Fed expects to hike interest rates faster in 2022 to fight soaring prices
Federal Reserve Chair Jerome Powell says the appearance of a new coronavirus variant could slow the economy and hiring, while also raising uncertainty about inflation. Just last month, the Federal Reserve was set on keeping its key interest rate near zero to boost the economy and help more Americans return to work after the COVID-19-induced recession.
The Fed’s policymaking committee left its benchmark rate near zero but now projects three rate hikes next year, up from one in its September forecast, according to officials’ median estimate. They foresee three more increases in 2023 and two in 2024. That would push the rate to 2.1% by the end of 2024.
In a statement after a two-day meeting, the Fed also removed its description of inflation as “transitory.” Instead, it simply said, “Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation.” The statement added, “Risks to the economic outlook remain, including from new variants of the virus.”
But the Fed faces a quandary. Last year, with millions of Americans out of work during the depths of the pandemic, it vowed to keep its key rate near zero until the economy reaches full employment and inflation rises above its 2% target “for some time.” Fed officials now say the inflation goal has been met and the economy is drawing close to satisfying the employment mandate, with the jobless rate not far above the half-century low of 3.5% reached before the health crisis.
But that could be tougher if the Fed is raising rates to tame inflation that may already be easing by next spring but that officials feel they still need to address to avoid a longstanding episode that derails the recovery.
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