MNI: Fed Quickens Taper, Sees Three 2022 Hikes

The Federal Reserve will reduce its bond buying more quickly, ending the program in March, and officials signaled three interest rate hikes next year, a hawkish decision that acknowledged simmering inflation pressures can no longer be described as transitory.

“Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation” the Fed said in its statement, as MNI reported was likely.

The Fed now sees inflation ending next year at 2.6%, a jump from its 2.2% September forecasts. The Fed accelerated the reduction in its monthly bond purchases to USD60 billion per month starting in January, as MNI reported the central bank was set to do. Purchases are now set to end in March.

The Fed’s Summary of Economic Projections saw policymakers moving up the timing of interest rates rises forward into 2022, with the median estimate now pointing to three rate increases next year and three more in 2023.

HAWKISH SHIFT

That was a sharp hawkish shift from a September SEP that showed a committee divided between liftoff in 2022 and 2023.

U.S. inflation jumped 6.8% in the year to November, according to the consumer price index, spooking investors and creating fears of embedded inflation expectations that might be hard to correct.

The Fed still painted a backdrop of a strong economy it believes will expand by 3.8% in 2022, up from its 3.3% September estimate. “With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen,” the FOMC said.

Officials still see the jobless rate ending next year at 3.8%, at or below what many policymakers consider to be full employment.

"Job gains have been solid in recent months, and the unemployment rate has declined substantially," the statement said.