Fed Tackling Inflation by Raising Interests Three-Fold
ZFX - In tackling a spike in inflation, the Federal Reserve will be ending the pandemic-era bond purchasing in March to pave a way for a 3-quarter percentage point interest rate increase by the end of 2022.
"There is no more need for increasing amounts of policy support for the economy," said Fed Chari Jerome Powell during a news conference as he compared conditions at the start of the pandemic and now, that included rises in prices and wages.
"Yes, the inflation's skyrocketing," he said post policy meetings, "but from my perspective, we're plainly heading towards full employment." It's a circumstance that has convinced Fed officials (including even the most dovish of them) to come out more fully from all the COVID-19 policies set two years ago.
The unemployment rate is set to fall to 3.5% by next year which is far lower than what Fed officials claimed to be sustainable over the long-term. The rate is set to remain there all the way to 2024.
With the increase in prices and strong employment numbers, the Fed's benchmark overnight rate will be required to increase to 0.90% from the current zero level by the end of 2022. This will spearhead gains as a cycle forms to show policy rates increasing to 1.6% in 2023 and 2.1% in 2024.
Taking straight from the latest policy statement is the fact that the inflation in being referenced to being "temporary" as the Fed acknowledges the price increment exceeding their 2% target. Fed's target of annual inflation rates doubled in recent months.
"Steep price increments are proving to be a much bigger threat to employment than COVID-19," Powell said in one of his sharper comments about inflation.
"We just need one more long expansion," he said. "That really is what it takes to return to the kind of labor market we need to see. In order to make sure that happens, we need to achieve price stability."
As the health crisis continues, the Fed shares their thoughts on the matter the new variant adding more uncertainties about where the economy is going.
However, he's less worried about the potential economic risks Omicron could possible have. As he expects that the Fed isn't expecting to proceed buying emergency bonds or take alternative steps to counter the new variant. as the economic performance will be less and less affected.
US economic growth is projected to be at 4.0% next year from an earlier-projected 3.8% last September, Fed officials claim.
S&P 500 up 1.6% and treasury securities yields increments show that US stocks closed higher as the dollar strengthened after the Fed statement and projections release but not before giving up profit to trade lower today against a collective of major trading partner currencies.
Interest rate futures traders can expect the first rate hike to happen in May and another two to happen at the end of 2022.
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