Federal Reserve Doubles Taper, Now Forecasts 3 Rate Hikes in 2022

With persistent inflation running hotter than ever, the Federal Reserve has decided to take an even more aggressive stance by expediting the end of its asset buying program, as well as hike rates a lot sooner than markets were anticipating.

On Wednesday, the Federal Reserve made an even more hawkish move in an attempt to quell out-of-control inflation, announcing that it will reduce the rate of bond purchases by half to $30 billion per month. The updated timeline will put the conclusion of the unprecedented program to as early as the beginning of 2022, instead of the middle of next year as previously anticipated.

As such, FOMC officials are now expecting three rate hikes in 2022, followed by another three increases throughout 2023, and two more in 2024. If the updated projections materialize, the federal funds rate would increase from a current near-zero to 2.1% before the end of that year. In a statement after the conclusion of the two-day policy meeting, FOMC members cited “inflation developments and the further improvement in the labor market” as the reasoning behind the sudden about-face in monetary policy.

After peddling a transitory narrative throughout the pandemic, Powell recently acknowledged that it’s time to to retire the word when it comes to describing the current inflationary landscape. Indeed, prices have accelerated by the most in nearly 40 years, with no sign of abating anytime soon, as global supply chain disruptions, material shortages, unprecedented quantitative easing— of course— only continue to exasperate the problem.

As such, the FOMC upwardly revised its inflation projections for next year, up from a rate of 2.2% to 2.6%, and now forecasts an unemployment rate of 3.5% by the end of 2022, compared to a previous projection of 3.8% back in September.

Following the FOMC’s remarks, the yield on US Treasuries jumped, while the yield curve significantly flattened.

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.

Leave a Reply