MNI POLICY: Fed Sees Rate Freeze to 2023, No Taper Talk

The Federal Reserve on Wednesday signaled higher interest rates are coming sooner than previously indicated as policy makers sharply raised economic growth and inflation forecasts, while leaving out any reference to moderating asset purchases.

"Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak," the Fed said in a statement.

Officials left the pace of bond buying at a monthly USD120 billion and interest rates on hold near zero as expected. However, the Fed's dot plot showed four officials now expect to raise rates next year while seven see an increase in the federal funds rate by 2023. That's up from just one for 2022 and five for 2023 as of December.

The Fed now sees the economy growing 6.5% this year, up from 4.2% in December, while PCE inflation is seen at 2.4% versus 1.8% in the last quarterly estimates.

Fed Chair Jerome Powell will face questions from reporters at his post-meeting press conference ranging from how the Fed is incorporating changes in fiscal policy into its outlook as well as how far 10-year Treasury yields would have to rise for such a move to be considered disorderly. Yields hit a post-pandemic high of 1.67% ahead of the meeting, pushing stock prices lower.

Since the Fed's last quarterly forecast in December, Congress has passed two large fiscal programs, a USD900 billion package at the end of 2020 and another totaling USD1.9 trillion just signed last week.

MNI has reported Powell will likely resist market pressures to clarify in much greater detail what he means by "substantial further progress" toward the Fed's goals -- the criteria the central bank has laid out for starting the process of reducing bond buys.