Federal Reserve officials expect interest rates to begin to rise in 2023, ahead of schedule, ahead of new economic forecasts that predicted faster growth and significantly higher inflation this year.
At the end of its two-day political meeting on Wednesday, the U.S. central bank maintained its key interest rate in the range of 0 to 0.25 percent, where it has been since the pandemic began.
But in March, when most Fed officials announced that they would maintain at least current rates until 2024, the consensus was lowered earlier in 2023, restoring the central bank’s confidence to a faster transition to a full recovery and a tighter money. politics.
The Fed’s new set of economic forecasts shows that the median share of the federal open market commission this year is a 7% increase in gross domestic product, up from 6.5% in March, when the unemployment rate fell to 4.5%, according to its earlier forecasts. Headline inflation will be 3% this year, up from the expected 2.2 per cent in March, before falling to 2.1 per cent in 2022.
“Advances in vaccines have reduced the spread of Covid-19 in the United States,” the FOMC said. “Between this progress and strong policy support, indicators of economic activity and employment have been strengthened. Pandemic-affected sectors remain weak, but have shown improvement. ”
The FOMC held it on Wednesday stable asset purchases priced at $ 120 billion a month – another feature of a very loose monetary policy set to deal with the economic downturn of the pandemic. Officials are expected to conduct initial interviews on the timing and conditions of a move to begin reducing these bond purchases, but no changes have been made to the document.
The process of reducing the Fed’s debt purchases, known as “reduction,” could be discussed for months before the move is made. The Fed said the economy will have to make “significantly more progress” compared to last December to begin reducing the extra support it provides to the economy.
The Fed has stressed that the orientation of its monetary policy is not based on the calendar, it depends on economic outcomes. Specifically, he said that interest rates will only rise if the economy is in full employment at 2% inflation and that time will be on its way to exceed that level. However, although seven out of 18 FOMC members predicted a rise in the first interest rate in March 2023, 13 did so on Wednesday.
Since the last meeting of the FOMC in April, U.S. stock markets have merged, and borrowing costs have fallen from their last highs, allowing investors to keep their Fed stimulus and this year inflationary pressures they will be transient.