The Federal Reserve will quicken the pace at which it's pulling back its support for the economy as inflation surges, and it expects to raise interest rates three times next year and end bond buying altogether in March.
The Federal Reserve belted out a new chorus ahead of Christmas giving the markets much needed clarity on rate hikes and liquidity. Here is what you need to know how the money will be moving in the new year-:
- Basic point: Run of ultra-easy policy since the beginning of the Covid pandemic is coming to a close.
- The rationale: Runaway inflation, US central bank sees prices rising 5.3% in 2022
- Taper time: The Fed will only inject $60 billion into the economy and slowly by mid year stop the 'easy-money' push
- Rate hike roll-out: Fed officials see as many as three rate hikes coming in 2022
Here is what Jerome Powell, Chairman of Federal Reserve has to say-:
- The Decision: "In light of the strengthening labor market and elevated inflation pressures, we decided to speed up the reductions in our asset purchases."
- The Inflation Haunt: "While the drivers of higher inflation have been predominantly connected to the dislocations caused by the pandemic, price increases have now spread to a broader range of goods and services. Wages have also risen briskly, but thus far wage growth has not been a major contributed contributor to the elevated levels of inflation. We are attentive to the risks that persistent real wage growth in excess of productivity could put upward pressure on inflation."
- Economy & Omicron: "Economic activity is on track to expand at a robust pace this year, reflecting progress on vaccinations and the reopening of the economy...The rise in COVID cases in recent weeks, along with the emergence of the omicron variant, pose a risk risks to the outlook."
- Taper & Rate Hikes: "If the economy evolves broadly as expected, similar reductions in the pace of net asset purchases will likely be appropriate each month, implying that increases in our securities holdings would cease by mid-March, a few months sooner than we anticipated in early November. We are phasing out our purchases more rapidly because with elevated inflation pressures and a rapidly strengthening labor market, the economy no longer needs increasing amounts of policy support."