The FOMC plans 3 rate increases in 2022 and 2023
The Fed’s FOMC committee has increased the pace of its reduction in bond purchases from $ 15 billion per month to $ 30 billion per month as the economy no longer needs growing support, according to the FOMC.
The quantitative easing (QE) program will now end in March 2022 instead of June 2022, as announced at the November meeting. The $ 30 billion reduction in bond purchases will consist of $ 20 billion in treasury bills and $ 10 billion in MBS.
Fed Chairman Powell said inflation “will exceed our 2% target until next year.” In the summary of the economic projections, the dot charts showed that the FOMC members expect inflation for 2021 to be 5.3%, 2.6% for 2022 and 2.3% for 2023. Remember that the Fed is targeting 2% inflation! The increase in inflation is mainly due to supply bottlenecks due to the pandemic; however, the price increases are now more extensive.
» SEE OUR OUTLOOK FOR INFLATION IN 2022
The FOMC also expects full employment to be achieved by the end of next year, but labor force participation may take longer.
Additionally, the dot chart shows that FOMC members expect 3 rate increases in 2022 and 3 rate increases in 2023.
Federal funds immediately incorporated a 75% chance of a rate hike at the April meeting and a 100% chance of a rate hike at the May meeting. At the time of this publication, these percentages have increased further.
Powell recently testified before the Senate and Banking Committee and noted that it was time to remove the word “transitional” due to high inflation. The most recent headline CPI was 6.8% for the month of November.
By Joe Perry, Forex.com » Official site
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