Fed doubles taper, signals three 2022 hikes in inflation pivot

U.S. Fed officials intensified their battle against the hottest inflation in a generation by shifting to end their asset-buying program earlier and signaling they favor raising interest rates in 2022 at a faster pace than economists were expecting.

Federal Reserve officials intensified their battle against the hottest inflation in a generation by shifting to end their asset-buying program earlier and signaling they favor raising interest rates in 2022 at a faster pace than economists were expecting.

Heralding one of the most hawkish policy pivots in years, the central bank said Wednesday it will double the pace at which it’s scaling back purchases of Treasuries and mortgage-backed securities to US$30 billion a month, putting it on track to conclude the program in early 2022, rather than mid-year as initially planned.

The faster pullback puts Fed Chair Jerome Powell in position to raise rates earlier than previously anticipated to counter price pressures if necessary, even as the pandemic poses an ongoing challenge to the economic recovery. The Fed flagged concerns over the new omicron strain, saying that “risks to the economic outlook remain, including from new variants of the virus.”

Powell told a post-meeting press conference that the faster taper put the program on track to end in mid-March and that officials “expect a gradual rate of policy firming.” He said officials don’t expect to raise rates before ending scaling back bond buying, but could hike before reaching full employment.

Projections published alongside the statement showed officials expect three quarter-point increases in the benchmark federal funds rate will be appropriate next year, according to the median estimate, after holding borrowing costs near zero since March 2020.