Fed Chair Jerome Powell Signals Taper Beginning in November, Rate Hike in 2022

Federal Reserve Chair Jerome Powell signalled that the central bank could begin phasing out its asset purchases as early as November, followed by an interest rate hike in 2022.

Following its two-day policy meeting on Wednesday, the FOMC unanimously agreed to keep current interest rates at near-zero, as well a maintain current bond purchases at $120 billion per month. However, an increasing number of members indicated an interest rate increase as early as next year, with a tapering of purchases en route in November, signalling a more hawkish stance by the Fed.

Following the meeting, Powell revealed that a tapering “could come as soon as the next meeting,” meaning that asset purchases could begin tapering in November, with a targeted completion by mid-2022. However, Powell stressed that the central bank is prepared to wait longer in the event the US economy fails to reach the bank’s goalpost of maximum employment. “The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff,” he said.

The FOMC’s latest projections suggest there will be another additional interest rate increase before 2023 compared to previous projections made in June, bringing the total to three. This suggests that the US economy has recovered a lot faster than previously projected, as inflation indicators flash red-hot throughout numerous economic sectors.

According to the Fed’s updated dot plot, officials are now evenly divided on whether or not it is feasible for the central bank to boost the target interest rate as early as 2022. Compared to June’s dot plot, the median estimate called for no rate hikes until 2023.

The FOMC also released new projections for 2024, which indicate that the target rate will jump to 1.8% before the end of the year, following a median projection of 1% in 2023— up from the 0.6% predicted in June. “Participants generally expect a gradual pace of policy firming that would leave the level of the federal funds rate below estimates of its longer-run level through 2024,” Powell said in a series of prepared remarks following the two-day meeting.

The committee also projected that the inflation rate for 2022 would jump from June’s forecast of 2.1% to 2.2%, while inflation expectations for 2023 remained unchanged at 2.2%. America’s GDP is also forecast to grow 3.8% next year, followed by a 2.5% increase in 2023.

Information for this briefing was found via the Federal Reserve. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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