The Federal Reserve could increase interest rates as early as the first half of 2022 due to withdrawing monthly bond purchases at twice the speed it announced.
The Federal Reserve readies to take rapid steps with interest rates in 2022 to fight inflation, announcing Wednesday that it expects to raise interest rates three times next year. The Fed said it will withdraw its monthly bond purchases at twice the speed it announced in the past and will likely end them in March. The faster pace allows the Fed to begin increasing rates as early as the first half of next year. The new projection to raise interest rates three times in 2022 is up from one rate hike the Fed had estimated in September. The Fed’s key rate, currently near zero, affects many consumer and business loans, such as mortgage, credit card, and auto loans. Fed Chair Jerome Powell said the central bank needs to combat inflation to help the U.S. economy maintain its expansion, as it is likely to continue longer than the Fed had previously expected. However, Powell also said the economy is growing at a « robust pace » even with risks from the pandemic and believes that spending from consumers and businesses will continue to be strong. « We will use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched, » Powell said during a news conference. Borrowing costs could begin to increase in the upcoming months, but the Fed’s actions don’t always immediately impact other loan rates. It would also leave its standard rate historically low, under 1 percent, even if the central bank increases rates three times next year. The policy change reflects Fed policymakers’ acknowledgment that with inflation pressures rising, the Fed needed to begin tightening credit for consumers and businesses faster than they had expected just a few weeks earlier.
