Economic news

Fed Moves Up its Timeline for Rate Hikes as Inflation Rises

The Federal Reserve on Wednesday considerably raised its expectations for inflation this year and brought forward the time frame on when it will next raise interest rates. However, the central bank gave no indication as to when it will begin cutting back on its aggressive bond-buying program, though Fed Chairman Jerome Powell acknowledged that officials discussed the issue at the meeting.

As expected, the policymaking Federal Open Market Committee unanimously left its benchmark short-term borrowing rate anchored near zero. But officials indicated that rate hikes could come as soon as 2023, after saying in March that it saw no increases until at least 2024. The so-called dot plot of individual member expectations pointed to two hikes in 2023.

Though the Fed raised its headline inflation expectation to 3.4%, a full percentage point higher than the March projection, the post-meeting statement continued to say that inflation pressures are “transitory.” The raised expectations come amid the biggest rise in consumer prices in about 13 years. Markets reacted to the Fed news, with stocks falling and government bond yields higher as investors anticipated tighter Fed policy ahead, including the likelihood that the bond purchases will slow as soon as this year.
Even with the raised forecast for this year, the committee still sees inflation trending to its 2% goal over the long run.

Source: FXPro


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