance sheet. Any rate increases will likely be gradual, Powell told reporters during Wednesday’s press conference.Īnd at this point, potential economic fallout from the spread of the Omicron variant hasn’t yet changed the Fed’s view. So far, market expectations for an interest rate increase are really picking up in May, according to the CME FedWatch tool. To investors and market watchers, this suggests there will be three rate hikes next year. The December policy update also included a summary of economic projections, the so-called “dot plot.”įed officials now predict the central bank’s benchmark interest rate to rise to 0.9% in 2022, up from the 0.3% expectation from September, signaling additional interest hikes. The Fed’s next two meetings will be in January and March.īut the central bank also reserves the right to change the pace of monthly purchases again if the economic outlook demands it, Wednesday’s statement said. That’s consistent with what Federal Reserve Chairman Jerome Powell told Congress in late November.Īt this pace, the Fed is another two meetings away from completing the wind down of the stimulus, Powell told reporters during Wednesday’s press conference. That leaves the purchases at $40 billion for Treasury securities and $20 billion for mortgage-backed securities each month. Starting in January, the Fed will cut its monthly purchases of Treasury securities by $20 billion and cut its monthly mortage-backed securities buys by $10 billion. The central bank, which first announced in November that it was “tapering” its monthly asset purchases, said Wednesday that it will do so at a quicker pace. On Wednesday, the central bank said it will wrap up its stimulus program faster than originally announced, and its updated economic projections show multiple interest rate increases in 2022. America’s inflation spikes have prompted the Federal Reserve to pick up the pace in normalizing its pandemic-era monetary policy.
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