Interest Rate Hikes Could Be Coming
With inflation continuing to climb, the Federal Reserve is likely to announce policy changes at its meeting next week. The central bank is expected to vote to wind down its pandemic stimulus bond-buying program by March. That is much faster than its previous June deadline.
By speeding up the pace of tapering, the Fed could raise interest rates as early as spring. Fed Chairman Jermone Powell, who was just granted another four-year term by President Biden, has indicated that curbing inflation will be a top priority. Therefore, it’s likely that significant monetary policy changes are on the way.
Economic Data Prompts Change
When the Fed first announced plans to wind down its bond-buying program, inflation was rising but was still expected to ease later in the year. That has not been the case, with inflation surging 5% year-over-year in October.
Other economic data is also driving the Fed to make changes. The labor market is regaining strength. Economic growth appears to be accelerating after a lull during the third quarter. As a result, many believe that the Fed does not need to keep buying bonds and keeping interest rates near record lows until June.
Fed Still Thinks Inflation Will Ease
At the policy meeting, which is scheduled for December 14 and December 15, the Fed is also expected to stop referring to inflation as “transitory.” Jerome Powell, chair of the Fed, has already said this word no longer applies to the current situation. The Fed, and many economists, still think that inflation will decline next year, though it may take until mid-2022.
Rising inflation and an economy that is recovering again are prompting the Federal Reserve to change course. The bank is focused on implementing policies which will hopefully curb persistent inflation.
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