© Reuters. FILE PHOTO: Federal Reserve Chairman Jerome Powell testifies during a hearing of the United States House Oversight and Reform Subcommittee on the coronavirus crisis, on Capitol Hill in Washington, US United, June 22, 2021. Graeme Jennings / Pool via REUTERS / File Photo
By Howard Schneider
WASHINGTON (Reuters) – The Federal Reserve on Wednesday paved the way for a “soon” cut to its monthly bond purchases and signaled that interest rate hikes could follow faster than expected, nine of the 18 policymakers in the US central bank forecasting that borrowing costs will have to rise in 2022.
The stocks, which were included in the Fed’s latest policy statement and separate economic projections, represent a hawkish trend from a central bank which sees inflation this year at 4.2%, more than double its target rate, and positions itself to act against it. .
The current target interest rate has been kept within a range of 0% to 0.25%.
While acknowledging that the new outbreak of the pandemic has slowed the recovery of parts of the economy, headline indicators “have continued to strengthen,” the Fed said in a unanimous statement.
If this progress continues “largely as expected, the Committee believes that a moderation in the pace of asset purchases may soon be warranted,” said the Fed.
The statement was expected to signal that the Fed would soon start cutting the $ 120 billion in monthly bond purchases it made to mitigate the economic impact of the coronavirus pandemic.
But it is in their broader economic outlook that Fed policymakers have made a less expected change.
The inflation outlook has jumped 0.8 percentage point for 2021 to 4.2% and the unemployment rate seen at the end of this year has risen. In turn, two officials moved ahead to 2022 on their planned timeline to slightly raise the Fed’s overnight benchmark interest rate from the current near zero level, enough to bring the median projection to 0.3%. for the next year.
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