West News Wire: The US Federal Reserve had previously indicated that it was reducing monthly assistance, which had been established to help the economy during the pandemic.

However, officials said on Wednesday that the process will be accelerated, implying that the stimulus will be phased off by March.

The action pave the way for interest rate hikes in 2022.

According to the Federal Reserve’s “dot plot” visual of predicted interest rate hikes, the majority of the rate-setting Federal Open Market Committee expects three increases next year.

“Economic activity is on track to increase at a healthy rate this year, reflecting progress on vaccinations and the reopening of the economy,” Federal Reserve Chairman Jerome Powell said.

“In my opinion, we are rapidly approaching maximum employment,” he remarked.

Demand remained “very strong”, although the arrival of the Omicron variant posed a risk to the recovery, he added.

Officials forecast that inflation will run higher next year than they had previously projected and that unemployment, the other measure targeted by the Federal Reserve, would fall to 3.5%.

As a result they forecast that benchmark interest rates would need to rise from current near-zero levels to 0.9% by the end of 2022.

The Federal Reserve began winding down its $120bn-a-month bond-buying programme in November, saying it would reduce the stimulus by $15bn a month.

But November’s inflation data, showing prices rising at a pace not seen since 1982, increased pressure on the central bank policy-makers to take further action.

The stimulus will now be reduced by $30bn a month starting in January.

Read More
Who was Shireen Abu Akleh; how was she martyred

“The Fed apparently just woke up to the inflationary pressures consuming the US economy. With [Consumer Price Inflation] in touching distance of 7%, it should be of no surprise to see the Fed accelerating tapering,” said Seema Shah, Chief Strategist at Principal Global Investors.

“Price pressures may well ease next year, but inflation will settle at a level uncomfortably high for the Fed,” she added.

“The fundamental concern for markets today is whether the US economy can take this rate of [interest rate] rises without becoming sick.”

The new Omicron coronavirus variety has increased anxiety about the economy’s future direction.

The Federal Reserve, on the other hand, predicted that economic growth would be 4% next year, up from 3.8 percent in September.

 

According to Diane Swonk, an economist at Grant Thornton, Mr. Powell’s statements were carefully selected to highlight that “this is a thriving economy in which inflation has been more persistent,” but that there had also been “amazing progress toward full employment.”

He had used “quite bullish” rhetoric on employment, she noted, “justifying rate rises sooner rather than later.”

LEAVE A REPLY

Please enter your comment!
Please enter your name here