Fed will tighten credit faster and sees 3 rate hikes in 2022
ABC News
The Federal Reserve will quicken the pace at which it’s pulling back its support for the post-pandemic U.S. economy as inflation surges, and it expects to raise interest rates three times next year
WASHINGTON -- The Federal Reserve will quicken the pace at which it's pulling back its support for the post-pandemic U.S. economy as inflation surges, and it expects to raise interest rates three times next year.
In an abrupt policy shift, the Fed announced Wednesday that it will shrink its monthly bond purchases at twice the pace it previously announced, likely ending them altogether in March. The bond purchases were intended to hold down long-term rates to aid the economy but are no longer needed with unemployment falling and inflation at a near-40-year high. The accelerated timetable puts the Fed on a path to start raising rates in the first half of next year.
The Fed's new forecast that it will raise its benchmark short-term rate three times next year is up from just one rate hike it had projected in September. The Fed's key rate, now pinned near zero, influences many consumer and business loans, whose rates would likely also rise.
The policy change the Fed announced in a statement after its latest meeting had been signaled in testimony Chair Jerome Powell gave to Congress two weeks ago. The shift marked Powell's acknowledgement that with inflation pressures rising, the Fed needed to begin tightening credit for consumers and businesses faster than he had thought just a few weeks earlier. The Fed had earlier characterized the inflation spike as mainly a “transitory” problem that would fade as supply bottlenecks caused by the pandemic were resolved.
