Federal Reserve Updates
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A growing number of Federal Reserve officials are expecting interest rate hikes next year as the central bank prepares to withdraw its massive stimulus package as early as November.
At the end of the two-day meeting on Wednesday, the Federal Open Market Committee kept its main interest rate in the lower 0-0.25% range while preparing for a faster transition to policy tightening. monetary once interest rates are low. survey.
New projections suggest that at least one more interest rate hike is expected in 2023 than authorities anticipated predicted in June, bringing the total to at least three, a sign that the US economic recovery is progressing faster than expected. By early summer, most Fed officials were forecasting at least two interest rate hikes in 2023.
Fed officials were also split on the likelihood of an interest rate hike in 2022, with nine predicting a move by the end of next year and the remaining nine through 2023. In June, only seven officials have forecast a rate hike next year.
At least three more interest rate hikes are expected in 2024, according to projections.
The accelerated schedule of interest rate hikes was accompanied by explicit hints that the Fed will this year begin to cut back the $ 120 billion asset purchase program it introduced to support financial markets and l economy at the start of the pandemic.
The Fed has pledged to buy treasury bills and agency mortgage-backed securities at this rate until it sees “further substantial progress” towards inflation which averages 2 percent and maximum employment. On Wednesday, he acknowledged the progress made towards those goals.
“If progress continues overall as planned, the Committee considers that a moderation in the pace of asset purchases may soon be justified,” the Fed said in a statement.
The Fed’s new set of economic projections suggested higher than initially expected inflation in June, when the median FOMC participant saw the baseline measure at 3% in 2021 and 2.1% in 2022. Now those estimates rose to 3.7 percent and 2.3 percent, respectively. The unemployment rate is expected to stabilize at 4.8 cents this year, slightly above the June forecast, while gross domestic product growth is expected to slow.
Fed officials see the economy growing 5.9% this year, down from 7% in June, before falling back to 3.8% in 2022.
The Fed meeting comes at a delicate time for financial markets, which suffered the biggest sale in months this week amid concerns over potential contagion from the liquidity crunch crippling China’s Evergrande, the world’s most indebted developer.
Following the release of the Fed statement and the update of the dot plots, Treasury debt yields were generally lower. The benchmark 10-year yield, which tracks economic growth expectations, was 0.03 percentage point lower at 1.296 percent. Meanwhile, the two-year yield, which moves with interest rates, was roughly flat that day at 0.216 percent.
US stocks rose as the blue-chip S&P 500 index hit a session high, up 1.34%.
The dollar index, which weighs the greenback against a basket of six rival currencies, was down slightly.
Additional by Kate Duguid