The U.S. Federal Reserve (Fed) has doubled the tapering of its bond buying program and signaled it will raise interest rates three times in 2022 to combat inflation.
With inflation running at its highest level since 1982, the U.S. central bank said it is speeding up the timeline for both winding down its asset purchase program and raising interest rates.
Specifically, the Fed said it will double the pace at which it’s scaling back purchases of Treasuries and mortgage-backed securities to $30 billion U.S. a month, putting it on track to end the program in early 2022, rather than mid-year as initially planned.
Projections published alongside the statement showed officials expect three quarter-point interest rate increases in the benchmark federal funds rate next year, according to the median estimate, after holding borrowing costs near zero since March 2020.
“Economic developments and changes in the outlook warrant this evolution of monetary policy,” Fed Chairman Jerome Powell told reporters during a post-meeting press conference. “The economy has been making rapid progress toward maximum employment.”
The quicker pullback puts Powell in position to raise rates earlier than previously anticipated to counter higher consumer prices if necessary, even as the pandemic poses an ongoing challenge to the economic recovery.
The Fed highlighted concerns over the new Omicron strain of COVID-19, saying that “risks to the economic outlook remain, including from new variants of the virus.”
The new rate projections are a major shift from the last time the central bank updated its forecasts in September, when officials were evenly split on the need for any rate increases at all in 2022. The new projections also show policy makers see three rate increases in 2023 and two in 2024, bringing the federal funds rate to 2.1% by the end of that year.
Consumer prices in the U.S. rose 6.8% in the year through November, marking the fastest pace of increase since 1982. At the same time, unemployment dropped to 4.2% in November from 4.6% in October, a quicker pace of recovery than forecasters had anticipated.
