Hike rates

Fed to Tighten Credit and Raise Rates in 2022 | Manning River Time

The US Federal Reserve will accelerate the pace at which it withdraws support from the economy as inflation rises, and it plans to raise interest rates three times next year. In a dramatic shift in policy, the Fed announced on Wednesday that it would cut its monthly bond purchases to twice the previously announced rate, likely ending them altogether in March. The accelerated timeline puts the Fed on track to begin raising rates in the first half of next year. The Fed’s new forecast that it will raise its key short-term rate three times next year is up from a single rate hike it forecast in September. The Fed’s key rate, now pinned near zero, influences many consumer and business loans, including mortgages, credit cards and auto loans. These borrowing costs could start to rise in the coming months, although Fed actions may not always immediately affect other lending rates. Even if the central bank raised rates three times next year, it would still leave its benchmark rate at an all-time low of below 1%. The policy shift was signaled in testimony President Jerome Powell gave to Congress two weeks ago discussing the extraordinary support the Fed provided to the economy after the COVID-19 pandemic hit the US. last year. The change reflects Powell’s recognition that with rising inflationary pressures, the Fed needed to start tightening credit for consumers and businesses faster than he had thought a few weeks earlier. The Fed had previously called the spike in inflation essentially a “transitional” problem that would fade as the supply bottlenecks caused by the pandemic were resolved. The price spike persisted longer than the Fed expected and weighed heavily on consumers, especially low-income households and especially for daily necessities, and wiped out the higher wages many workers received. Powell acknowledged the possibility that inflation might not come down as expected next year. “There is now a real risk that inflation will be more persistent and that will put pressure on inflation expectations,” he said. “The risk of higher inflation taking root has increased. “Part of the reason for our decision today is to put ourselves in a position to deal with that risk.” As a result, the Fed is shifting its focus away from the reduction Unemployment, which quickly fell to 4.2%, from 4.8% at its last meeting, and towards containing the rise in prices.Consumer prices rose 6.8% in November compared to a year earlier, the government said last week, at the fastest pace in nearly four decades.On Wall Street, stock prices rose gradually, then surged after the release of the statement of the Fed, and Powell began to speak at a press conference.By the time Powell finished, the Dow Jones Industrial Average had jumped more than 300 points.The Fed’s policy change comes with risks. rising borrowing costs too quickly could stifle spending its consumers and businesses. This, in turn, would weaken the economy and, in all likelihood, increase unemployment. Yet, if the Fed waits too long to raise rates, inflation could spin out of control. It may then have to act aggressively to tighten credit and potentially trigger another recession. Officials said they expected inflation to cool by the second half of next year. Fuel prices have already peaked, supply chain bottlenecks are gradually easing and government stimulus payments, which helped spur a spending spike that boosted inflation, are not shouldn’t come back. Australian Associated Press