The Federal Reserve’s policymaking committee indicated Wednesday the Fed may start raising its benchmark interest rate at some point next year. The new projection is earlier than members of the Fed envisioned earlier this year.
In its updated quarterly projections, Fed officials now expect to raise the interest rate once in 2022, three times in 2023 and three times in 2024. The three increases projected for 2023 amount to one more than the Fed had projected in June.
That interest rate, which influences many consumer and business loans, has been pinned near zero since March 2020.
Meanwhile, Fed Chair Jerome Powell announced the Fed could start rolling back the support it put in place at the beginning of the pandemic as early as November. The video above shows Powell discussing the development.
“I think if the economy continues to progress broadly in line with expectations,” Powell said at a news conference, “I think we can easily move ahead at the next meeting”.
One of the markers the Fed is tracking is the job market. Powell said if the market maintains steady improvement, the Fed would likely begin tapering its monthly bond purchases. He said the interest rate hike would happen after the Fed stops buying bonds.
The Fed’s tapering of bond purchases and eventual interest rate hikes will mean that some borrowers will have to pay more for mortgages, credit cards and business loans.
Wednesday’s update from the Fed appears to be a sign the economy has sufficiently recovered from the pandemic. The U.S. economy has returned to its pre-pandemic size, and the unemployment rate has tumbled from 14.8 percent last spring to 5.2 percent now.
In fact, the economy has even recovered faster than many economists had expected. Inflation has surged due to resurgent consumer spending and disrupted supply chains. Consumer prices rose 3.6 percent in July compared to a year ago. That’s the sharpest year-to-year increase since 1991.
“As you can see, the inflation forecasts have moved up a bit in the out years,” Powell said. “That’s, I think, a reflection of the fact that the bottlenecks and shortages that we’re seeing in the economy have really not begun to abate in a meaningful way yet. So those seem to be going to be with us at least for a few more months and perhaps into next year or so.”
