Federal Reserve accelerates stimulus tapering, signals three interest rate hikes in 2022

The Federal Reserve said on Wednesday that it will be phasing out its bond-buying stimulus initiative by March.

The decreasing rate would be faster than initially planned, and the move signals a more aggressive raise in interest rates to help combat high U.S. inflation.

“This is a major pivot from the Fed, prompted by clearer evidence that inflation is broadening,” said chief economist of Fitch Ratings, Brian Coulton. The strong approach comes after pressure on prices forced retail inflation to the highest level seen in several decades.

The Fed has acknowledged the shocking and persisting increase in prices by stopping the use of the word “transitory” to describe inflation in its statement of policy. The Fed is now saying inflation is elevated in its new policy wording. Prices rose at a rate of 5 percent yearly as of October.

Fed Chairman Jerome Powell said that aside from inflation concerns, the economy has progressed to a point that justifies removing the stimulus that was put in place by the central bank early in the pandemic in order to prevent a major depression. Powell also indicated that the U.S. recovered quickly as the labor market is moving toward reaching full employment.

Projections based on Fed officials’ median forecast show the federal funds rate jumping to 0.9 percent by the close of 2022, to 1.6 percent by the end of 2023, and 2.1 percent by the finish of 2024.

Those projections predict a faster pace of rate increase than what had been seen in September. At that time, the Fed foresaw only one rate hike next year, with a its benchmark rate hitting 1.8 percent by 2024.