The Federal Reserve will quicken the pace at which it’s pulling back its support for the post-pandemic U.S. economy as inflation surges, and it expects to raise interest rates three times next year
By CHRISTOPHER RUGABER AP Economics Writer
December 15, 2021, 7:02 PM
• 2 min read
Share to FacebookShare to TwitterEmail this articleWASHINGTON -- The Federal Reserve will quicken the pace at which it's pulling back its support for the post-pandemic U.S. economy as inflation surges, and it expects to raise interest rates three times next year.
In an abrupt policy shift, the Fed announced Wednesday that it will shrink its monthly bond purchases at twice the pace it previously announced, likely ending them altogether in March. The bond purchases were intended to hold down long-term rates to aid the economy but are no longer needed with unemployment falling and inflation at a near-40-year high. The accelerated timetable puts the Fed on a path to start raising rates in the first half of next year.
The Fed's new forecast that it will raise its benchmark short-term rate three times next year is up from just one rate hike it had projected in September. The Fed's key rate, now pinned near zero, influences many consumer and business loans, whose rates would likely also rise.
The policy change the Fed announced in a statement after its latest meeting had been signaled in testimony Chair Jerome Powell gave to Congress two weeks ago. The shift marked Powell's acknowledgement that with inflation pressures rising, the Fed needed to begin tightening credit for consumers and businesses faster than he had thought just a few weeks earlier. The Fed had earlier characterized the inflation spike as mainly a “transitory” problem that would fade as supply bottlenecks caused by the pandemic were resolved.
But the run-up in prices has persisted longer than the Fed expected and has spread from goods like food, energy and autos to services like apartment rents, restaurant meals and hotel rooms. It has weighed heavily on consumers, especially lower-income households and particularly for everyday necessities, and negated the higher wages many workers have received.
In response, the Fed is shifting its attention away from reducing unemployment, which has fallen quickly to a healthy 4.2%, down from 4.8% at its last meeting, and toward reining in higher prices. Consumer prices soared 6.8% in November compared with a year earlier, the government said last week, the fastest pace in nearly four decades.
