U.S. Federal Reserve Signals Two Interest Rate Hikes In 2023

The U.S. Federal Reserve has moved up its timeline for interest rate increases, saying it now anticipates raising rates twice in 2023.

Federal Reserve Chairman Jerome Powell said that the pace of the U.S. economic recovery from the pandemic is bringing forward the U.S. central bank's expectations for how quickly it will reduce policy support.

Powell told a press conference that officials had begun a discussion about scaling back bond purchases after releasing forecasts that show they anticipate two interest-rate increases by the end of 2023, projecting a faster-than-anticipated pace of tightening.

"The economy has clearly made progress," Powell said, noting that policy makers had debated how far the economy has traveled toward their threshold for scaling back $120 billion U.S. in monthly bond purchases.

"You can think of this meeting as the talking-about-talking-about meeting, if you like," he added following a two-day gathering of the Federal Open Market Committee.

The central bank left the target range for its benchmark interest rate unchanged at zero to 0.25% -- where it has been since March 2020.

The U.S. dollar rose, stocks declined and yields on 10-year Treasury bonds jumped on the news.

The U.S. Federal Reserve also raised its inflation forecasts through the end of 2023. Officials see their preferred measure of price pressures rising 3.4% in 2021 compared with a March projection of 2.4%. The 2022 forecast rose to 2.1% from 2%, and the 2023 estimate was raised to 2.2% from 2.1%.

The U.S. economic recovery is gathering strength as business restrictions lift and social activity increases across the country. Powell expressed optimism about the outlook for the second half of this year as more Americans get vaccinated.

The Federal Reserve raised its projections for economic growth in the U.S., saying gross domestic product is seen expanding 7% this year, up from a previous projection of 6.5%. The central bank maintained its 2022 economic forecast at 3.3% and raised the 2023 estimate to 2.4% from March’s 2.2% outlook.